Shares of Apple (AAPL) are on the rise after the company unveiled the new iPhone 11 series, the new Apple Watch and iPad, and gave an update on pricing for its upcoming online streaming service at its Special Event yesterday afternoon. Following the news, both Needham and Bank of America Merrill Lynch raised their price targets on the stock to $250, while Morgan Stanley highlighted that Apple's announcements offered "some upside surprises," including lower than expected TV+ pricing. Not as bullish, Credit Suisse analyst Matthew Cabral said the event featured only incremental iPhone enhancements and as a result the replacement cycle should continue to extend ahead of 5G coming in the second half of 2020.
APPLE SPECIAL EVENT: In Tuesday's Special Event, Apple announced that its original streaming service Apple TV+ will launch on November 1st and will cost $4.99 per month. The company will include a year-long subscription for free with a new Apple product or upgrade, including new iPads, iPhones and computers. The tech giant also announced an update for its budget iPad and the new seventh-generation model, with a 10.2 inches display size. The starting price was set at $329. Additionally, the company unveiled its Apple Watch Series 5, the first Apple Watch to support the always-on display function. The series 5 will cost $399 for the GPS model and $499 for the GPS + LTE model.
The most anticipated announcements were related to new iPhones. The iPhone 11, the successor to the iPhone XR, features a 6.1-inch LCD display and Apple’s new A13 Bionic processor and GPU. It will have a starting price of $699, cheaper than the XR, and comes with a dual-camera system. Apple also unveiled its iPhone 11 Pro and iPhone 11 Pro Max, each with a three-camera system, complete with a telephoto, ultra-wide and regular lenses. The 11 Pro has a 5.8-inch OLED screen and the Pro Max a 6.5-inch OLED display, with both featuring the new A13 Bionic processor and GPU. The Pro iPhones will be available in four colors and the will start at $999.
PRICE TARGETS UPPED: After Apple's Special Event announcement, Needham analyst Laura Martin raised her price target on the stock to $250 from $225 and reiterated a Strong Buy rating as she makes the case that the company continues its transition to becoming an "integrated content owner" with "captive hardware" by driving more revenue per member and extending the life-span in its iOS ecosystem. The analyst cited Apple's broader range of iPhone prices, monthly payment plans, along with value in bundling Arcade and Apple TV offerings. The tech giant is creating a content "price war" by pricing Apple TV+ at just $5 per month, which could pressure the likes of Netflix (NFLX), she contended.
Reiterating a Buy rating on Apple shares, Bank of America Merrill Lynch analyst Wamsi Mohan raised his price target to $250 from $240. In a research note to investors, Mohan said he views the lower price and extended range of pricing with a "very compelling" iPhone 8 starting price of $449 as means to drive higher unit share but also maintaining its lead at the very high end with attractive Pro models. Pricing for services was "even more compelling" for Arcade, he contended, adding that the near-term headwind to services margin should abate.
Meanwhile, Barclays analyst Tim Long raised his price target for Apple to $207 from $192, despite seeing "little surprises except for price points." The analyst acknowledged that lower average selling prices make sense as price elasticity has really kicked in for iPhones this year, but while these actions should help units, gross margins will come under more pressure. He kept an Equal Weight rating on shares of Apple.
TV+ PRICING SURPRISING: With expectations "low" into Apple's Special Event, Morgan Stanley analyst Katy Huberty argued that the announcements offered "some upside surprises," including lower than expected TV+ pricing, the "very significant" improvements in photo quality and battery life and the fact that Apple did not raise prices for comparable products following several years of price increases. Huberty called Apple a top pick heading into 2020, and said she sees a combination of revenue growth re-acceleration and multiple expansion driving shares higher. The analyst reiterated an Overweight rating and $247 price target on the shares.
Also commenting on the news, Bernstein analyst A.M. Sacconaghi, Jr. told investors he views Apple's decision to bundle a year of Apple TV+ with Apple hardware - and offer a low subscription price post-trial - as "extremely clever," as it will now potentially reach 200M-plus Apple customers in its first year of existence. Even if only a fraction of those customers converts to paid subscriptions after 12 months - which at only $5 per month increases the odds of conversion - Apple TV+ could accumulate tens of millions of paid subscriptions by the end of 2020 - potential making it larger than Disney+ (DIS), he contended.
Seeing the company's Apple TV+ pricing at $4.99 was the "most significant" of the announcements, DA Davidson analyst Tom Forte noted that he expects the competitive pressure on Roku (ROKU) from Apple's free 1-year SVOD service to be small, recommending that investors buy Roku on weakness. Additionally, Forte believes Apple has a high chance of exceeding its "very low expectations" for new iPhone sales because of the possibility of tariffs possibly raising prices on next year's devices. He reiterated a Buy rating and $270 price target on Apple's stock.
IPHONE LAUNCH 'MARGINALLY DISAPPOINTING': Not as bullish, Maxim analyst Nehal Chokshi lowered his price target for Apple to $204 from $211 saying the company's announcements of new iPhones and Watch models were all in-line with expectations. The analyst also stated that the Apple TV+ subscription terms were 2-times lowers than his estimate and should weigh on Apple's gross margins. Chokshi kept his Hold rating on Apple. Meanwhile, his peer at Nomura Instinet argued that the iPhone 11 series launch was "marginally disappointing even relative to low expectations." Analyst Jeffrey Kyaal noted that while investors may be tempted to look beyond the iPhone 11 cycle toward the more meaningful iPhone 12 upgrade, "pitfalls remain" in Apple's fiscal first quarter. He reiterated a Neutral rating and $185 price target on Apple shares.
Also keeping a Neutral rating and $209 price target on Apple’s stock, Credit Suisse's Cabral said that the company’s event featured only incremental iPhone enhancements and as a result, the replacement cycle should continue to extend ahead of 5G coming in the second half of 2020. Cabral expects the stock to remain range-bound near-term as another lackluster iPhone cycle and the ongoing overhang from the U.S./China trade dispute remain on the front burner.
PRICE ACTION: In morning trading, shares of Apple have gained almost 2% to $220.53.