A Goldman Sachs investment note argues that Apple has huge potential for generating more recurring revenue, suggesting an opportunity to generate an additional $7.6B a month, reports Business Insider. The company points to the rumored Apple TV subscription service as one future source of monthly revenue.
In a recurring revenue framework, we have constructed an average revenue per user (ARPU) metric that captures the installment plan pricing of the iPhone ($32/month), assumed installment plans for the other hardware products, and services (e.g. Music at $10/mo, TV at $40/mo) …
The company also forecasts 40% growth in iPhone sales over the next two years, bringing the installed base to 700M phones.
Although Apple has long offered some subscription services, including iCloud storage and iTunes Match, it is only this year that it has made a big push into monthly recurring fees through Apple Music and the iPhone Upgrade Program.
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If had a subscription service for iTunes Movies (I’d pay $20/month to watch any movie in the massive catalog that is iTunes), you could easily tack on another $10+ billion/year onto that ~$85 bill ($7.6 billion/month) valuation from subscriptions and payment plans. Although their current business model is, I’m sure, working just fine. Those people who aren’t renting or buying movies, is massive profit loss they easily be pulling in each month, I feel like. Of course, these are only MY thoughts rumbling around in my head. Would be awesome to have on TV, though
I agree. Plus any subscription would most likely have its availability built-in on Macs, iPads, iPhones, etc., and not just on the Apple TV, opening the potential market to anyone with any of those devices. That’s a huge potential market…
The problem is they won’t get a full collection of movie and TV titles. Do they have every new movie that comes out? NO. Only a small selection because they want to see DVD’s, BluRay discs which makes more $$. The music industry is slightly differently run than the movie and TV show industry primarily due to the limited aspects of movies and TVs and one’s viewing habits. One doesn’t watch the same show 100’s of times, whereas people listen to their favorite song many, many times. So, the film/TV industry tries to figure out what’s the best way to make the most $.
I think it would be great if they had a huge catalog of every movie/tv show, but they probably won’t.
If Apple were to earn an extra $7 billion per month from subscriptions, the analysts would complain that the iPhone then represents a smaller percentage of Apple’s earnings, so therefore the sky is falling and Apple is doomed.
How does Apple recognize revenue when one buys a phone on a payment plan? Do they recognize it as a sale of a product or services? They can’t recognize it as both. If they charge $32/mo maybe they recognize it as a sale, with so much in receivables until the unit is fully paid, but I doubt they recognize it as a “service” revenue rather than “product” revenue at the same time. Now, if a portion of the $32 applies to the purchase and there is a small amount that’s recognized as interest or a “service” for being able to upgrade, then that’s a different way to recognize the sale. One needs to get a detailed response from Apple directly as to how they are recognizing this monthly payment. Music is a service because you only get the right to listen for a month for a specific per month payment. Same as a TV service. I don’t disagree that Apple has the ability to increase their “services” revenue, but I don’t know how big it’s going to get vs how much they are predicting. Plus, we don’t know how “profitable” that “service” is. Apple has to pay licensing fees to whomever supplies the content.
now, here’s one reason why Netflix is profitable and Spotify, etc. aren’t. Netflix doesn’t pay a royalty per movie/TV show view, they pay a flat fee and get whatever content they get, whereas Spotify, etc. pay a royalty each time a song is played, so their costs are relative to how much one listens to music, vs Netflix, which has a more fixed costs and their revenue is based more on how many people they can sign up.
Only an extra $7.6 billion a month? Is that really enough for the greedy big investors? If Apple could double that amount maybe Apple wouldn’t be seen as doomed, but until it does, Apple is definitely doomed. Time to throw in a few channel checks with iPhone component suppliers. If component supplies have been cut by 1% it means Apple iPhone demand is going to be slowed by at least 10%. Apple has to sell at least 77 million iPhones this holiday quarter or the share price is going to drop based on Apple not making enough revenue gains in a quarter. Look out Apple shareholders. The sky is about to drop on you.