Needham analyst Laura Martin reiterated Buy on Apple IncAAPL with a $170 price target.
Martin reduced FY23 estimates for AAPL. The analyst now projects just 2% revenue growth and lower EPS Y/Y in FY23.
However, Martin believes these weak core fundamentals will accelerate the development of a CTV ad revenue stream for AAPL’s OTT streaming service called Apple+.
The analyst saw Apple+ set to gain from mobile advertising globally at $400 billion a year, and total digital advertising is $650 billion a year. Advertising typically has 70%+ gross profit margins.
Additionally, AAPL is putting high-quality content on its OTT service that no one is watching because its monthly price is too high. Adding an ad-driven tier is an easy way to lower the average monthly price for Apple+.
AAPL’s CTV ads sell at $30 per thousand impressions (the high end) due to its best-in-class demographics. Additionally, AMZN built a $30 billion advertising business over five years.
The analyst reduced estimates for 1Q23 and FY23 owing to weak macro global consumer demand trends, supply-chain shortages, and growing geopolitical pressures between the U.S. and China, which led to weak iPhone demand in China (about 20% of AAPL’s revenues historically) during FY23.
For 1Q23, Martin now estimates that AAPL will report revenue of $123.6 billion (flat Y/Y, and 4% below analyst’s previous estimate) and diluted EPS of $1.95 (down 7% Y/Y, and 8% below analyst’s previous estimate).
Martin estimates that Products revenue will be $102.9 billion (down 1% Y/Y and 4% below the analyst’s previous estimate), and Services will be at $20.7 billion (up 6% Y/Y and 4% below the analyst’s previous estimate).
Martin reduced estimates for FY23 for revenue of $403.1 billion (up 2%Y/Y and 2% below analyst’s previous estimate) and diluted EPS of $6.07 (down 1% Y/Y and 4% below analyst’s previous estimate).
Martin estimated FY24 revenue of $427 billion (up 6% Y/Y) and diluted EPS of $6.76 (up 11% Y/Y).
Price Action: AAPL shares traded lower by 3.53% at $130.71 on the last check Thursday.
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