Apple TV looks poised to make waves

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Apple only shipped its Apple TV set-top box last Tuesday, but one analyst already has it overtaking both Netflix and TiVo, and maybe even stealing market share from PlayStation, Wii and Xbox.

"While Apple bills this device as a large-screen accessory for viewing photos, videos and music that reside on Macs or PCs that have iTunes, we think the Apple TV is much more," ThinkEquity Partners analyst Jonathan Hoopes says.

The analyst looks at the new device as a sort of Trojan horse that can penetrate 10.7 million homes in the next five years, at the low end, or up to 30 million, at the high end.

Once inside those living rooms, Apple may transform the Apple TV into a DVR and movie-rental device that could seriously disrupt the businesses of TiVo and Netflix. And then Apple TV could become a video game console.

The analyst goes through some painstaking mathematics to figure that in the next five years, if Apple TV morphs into a DVR, it could have more subscribers than TiVo, which would add as much as $9.10 per share in value to Apple stock.

Likewise, if it becomes a VOD movie rental contraption that competes with Netflix's DVD-by-mail subscription service, it would be worth another $3.65 a share to Apple stock.

For the record, TiVo grew from 624,000 subscribers in 2002 to 4.4 million in 2006, a compound annual growth rate of 63%, though its stock trades at about the same price as it did in late 2002.

Netflix grew from 900,000 subs to 8.8 million during the same frame, a CAGR of 77%, but its stock has more than doubled since the company went public five years ago.

Going up against Sony, Microsoft and Nintendo in the video-game wars might be a little trickier than battling Netflix and TiVo, Hoopes suggests.

Though he does make note that Apple CEO Steve Jobs made Pixar a successful film studio: "While we acknowledge that making popular cartoon movies is not the same as making video games, we do see some links in terms of creativity and animation skills," the analyst says.

Hoopes estimates that Apple TV could add $5.3 billion to $11.4 billion in market cap to Apple, which he predicts will trade to $120 a share in the next 12 months. It closed Monday at $95.85.

But so far, investors don't seem to be buying the premise that Apple TV will be a behemoth competitor to TiVo and Netflix. Shares of each are up 7% and 9%, respectively, since Apple TV shipped a week ago.
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