Apple’s (AAPL) upstart streaming video service Apple TV+ is losing money. Citing Bernstein analyst Toni Sacconaghi, Barron’s reports that the company could be losing between $1 billion and $2 billion a year on the service. However, despite the losses, Apple is unlikely to shut down the service as it is key to strengthening and broadening its ecosystem.
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Apple TV+ Investments
According to Sacconaghi, Apple TV+ has between 20 million and 40 million paying subscribers and generates between $1 billion and $2 billion in revenue annually. However, the unit’s revenue is quite low, considering the tech giant generates upwards of $400 billion annually. In addition, the service lags behind Netflix (NFLX), which boasts a subscription base of about 200 million people.
Despite the huge disparity, Apple is spending more than $3 billion a year on content to bolster the Apple TV+ library to try and attract more subscribers. The company has been betting big on new programming and sports broadcasting rights. It recently signed a 10-year deal to stream every Major League Soccer match starting next year. It has also begun broadcasting Major League Baseball games as it continues to build a portfolio of original shows.
Apple TV+ Prospects
Apple is betting big on original and high-quality content over quantity. Some notable shows include the movie CODA, which won the Oscar for Best Picture. The company now has about 673 hours of content, not counting sports. However, it still has a long way to go considering Netflix, Amazon (AMZN) Prime, and Paramount have 30,000 to 50,000 hours of content each.
While Apple seems to lag in the content streaming business, the tech giant is mostly focused on growing a large subscription/recurring revenue business. The company expects the Apple TV+ service to help draw in customers to other services the company offers. According to Sacconaghi, Apple TV+ could end up being a powerful part of bundled hardware and service programs to unlock more value.
Wall Street’s Take
Toni Sacconaghi has a Hold rating on the stock with a $170 price target, implying 20.01% upside potential from current levels.
Meanwhile, the Street is bullish about the stock, with a Strong Buy consensus rating, based on 21 Buys and six Holds. The average Apple price target of $185.34 implies 30.8% upside potential from current levels.
Bloggers’ Opinion
TipRanks data shows that financial bloggers’ opinions are 86% Bullish on AAPL, compared to a sector average of 65%.
Key Takeaway for Investors
Apple TV+ might be losing money, but Apple is focused on attracting more people to the ecosystem to sell them other services. In addition, the company investing big in original shows and content should lead to more subscribers, which is crucial to growing revenues.
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