Apple’s (AAPL) forays into entertainment services could provide a significant boost to the company’s sales and earnings in the next few years, a Wall Street analyst says.
The company’s Apple Music subscription service along with its original video content could be a “meaningful” driver of revenue and earnings per share over the next few years, RBC Capital Markets analyst Amit Daryanani said in a report issued Sunday.
The music and video offerings also would bolster Apple’s recurring revenue profile, he said. Media content will generate more revenue from Apple’s large installed base of iPhone and other device users, he argued.
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Original TV content has the potential to accelerate Apple Music’s paid subscriber growth to 100 million-plus users in the next three years, Daryanani said. He estimates that Apple now has about 40 million to 42 million paid music subscribers.
The combination of music and video could represent an annual run-rate business of about $10 billion to $12 billion in three years. At the same time, it could contribute 25 to 75 cents a share in earnings, he said.
Apple Original Video Plans
Apple has been adding original video content to its Apple Music service such as “Carpool Karaoke” and documentaries. It has been investing heavily in scripted content recently but hasn’t said if it intends to offer a separate video service like Netflix (NFLX).
Apple has set a budget of about $1 billion this fiscal year to procure and produce original content. It has signed recent content deals with Oprah Winfrey and Sesame Workshop.
Other key projects include a reboot of the Steven Spielberg anthology series “Amazing Stories.” There’s also a drama series from “La La Land” director Damien Chazelle. The company also plans a drama series starring Jennifer Aniston and Reese Witherspoon.
Daryanani reiterated his outperform rating and price target of 210 on Apple stock. Apple shares were down 0.9%, near 183.30, in premarket trading on the stock market today.