Daily Management Review

Morgan Stanley: Apple shares will grow by 27%


Morgan Stanley analyst Katy Huberty believes that during 2019, the quotes of the American consumer electronics manufacturer will jump another 27%.

According to the expert, new services should become the main driver for Apple’s upswing, including a video service, which is expected to be launched in spring 2019. Insiders say that the company has already informed its content partners their content will be ready by mid-April. The service will include content from Apple, as well as allow subscribing to third-party streaming services, for example, buying a subscription to HBO Now, without switching to the HBO application.

Apple plans to launch streaming video service based on its Apple TV app for the iPhone, iPad and Apple TV consoles. The company was discussing its launch with several content providers. Now Apple TV app allows searching for shows, for example, from ABC or HBO inside the service, but redirects users to third-party applications to pay for a subscription and watch them. According to sources, in order to compete with Amazon Prime Video and others, the company will launch its video service.

The Morgan Stanley analyst expects Apple to sell some services as part of a package tariff, including a fee for accessing the future video portal, Apple Music and the news application Texture. Such a product will annually add 2 percentage points to the growth of the corporation's service revenue until 2025, the expert believes.

In addition, the company can expand its advertising and payment business, she added.

Investment bank Morgan Stanley set the target value of Apple shares in the 12-month term at $ 211, which is 27% more than at the close of the stock exchange on Friday. "The replacement cycles for the iPhone have now reached the level of readiness, which gives hope for the stabilization of growth next year. Executive comments on improving demand in January are also encouraging," Huberty said.

Last week (January 28 - February 3), Apple shares rose by 7% thanks to the publication of financial results above market expectations. The company reported better than Wall Street expected, although it would be more accurate to say that analysts assumed a more negative scenario for the tech giant.

There are reasons for this: since the end of last year, rumors began to appear that sales of new iPhone models are not as good as Apple had expected. A recent financial report confirmed this: revenues from sales of iPhones decreased by 15% compared with a year earlier, and quarterly revenue amounted to $ 84.3 billion, which is 5% less compared to a year earlier.

Apple predicted that in the first quarter of the 2019 fiscal year, which will end in December, sales will be from $ 89 billion to $ 93 billion. This estimate was lower than analysts' forecasts. In January 2019, Apple lowered its revenue forecast to $ 84 billion on the back of weak iPhone sales in China. Because of this, the company's shares fell by 9% to $ 143 per share, but by the end of January rose again: before the publication of the statements on January 29, 2019, the shares were worth $ 156 per share.

The company's sales fell in Europe ($ 20.4 billion instead of $ 21 billion a year earlier), Japan (from $ 7.2 billion to $ 6.9 billion), but most of all in China. During the reporting period, Apple's revenue in the largest Asian market fell by almost 27% from $ 17.9 billion to $ 13.1 billion. In the same period a year earlier, the corporation sold goods and services in China for $ 18 billion.

However, analysts are looking forward to the Apple service business. In the past financial quarter, the profitability of services for the first time in history reached $ 10.9 billion, which is 19% more compared to a year earlier. Other product categories, Mac computers, wearables and home devices, as well as accessories showed an increase of 9% and 33%, respectively, and the profitability of iPad sales grew by 17%.

source: appleinsider.com