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Apple's service offerings underwhelm Wall Street

Apple Inc.'s lack of detail around its original content ambitions and new subscription services did not impress Wall Street analysts, who questioned whether the offerings would be enough to completely move the needle for the tech giant.

After weeks of hype and anticipation, the company on March 25 unveiled its first video streaming service known as Apple TV+, which features original programming from Oprah Winfrey, Steven Spielberg and Reese Witherspoon, among others. Meanwhile, Apple News+, a $9.99 monthly service, provides access to articles from magazines and newspapers. The iPhone-maker also tapped into gaming and financial services with Apple Arcade, its first game subscription service, and its first credit card backed by Goldman Sachs Group Inc.

However, Apple did not include pricing information for Apple TV+ and Apple Arcade, nor did it provide guidance around its content spending goals or any specific launch dates for the new products.

SNL ImageActresses Reese Witherspoon and Jennifer Aniston speak at Apple's annual
spring press event
Source: Associated Press

Apple's presentation failed to offer enough "depth" for investors to effectively gauge how successful each service will perform once on the market, J.P. Morgan analyst Samik Chatterjee said in a research note. Apple TV+, in particular, does not offer enough of a "value proposition" to persuade consumers to move away from larger, more established streaming players such as Amazon Prime Video, Netflix Inc. and Hulu LLC, the analyst said.

"Although Apple indicated it would disclose pricing for the TV+ video subscription later, we believe Apple might be challenged in monetizing its own original content with users, given its limited scope relative to large content providers," Chatterjee wrote.

Jefferies analyst Timothy O'Shea noted that Apple's new video streaming service will have "limited pricing power" given its small library of content compared to rivals, which could put pressure on the company's financials long term.

Apple's push into video, news, gaming and financial services indicates the company has "many irons in the fire," but these new categories will not likely "add noticeably" to Apple's services segment, Nomura Instinet analyst Jeffrey Kvaal said in a research report. "Falling [iPhone] unit volumes and slowing growth in its 900 million user base adds urgency to Apple's efforts to better monetize its existing base," Kvaal wrote.

The company said at the March 25 press event that its new content will focus on issues ranging from immigration to relationships in the workplace and early childhood education. For instance, Winfrey is set to release two documentaries: "Toxic Labor," which addresses workplace harassment, and an untitled multipart series focusing on mental health.

Apple's services business, which includes Apple Music, the App Store and the iCloud computing service, has seen an uptick in revenue growth over the past few quarters. During the quarter ended December 2018, services revenue reached $10.88 billion, up about 19% from $9.13 billion in the year-ago period.

While all of the newly announced services are an "interesting" strategy for Apple as the company looks to diversify beyond its core iPhones, they should not "materially impact" the company's profitability in the short term, according to Goldman Sachs analyst Rod Hall.

"With small calculated impacts from these 'Other services,' we expect the focus to return to the slowing iPhone business post this event," Hall wrote in a research note.