Will Apple's Swoon Impact Streaming Media?
Its market cap has slid roughly $350 billion since becoming history's first $1 trillion company in early August.
Apple's big fall from grace on Thursday wiped about $70 billion off its market cap. That's more than the entire value of Sony, a company that includes a film and TV studio, PlayStation and myriad electronics products.
Apple's 10 percent swoon Thursday was due to a warning that sales of iPhones are weak in China, and its pronouncement triggered a general market sell-off, with the Dow Jones index off 660 while the Nasdaq plunged by 202.
But those in the entertainment industry searching for broader meaning may be out of luck, as Apple's $675 billion market cap still exceeds that of Comcast, Disney and Netflix, combined. The value of its stock, coupled with its war chest of some $237 billion in cash — a figure dwarfing that of every media and new-media company on the planet — ensures that Apple can still do just about anything it wants to do.
And that includes making itself a player in the streaming video space that is occupied by Netflix, Amazon, Hulu and, in the near future, Disney and AT&T's WarnerMedia, both of which will launch a subscription service this year.
Apple hasn't revealed its ultimate strategy for taking on Netflix and the others, but few on Wall Street doubt that Apple has something substantial up its sleeve. And even though its market cap has slid roughly $350 billion since becoming history's first $1 trillion company in early August, the fall will have "zero impact on its streaming plans," says Michael Pachter of Wedbush Securities.
If the company makes a little less on iPhones and its stock keeps sliding, it might simply purchase more of its own stock at a price it perceives as a bargain, some observers predict.
China box office (nearly $9 billion in 2018) aside, most media and new-media companies have small exposure to the country, so Apple's troubles there should not weigh down those sectors, nor should its troubles boost them, says Steven Birenberg, the founder of Northlake Capital Management.
Perhaps that's why it was business as usual for many entertainment stocks on Thursday, with CBS, Comcast, AMC Entertainment and others posting small gains as the indexes sold off considerably.
One caveat: Do Apple's woes signal a recession is coming, as some pundits are forecasting? If that's the case, then entertainment needs to batten down the hatches.
"If there is increased recession risk, traditional media will suffer given advertising exposure and discretionary spending exposure," says Birenberg. "New-media stocks will suffer because there will be a bear market and these are big companies that are highly valued."
Dan Ives of Wedbush called China's iPhones the "Achilles' heel" for Apple, as about 20 percent of all iPhones needing to be upgraded are in that region. He figures Apple's warning means that about 30 million iPhone users will forgo an upgrade in 2019. Apple, though, says it will not disclose unit sales when it reports its quarterly financial results on Jan. 29.
Ives says that the warning amounts to Apple's "darkest day" since co-founder Steve Jobs unveiled the iPhone 12 years ago this month, though he adds: "Going forward, this is an installed base story of 750 million active iPhones worldwide with 350 million of those in the current window of an upgrade opportunity over the next 12 to 18 months."
As for the streaming-video market, Birenberg says: "Apple would be a nice incremental buyer of content that could possibly be sold by some neutral players."
Viacom, Lionsgate and AMC Networks, for example, could all benefit should Apple enter the fray in a meaningful way. Heck, some are even predicting Apple purchases a Hollywood studio to take on Netflix, and nothing about its falling stock would prevent it from doing so.
"But there are plenty of content buyers out there for now until there is a major shakeout of streaming services that can't make money," says Birenberg.