Morgan Stanley Says Apple Inc. (AAPL)’s Subscription TV Can Make Services Top 20% Of Earnings

Apple Inc. (NASDAQ:AAPL)’s earnings derived from its services business may soon increase if the company goes ahead with the release of its rumored subscription TV service, Morgan Stanley said in a note released this week.

According to a report from Apple Insider, a note penned by analyst Katy Huberty of which a copy was given to the publication indicated that Morgan Stanley believes that Apple Inc. (NASDAQ:AAPL) is on the verge of launch a new subscription TV service.

Among the signs Huberty noted that pointed to the release of such a service is Apple Inc. (NASDAQ:AAPL)’s price cut for the Apple TV device which is now just $69. Furthermore, the iPhone maker also announced a deal with HBO as the exclusive launch partner for HBO Now.

According to Apple Insider, if Apple Inc. (NASDAQ:AAPL) releases a subscription TV service, the company can potentially add 15 million subscribers in the U.S. alone, comprising 8% of the company’s install base. For that many new subscribers and assuming a 30% operating margin, the new service will add about 2% to the company’s revenue, Huberty said in the note according to the publication.

Furthermore, the analyst believes that the TV service coupled with the iTunes Store, App Store, Apple Pay, and Beats Music will boost the services group of the company to account for 20 percent or more of the tech giant’s total earnings “in the next few years.”

Partly because of this, Huberty believes the stock should be trading at 18 to 19 times earnings multiple.

Daniel Benton’s Andor Capital Management increased its Apple Inc. (NASDAQ:AAPL) stake 10% quarter over quarter by the end of the December quarter to 3 million shares.

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