If the streaming video battle is about to heat up, Apple (AAPL) just fired the first shot.
Tim Cook’s company announced that its new streaming service, Apple TV+, will launch Nov. 1 at an introductory price of just $4.99 per month, about half (or less) the price of many of its rivals. Wall Street liked the news: Apple’s share price jumped more than 2% on Wednesday after the news came out, stretching to new 2019 highs.
Not coincidentally, shares of Netflix (NFLX), Walt Disney (DIS) and Amazon (AMZN) were all down in early trading (and as of this writing). The message is clear: In an increasingly crowded race for people’s entertainment attention and dollars, cheaper is better.
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Netflix stock, for example, is down 18% since Jan. 15 – the day it announced it was raising prices again, bumping a standard subscription to about $13 a month. Meanwhile, Disney plans to launch its new stand-alone streaming service, Disney Plus, Nov. 12 at just $6.99 a month (or $70 if you sign up for a year). Perhaps not coincidentally, Disney stock is up 26% this year due in part to anticipation of its new streaming service. (It can’t be for earnings, which were down 39% in the last quarter and are expected to be down 19% for the year.)
With so many streaming video options these days – Netflix, Hulu, Amazon Video and HBO Go are the biggest current players – it’s getting to a point where most people can’t afford to have them all. In my house, we have Netflix ($12.99 a month), HBO Go ($15/month), Amazon Video ($12.99/month) and Hulu ($11.99/month). That’s $53 a month, and that doesn’t include the requisite internet subscription you need to actually stream them all. Gulp.
There’s no way I’m adding Apple TV+ and Disney Plus without subtracting at least one of my existing services (Hulu, you’re on notice!). So the fact that I can get a subscription to both those new services for the same price as I pay for just Hulu is very appealing. And I know I’m not alone. Hence, the big run-up in Apple’s share price yesterday.
Apple’s Share Price Tethered to Streaming?
As for Apple as a whole, the latest jump only adds to what has been a very good bounce-back year for Apple stock. It’s up 42% year to date after a huge crash in the fourth quarter of 2018, and is within breathing distance of its all-time highs (227) from last August.
Even better, AAPL trades at just 18 times earnings, which means there should be more room to run – and is why it’s been a favorite of our value investing expert Crista Huff, chief analyst of Cabot Undervalued Stocks Advisor.
Most of the fervor for Apple TV Plus is likely baked into Apple’s share price cake at this point, especially now that the company has announced a subscription price. But fourth-quarter earnings should be very interesting, as they’ll be at least a partial window into the level of demand for Apple’s new streaming service. EPS estimates for the quarter (+7%) are fairly modest, so a big earnings beat could be in order in late January/early February.
We’ll see what happens to Apple’s share price between now and then. But with the stock trending well and still pretty cheap, I’d say it’s worth having in your portfolio.
For years, investors have been desperate for Apple to release something new, to become something more than just an iPhone-churning machine. A low-priced streaming service isn’t exactly a novel idea. But it could be just the thing to send Apple’s share price to new heights.
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!