In a week that was otherwise light on market news, Apple (AAPL) lit a fire under large-cap tech stocks Tuesday with its livestream event. This is the annual ritual where Tim Cook dons the traditional dark sweater, gets onstage at the “Steve Jobs Theater,” and presents the new product lineup.
We saw the new hardware: the Apple Watch Series 5…the 7th generation iPad…and of course the iPhone 11, now with two or even three rear cameras!
But Apple also had a little surprise for its competitors in the streaming media market:
The new Apple TV+ will launch Nov. 1, two weeks before Disney+…and it will be quite affordable. At $4.99 per month, it’ll undercut everyone on price.
This was a direct shot at Netflix (NFLX), which starts at $8.99 per month these days, and The Walt Disney Co (DIS), which currently charges $5.99 per month for Hulu and will offer Disney+ for $6.99. (Or you can get it bundled with ESPN+ and Hulu Original for $12.99 per month.)
This is a pretty aggressive strategy to help Apple TV+ compete in a well-established space where Netflix (for example) already has over 150 million subscribers and nearly 1,800 TV shows and 4,000 movies.
Judging by the market reaction, Apple is a contender. On an otherwise flat trading day, AAPL shares gained 1.2%, while NFLX, DIS and especially Roku (ROKU) sold off hard. Below you can see how things played out after Apple’s livestream began at 1 p.m. EST:
Investors were perhaps wise to be selling DIS. Sure, sales are growing – and perhaps Disney+ preorders are helping, along with major moneymakers like “Avengers: Endgame.” But operating margins certainly aren’t. Disney’s earnings stats are dismal as well, with analysts revising their projections lower. Here is the full Report Card for DIS from my Portfolio Grader:
Netflix’s advantage over the likes of Disney is that (like Apple) it is an innovator. It totally disrupted its market with a game-changing product, and today it invests heavily in original content. Meanwhile, Walt Disney Pictures is just churning out remake after remake. At Accelerated Profits we went with NFLX and cashed out a 122% profit, regardless of Disney+.
The media market has become ultra-competitive, and the innovators will win out. Ultimately, as I’ve made clear in Growth Investor, we’re a consumer-driven economy – and today’s consumers want unique, high-quality content.
It’s telling that the reaction to Apple’s event had more to do with content services than hardware: The new iPhone with its slow-motion selfies (“slofies”) got little fanfare, and ROKU was outright rejected Tuesday.
Now, Roku still has the lead, similar to how Netflix got a big lead from being installed on new TVs. But I think Apple TV will succeed in capturing market share and take the #2 spot. Apple fanatics can now forego the Roku media player – but still get that same convenience: They can get a year of Apple TV+ for free by buying an Apple TV (or any other) device…and they can stream Apple TV+ on their phones.
In fact, Apple has been transitioning its focus from Products to Services for quite some time.
While iPhone is still its largest sales category, Apple’s Services segment contributes roughly twice as much as the wearables, the Macs and even the iPads. Naturally, Apple wants to keep that gravy train rolling by offering Apple TV+ to boost revenue further (and make earnings more predictable). Services is already what’s driving Apple’s revenue growth.
Even Apple’s latest major innovation – the Apple Watch – may soon become a vehicle for this trend…if Tuesday’s livestream is any indication.
The Other Key Takeaway from Apple’s Big Event
The hardware on the Apple Watch is pretty impressive. With last year’s Series 4, Apple added a heart sensor that lets you take your own electrocardiogram (ECG/EKG); the Apple Watch will automatically notify you if there’s anything unusual. Now with the Series 5, there’s an always-on display – which you can see from almost any angle – and a built-in compass. The Apple Watch can place an emergency call for you in 150 countries, now, too.
But most of the focus with the Apple Watch was on your quality of life. In this year’s livestream event, the presentation of the iPhone 11 was all about what it can do. But with the Apple Watch, it was what it can do for you.
Tim Cook kicked it off with testimonial videos: We heard from an elderly man whose Apple Watch automatically dialed 911 (and his wife) during a heart attack…plus stories from young parents, in which their EKG readings and the Watch’s baby-monitor app featured prominently.
In this shot from the presentation, you see it’s all about the apps as well:
Now that you can track just about anything for your health… what Apple is really selling you here is your own data.
From workouts to your sleep cycles, reproductive health, and even meditation, the amount of data these wearables can collect is staggering. And to fulfill their potential, the apps need “the mother of all technologies.”
Up until now, technologies have certainly made our lives easier and more efficient…but with a lot of room for human error. People trip over cords, spill their coffee, and get tired.
Artificial intelligence (A.I.) does not.
If A.I. sounds futuristic, well then, the future is already here. If you use apps like Netflix, TurboTax, QuickBooks, Zillow (Z), or even an email spam filter, then A.I. is already helping your day run more smoothly and efficiently. And as scientists find even more applications for artificial intelligence – from healthcare to retail to self-driving cars – it’s incredible to imagine how much data will be involved.
To create A.I. programs in the first place, tech companies must collect vast amounts of data on human decisions. Data is what powers every A.I. system.
So any one company that can help with customers’ data issues – is the one company that’s most worth investing in.
You don’t need to be an A.I. expert to take part. I’ll tell you everything you need to know, as well as my buy recommendation, in Growth Investor. My #1 stock for the A.I. trend is still under my buy limit price — so you’ll want to sign up now; that way, you can get in while you can still do so cheaply.