Netflix, Apple, Disney: Who will you back in the battle of the streamers?

Netflix was once the king of streaming, but its dominance could be coming to an end. Competition has already been fierce thanks to Amazon Instant Video and Hulu, but the streaming market is about to get a lot more crowded.

NFLX has now turned negative on a year-to-date basis, with the stock feeling the pressure thanks to an uncertain outlook for the company. Both Apple and Disney are launching their streaming services this year and Netflix is sure to suffer as a result – especially as both drastically undercut its pricing.

Apple TV+ launches on November 1st and reportedly has a budget of $6 billion in order to help it get some of Hollywood’s biggest stars involved. Already on the starting line-up are Reese Witherspoon, Jennifer Aniston, Jason Momoa and Oprah.

Apple is offering a first-year subscription completely free with the purchase of any new Apple device – a great way to leverage its existing market even if they do already have other subscriptions.

However, it remains unclear whether Apple TV+ will also have a library of licensed shows and films alongside its own original content. Without this its offering could seem rather sparse at launch. The service will launch with nine shows and Apple plans to add another five over the next few months.

This lack of choice could see consumers treating Apple TV+ more as a supplement to Netflix – are many really going to cancel their subscriptions for the sake of nine shows?

Is Disney a bigger threat to Netflix than Apple?

While Apple has the capital to throw behind new content, Disney represents a more established threat. Its streaming service, Disney+ is set to launch with an extensive back catalogue of beloved classics. And that’s not to mention mega-franchises like Star Wars and the Marvel Cinematic Universe, as well as content from National Geographic. This is a much bigger blow to Netflix.

Like Netflix and Apple, Disney will also be investing heavily in new shows. In the first year the service will premiere over 25 original series, as well as 10 films.

In this respect, Apple seems like something of an outlier. It’s tiny library of original shows may attract Apple enthusiasts, and the small price tag might see it sit alongside consumer’s existing subscriptions. Given that a lot of consumers will be getting the first year free anyway, it will be a while before we know whether those initial subscribers translate to paying subscribers in twelve months’ time.

Apple could be hoping to use its TV+ offering as a way of ensuring brand loyalty. Amazon already does this with its Instant Video Service. It’s only a few pounds or dollars more each year to opt for the full Prime subscription, which also includes free delivery and music streaming.

Even if it is built to sit alongside its competitors, it still creates problems for Netflix. The last time the company raised prices it lost subscribers – with more alternatives out there Netflix will have to think twice before it ups its costs again. Just how loyal are Netflix customers: if the company raises its prices will they drop rivals to free up disposable income or just jump from the most expensive ship?

Iger: Apple and Disney might have merged if Jobs were still alive

As Apple stock nears its all-time highs, Disney CEO Bob Iger muses in an extract from his new autobiography that the two companies probably would have joined forces by now if the company’s founder Steve jobs were still alive. 

Bob Iger and Steve Jobs were good friends, having served on the boards of each other’s companies for many years. Jobs had been on Disney’s board since 2006 after the company acquired Pixar for $7.4 billion, while Iger has been a board member at Apple since 2011. 

Now, with both companies announcing competing streaming services, Iger has chosen to resign from the Apple board. He had warm words for Apple’s current CEO Tim Cook, his fellow board members, and the company as a whole. But his relationship with Apple could have been closer still, he believes. 

In his upcoming autobiography, an extract of which has been published in Vanity Fair, Iger says: 

“With every success the company has had since Steve’s death, there’s always a moment in the midst of my excitement when I think, I wish Steve could be here for this.” 

“It’s impossible not to have the conversation with him in my head that I wish I could be having in real life. More than that, I believe that if Steve were still alive, we would have combined our companies, or at least discussed the possibility very seriously.”

Appney? Disple? Could Apple and Disney really have merged? 

While Iger may have dreamed of a union between Apple and Disney, and many analysts speculated over the prospect, it’s highly unlikely that a deal of that sort could go through today. 

Even if Tim Cook likes what he reads in Iger’s autobiography, there would be a huge number of hurdles to overcome. 

Regulatory scrutiny, particularly over tech companies, has increased significantly in recent months. The Trump administration, although business friendly and borderline allergic to red tape, is currently in the midst of an antitrust probe into Apple, along with Google, Facebook and Amazon. 

Apple has a market capitalisation in excess of $1 trillion. Next to this Disney’s $246 billion market cap may seem quaint, but if Apple were to acquire it, it would be the biggest deal in history. It would have thrown up a huge number of issues at a time when the company is already being heavily scrutinised. 

But it’s a deal that would have made sense: Apple has recently announced its own streaming service, but the company has little experience in this realm. Disney’s resources, not to mention its extensive back catalogue of content, could have done a lot to help Apple+ take on Netflix. 

Instead, Disney and Apple are left with rival streaming services – Disney’s is $2 per month dearer than Apple’s, but promises to launch with some of the most loved and successful movies, TV shows, and franchises on the planet. Apple has the money to invest in its own great content, but in this respect it will be playing catch up to Netflix. 

So even though a merger with Apple may have been desirable, the future is looking pretty solid for Disney on its own. Apple+, on the other hand, remains unproven.

Apple earnings deliver

These were very good numbers from Apple with a beat on the top and bottom lines. Consumers are still extending the upgrade cycle and holding on to iPhones longer but stickyness in the Apple ecosystem remains strong.

Revenues rose 1% to $53.8bn, ahead of the $53.4bn expected. EPS was down 7% but at $2.18 ahead of the $2.10 expected.

Mac (+11%) and Wearables (+48%) offset to a degree the decline in iPhone sales. Outside of the iPhone Apple sales growth stood at a mighty 17%.

The 13% growth in Services sales is a disappointment, and represents another quarter of deceleration. However excluding a couple of one-off items the growth was more like 18%, according to Tim Cook.

The iPhone is still struggling with sales down 12%. The next refresh cycle may not offer much uplift though with 5G capability not expected until the 2020 round.

China was better thanks to a VAT cut but overall sales in Greater China were still down 22%.

Although Services revenue growth didn’t come through quite as anticipated this was nevertheless a very strong Q3 performance from Apple. Investors will be particularly impressed by robust Q4 guidance that’s ahead of the Street’s expectations. Revenues next quarter are seen between $61bn and $64bn versus expectations of $60.9bn.

Apple stock performance

Shares rallied through the important $211 level in after-hours trading. Heading into the open on Wall Street on Wednesday the stock seemed like it would open around $217. This marks a break past the big swing high from May.

Preview: Apple Q3 Earnings

Earnings season is in full swing and there’s a big name on the calendar this week.

Apple will announce its Q3 earnings after the market close on Tuesday, and it looks like it could be a mixed bag.

The tech giant saw revenue fall in the first two quarters of this fiscal year and a profits warning from Tim Cook at the start of the year. While guidance suggests that things are improving, this report could throw a few surprises our way.

“What we know: It’s tough in China, iPhone sales are not what they were, Services growth is strong,” said Neil Wilson, Chief Markets Analyst at MARKETS.COM.

“What we don’t know: if things have improved in China as was hinted at in the Q2 release and what the outlook for the rest of the year looks like. Q3 is always a bit dull, so as is often the case, the guidance for the rest of the year is key.”

The year so far

The Q2 report three months ago had its ups and downs, however Apple did report in-line earnings and upbeat guidance for the next quarter.

Guidance for the fiscal third quarter of $52.5bn-$54.5bn was particularly impressive, and well ahead of forecasts.

While Apple’s Q2 results overall were a boost to the tech sector, iPhone revenue came under pressure as it dropped 17% to $31.1 billion. Greater China sales were down 22% from the year previous, but the report hinted that things were improving, with sales picking up as the quarter progressed.

Overall revenues were down 5%, in line with consensus. EPS came in at $2.46.

Services revenues climbed to an all-time high of $11.45bn, up 16% from the year ago period, as the tech giant switches much of its attention (and investment) away from products towards services and software.

“Of course, this is very strong,” Wilson said. “But we did note at the time some mild concern that the growth rate is slowing from the fiery levels we saw last year when we got +30% prints.”

What to expect

This report will include earnings for Q3, but also the outlook for the upcoming two quarters. These will be interesting given the worries about the iPhone. Following the Q2 report, Tim Cook admitted that consumers were slower to upgrade to a new handset. This is likely to be further impacted by the guidance for the 5G refresh.

Apple’s recent acquisition of Intel’s smartphone modem business for $1bn suggests they are committed to making improvements that consumers want. However, 5G is not expected until 2020, so the iPhone 11 refresh due this autumn will likely only have small tweaks – something consumers are increasingly unwilling to give up their existing handset for.

It’s quite likely, therefore, that consumers will wait for the release of the 5G models next year, putting further pressure on iPhone sales.

In terms of what to expect about services, Wilson said: “Not only are we looking at the absolute growth rate here, but also the impact on margins for the company as a whole and the shift in the balance. Apple Services margins came in at 63.8% in Q2. For the group, management guided gross margin to be between 37% and 38%.

“However, Services makes up about 20% of Apple’s revenue, up from 16% a year before – at what point can Apple start to guide its margins higher? This could be an area for an upside surprise, if not now then perhaps heading into the year-end. A slowing in the Services growth rate from the 16% in Q2 would be a concern.”

We’ll also be on the lookout for data about the new services launched in March – News Plus, Apple Arcade, and Apple TV Plus. At the time, Cook was keen to stress that these new ventures are not hobbies and the tech firm had serious ambitions to succeed in these new markets. The Q3 report should provide some early indicators.

Finally, we’ll also be looking for any insight into how Apple thinks the ongoing trade war with China will pan out. Cook had been more positive in Q2, but the White House has insisted that there will be no tariff relief for Apple products made in China. And, the third quarter report could include scope for further acquisitions, if the recent Intel deal is anything to go by.

In terms of estimates, Wilson said: “Consensus estimates forecast revenues to remain flat year-on-year in Q3 at $53.4bn, with EPS seen at $2.10 against $2.34 a year before.”

A closer look at share price

The profits warning at the start of the year saw Apple shares take a hammering, but shares have rallied close to 50% since then.

“Breakout to $211 and beyond? Bulls looking for a break north of $211 but this could offer resistance. Sustained rally beyond $211 starts to bring all-time highs in view again. If there’s disappointment, the support trend line comes in around $185.”

Key financials

On our platform, you can see the key financials for Apple ahead of the earnings report.

Week Ahead: Fed set to cut rates

Forex
Week Ahead

Your essential guide to the week ahead 

The Federal Reserve is widely anticipated to cut interest rates this week, but there are still big unanswered questions that would help the markets understand the longer-term plan. 

1) Will the FOMC cut by 50bps or 25bps? Markets suggest a roughly 25% chance for a 50bps cut. 

2) Is this an insurance cut or the start of a sustained easing cycle? While Jerome Powell has signalled a cut in July, it’s lot less clear whether we should expect more cuts are we progress through the latter part of 2019. 

Apple earnings 

Earnings season continues and Apple is the main focus for traders this week.  

Analysts are broadly bullish on Apple ahead of the results – check the Analyst Recommendations tool in the platform for more information. 

Boris first week  

Britain’s new prime minister enjoys his first full week at the helm. The market will be wondering if there is any likelihood for changes to Brexit deals and deadlines based on his initial talks with the EU. Sterling pairs should remain on edge. 

Bank of England 

The Bank of England is still shackled by Brexit – and all the related uncertainty – but it increasingly seems to be moving with the rest of the world. Instead of the next move likely to be a hike, it looks much more likely the central bank is leaning towards cutting interest rates. We’ll find out more on Thursday at noon, UK time. 

Nonfarm payrolls 

Coming shortly after the Fed meeting these payroll numbers will be scrutinised as closely as ever. Job creation bounced back last month, dampening expectations for a 50bps cut – another strong print, combined with improving wage growth, may tell the market that the Fed is not under pressure to do any further easing

Corporate Diary

We’re in the thick of earnings season, so let’s look at the releases in the coming week:

29th JulyRyanair – Q1 2020 Earnings
After-Market30th JulyApple – Q3 Earnings
Pre-Market30th JulySamsung – Q2 Earnings
Pre-Market30th JulyPfizer Inc – Q2 Earnings
Pre-Market30th JulyProctor & Gamble – Q4 Earnings
Pre-Market30th JulySony – Q1 2020 Earnings
30th JulyBayer – Q2 Earnings
Pre-Market30th JulyBP Plc – Q2 Earnings
Pre-Market31st JulyGeneral Electric – Q2 Earnings
31st JulyAirbus SE – Q2 Earnings
After-Market31st JulyKraft-Heinz – Q2 Earnings
Pre-Market31st JulySpotify – Q2 Earnings
13.00 BST07.00 BST31st JulyFiat Chrysler – Q2 Earnings
31st JulyBAE Systems Plc – Q2 Earnings
Pre-Market 1st AugustShell Plc – Q2 Earnings
07.15 BST1st AugustRio Tinto – Q2 Earnings
Pre-Market1st AugustGeneral Motors – Q2 Earnings
1st AugustBMW AQ – Q2 Earnings
07.00 BST1st August Barclays Plc – Q2 Earnings
07.00 BST2nd AugustRoyal Bank of Scotland – Q2 Earnings
2nd AugustBerkshire Hathaway – Q2 Earnings
Pre-Market2nd AugustExxonMobil Corp – Q2 Earnings
2nd August BT Group Plc – Q1 202 Earnings
XRay

Coming up on XRay this week. Tune in Live or watch on catch up.

17.00 GMT29th JulyBlonde Markets
15.30 GMT30th JulyAsset of the Day: Bullion Billions
13.00 GMT31st JulyAsset of the Day: Indices
09.00 GMT1st AugustBank of England special
12.30 GMT2nd August Nonfarm Payrolls LIVE
Key Economic Events

Mark these events in your calendar this week:

Tentative30th JulyBank of Japan interest rate decision
01.30 GMT31st JulyAustralia CPI inflation
18.00 GMT31st JulyFOMC interest rate decision
01.45 GMT1st AugustChina Caixin manufacturing PMI
11.00 GMT1st AugustBank of England interest rate decision
14.00 GMT1st AugustUS ISM manufacturing PMI
01.30 GMT2nd AugustAustralia retail sales
12.30 GMT2nd AugustNonfarm payrolls

Apple earnings preview: eyes on services revs, margins and China

XRay

A whopper of a profits warning at the beginning of January has done nothing to dent Apple’s share price performance in 2019, which is +40% higher this year. So what happens now, with expectations reset lower? Here’s our quick take on what to expect as Apple reports its fiscal second quarter numbers after the close on Tuesday.

It’s all about the pivot away from iPhone unit sales to focus investor attention on Services revenues and the wider Apple ecosystem. Of course, iPhone unit sales won’t be reported. 

Q1 marked a 5% decline in revenues company wide as revenues from iPhone sales declined 15%. Total revenues from everything else plus services was up 19%.

Apple’s guidance

In its Q1 earnings update the company provided the following guidance for Q2: 

  • revenue between $55 billion and $59 billion 
  • gross margin between 37 percent and 38 percent 
  • operating expenses between $8.5 billion and $8.6 billion 
  • other income/(expense) of $300 million 
  • tax rate of approximately 17 percent 

Wall Street is anticipating EPS of $2.36 v $2.73 a year ago, whilst revenues are also seen declining from $61.1bn last year to $57.4bn.  

Dial back to the Jan warning from Tim Cook and it was China where the real trouble lay. We would expect some improvement here to be seen in this quarter’s numbers with demand for iPhones picking up again in the wake of price cuts. 

Services in focus

On Services, clearly the marked it eyeing another bumper jump in revenues, which were up 19.1% in the first quarter. But the impact on overall margins will also be important. The higher margins here should deliver ongoing support to group margins. For Q1, it reported Services margins of 62.8% against 58.3% in the year before.  

We’ll also be looking for anything relating to its suite of new products launched in March – credit card, streaming service, News+ and Arcade. Whilst only News+ was available after the launch event, we may get more of a feel of how these services will affect the bottom line – pricing will be of particular importance. Don’t hold out for much detail in the earnings report, although there could be something in the earnings call.  

Markets will also be eyeing capital returns. A year ago the company committed to $100 in buybacks and dividends over a two-year period. We may well Apple outline further capital returns via an increase in the dividend (10% is being talked about, against a 16% rise last year) and more buybacks. Even if the number are a touch soggy the prospect of more capital returns should keep investors on side. 

Average price target from the 36 analysts we track suggests a 3% downside to the current price at a little short of $200. Following a strong showing so far in 2019, Tuesday’s earnings may result in some changes to price targets on the upside. 

Key focus: Are Services revenues really going to continue to accelerate enough to offset the plateau in iPhone sales? Is there evidence of a bounce back in China?

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