EFTA02624564.pdf

From: Richard Kahn Sent: Wednesday, September 5, 2018 12:30 PM To: Jeffrey E. Subject: Fwd: Apple, Inc.: The Emerging Power of Apple Services, Part 3: Video a New Growth Driver in 2019 Richard Kahn HBRK Associates Inc. Begin forwarded message: From: =/b>"Morgan Stanley" Subject: =/b>Apple, Inc.: The =merging Power of Apple Services, Part 3: Video a New Growth Driver in =019 Date: =/b>September 5, 2018 at 12:27:13 =M EDT To: =/b>< Reply-To: =/b> . <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/> Wealth =anagement <http://www.morganstanley.com/img/cs/spacer.gif> Apple, Inc.: The =merging Power of Apple Services, Part 3: Video a New Growth Driver in =019 <http://www.morganstanley.com/img/cs/spacer.gif> EFTA_R1_01835030 EFTA02624564 Katy L. Huberty, CFA— Morgan Stanley September 5, 2018 4:01 AM =MT Apple is spending $1B on original video content, with 24 new =hows and partnerships announced. Video adds 200bps annually to Services =evenue growth but is EBIT dilutive medium-term, accretive long-term. We =aise our PT to $245 to reflect recent Services peer multiple =xpansion. Apple original video content - coming to a =evice near you. In the last 12 months, it has been reported that Apple =igned on the likes of Steven Spielberg, Oprah Winfrey, and Sesame =orkshop, the non-profit responsible for creating Sesame Street, among =any other big names in Hollywood, to produce new and original content =or the iPhone maker. The Wall Street Journal has reported Apple is =pending up to $16 on these efforts in just 2018 alone. This marks a =eaningful acceleration in Apple's efforts to procure and produce video =ontent in direct competition with many established peers in the =raditional media and streaming video-on-demand markets. For example, we =stimate that more than 10 other media players will spend upwards of $18 =n video content in 2018, with companies like YouTube, Netflix, and NBC =niversal set to spend more than $7B each, implying Apple is entering a =ighly competitive market.Video as a $4B+ stand-alone business. Our =nalysis assumes Apple focuses on fewer, more targeted content than =ther video platforms that target a more complete replacement of cable =ubscriptions. On a stand-alone basis, we forecast that an Apple Video =treaming service with high quality but limited breadth could be priced =t the low end vs. competitors, or $7.99/month, and reach over 50M paid =ubscribers by 2025, compared to 124M at Netflix (current paid streaming =ubs) and Apple's >650M unit iPhone installed base. This would imply =hat stand-alone Apple Video can grow from a —$500M business in CY19 to = $4.48 business in just six years. Combined with Apple's stand-alone =creaming music business, which we project grows into an $188 revenue =enerator over the same time period (from roughl This alert is sent from: Andrew Atlas, You received this because =ou requested that you receive content and reports from: APPLE =NC. Please contact your FA if you want to unsubscribe from the =lerts. <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> Disclosures: Please see =he full report for risks, disclosures and other important =nformation. Important disclosures regarding the =elationship between the companies that are referenced in Morgan Stanley =esearch and Morgan Stanley Wealth Management research are available on =he Morgan Stanley Wealth Management disclosure website at https://www.morganstanley.com/online/researchdisclosures. 2 EFTA_R1_01835031 EFTA02624565 Morgan Stanley Wealth Management Not Acting as Municipal =dvisor Morgan Stanley Wealth Management is not acting as a municipal =dvisor to any municipal entity or obligated person within the meaning =f Section 158 of the Securities Exchange Act (the "Municipal Advisor =ule") and the opinions or views contained herein are not intended to =e, and do not constitute, advice within the meaning of the Municipal =dvisor Rule. Copyright The =opyright in materials provided by Morgan Stanley is owned by Morgan =tanley & Co. LLC. Morgan Stanley Wealth Management is the trade =ame of Morgan Stanley Smith Barney LLC, a registered broker-dealer in =he United States. © =018 Morgan Stanley Smith Barney LLC. Member SIPC. <http://www.morganstanley.com/imecs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> 3 EFTA_R1_01835032 EFTA02624566