CEO Tim Cook took the stage at Steve Jobs Theater in Cupertino, California. During the last week, the effort could not have been higher. Investors, consumers and journalists were waiting for evidence that Apple's transformation into a service sector was finally on track.
So did Apple succeed (ticker: AAPL)? Not exactly. Cook, who recently embraced Tim Apple's monics, sounded more like Timid Apple as he unveiled a vague line of streaming TV shows along with new news, credit card and gaming efforts.
Apple's reassurance is a problem because the excitement of the new service's strategy is what has driven a 30% rally in its shares since January of January.
With Wall Street forecasting a double-digit percentage drop in iPhone device sales this year, Apple has made a concerted effort to emphasize its service history. In January, the company announced that it had 900 million active iPhones and 1.4 billion active devices. The information was aimed at getting investors to focus on Apple's enormous and still untapped earnings potential.
But on Monday, Apple revealed a series of step-by-step services that even disappointed appealing fans.
"This is one of Apple's weaker events from a presentation and narrative perspective." ARK Invest analyst James Wang, whose company manages $ 6 billion and owns Apple shares, told me in a telephone interview Tuesday. "None of these services are supercomplete and differentiated from competitors."
Perhaps the biggest dimming was the small scale and vague details of the Apple TV + video subscription. Apple welcomed a parade of celebrities to the scene, but it had little content to show and there was no price attached to the service.
Goldman Sachs analyst Rod Hall seemed confused about the lack of progress and the overall schedule of the event.
"Apple's services revealed was significantly different than we had expected," he wrote in a note Monday. "We were surprised that Apple announced the launch of a video service in the fall, rather than earlier, with no price information provided at the event."
Apple has already spent more than $ 1 billion, reported the New York Times and is likely to have about a dozen shows ready to stream at the end of the year. With other estimates of only up to $ 2 billion. In total content costs, Apple is not in the same universe as the market leader
(NFLX). Bank of America Merrill Lynch estimates that Netflix's total content bill can reach $ 15 billion this year, and Netflix's website includes more than 900 original shows.
It forces the question – what is Apple afraid of? Slowly and cautiously, the needle cannot be moved to a 900 billion. With $ 130 billion in net cash (cash less debt) on its balance and annual earnings of $ 50 billion, Apple has huge financial resources to compete.
Apple did not respond to a request for comment on its content costs or questions about the size of its investments.
Apple's hesitation was also revealed with its new game initiative, Apple Arcade. The subscription service will provide access to around 100 games, which are mainly smaller budget, artsy and independently oriented. The main idea is that the platform will offer all-you-can-eat games, unlike the now popular i-game transaction model.
"Apple Arcade is likely to be a niche service," said gaming industry analyst Serkan Toto of Kantan Games. "On smart devices it's free to play and will be king." Apple Arcade, he says, "is mostly just a new take on cure and pricing."
Perhaps the switch to software and services was judged from the start, based on core competencies.
"In essence, Apple is an experience company provided by hardware, operating systems and enabling ecosystems, not services," says Patrick Moorhead, chief analyst at Moor Insights & Strategy.
Apple's modest movement in gaming came just a week after
(GOOGL) Google device went big and revealed an ambitious cloud-based gaming service.
Apple also operates back in bank and television. It trumped a branded credit card that most consumer-oriented companies already have and Apple TV channels that allow users to subscribe to third-party streaming services such as HBO in their app. This feature is basically similar to what Amazon Prime video has done since 2015.
Most importantly, Apple's recently announced services won't add significantly to its profits, Goldman's Hall says.
"Although all these services are interesting from a platform churn point of view, no one seems likely in our calculations to significantly affect earnings per share in the short term," he wrote.
ARK Invest's Wang is concerned that Apple in its attempt to appease Wall Street may have sacrificed its identity. "On the one hand, I see them trying to really satisfy Wall Street and demonstrate the financial model, and on the other hand, I'm worried that they are losing their core DNA, which is building good products that don't exist – To create markets rather than compete in markets, "he says.
Last week, this column suggested that Apple investors might have some profits due to the high hopes for service turnaround. The special event turned out to be more disappointing than expected. Apple shares closed last week 1%, although the S&P 500 index rose more than 1%. The risk now – as investors return to Apple's falling iPhone business – is that all 2019 wins could fade away.
Write to Tae Kim at firstname.lastname@example.org