How Will Apple Price Increases Impact Earnings? 'Most Users Won't Think Twice'


Apple Inc AAPL has increased prices for several of its subscription products, and Loup Funds' Gene Munster expects the Cupertino-based company to benefit.

What Happened: Apple has increased the pricing of Apple One, Music and TV+ by an average of 16%.

Munster said he expects the price increases to add an additional $1 billion to Apple's net income over the next year if churn is less than 5%. The key assumption in the estimate is that 95% of current customers will retain their subscriptions.

"The bottom line: Apple subscription prices are going up and most users won't think twice about it given that Apple hardware locks in Apple subscription revenue," Munster wrote Tuesday in a note.

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Why It Matters: Munster now expects Apple to generate $420 billion in revenue in 2023, which implies the subscription price increases will result in a 0.4% bump in revenue next year. Current Street expectations are around $410 billion, he noted.

Overall services account for about 20% of Apple's sales. Within services, Munster believes Apple One, Music and TV+ account for about 20% of total revenue, while News+, Arcade and Fitness+ accounts for 5% of total revenue.

The Loup analyst anticipates that the Apple App Store will drive about 40% of services revenue, while Google Search, iTunes, Apple Pay and Apple Card are expected to drive the remaining 35%.

"The company implied that the updated pricing for Apple Music and TV+ are a result of an increase in licensing costs and a more extensive library," Munster said.

"As a result, I believe the incremental revenue will have a 60% profit margin which adds $1B annually to the company's bottom line."

Apple is scheduled to report its fiscal fourth-quarter financial results after the close on Thursday. The company is expected to report earnings of $1.26 per share on quarterly revenue of $88.74 billion, according to Benzinga Pro.

AAPL Price Action: Apple has a 52-week high of $182.94 and a 52-week low of $129.04.

The stock was up 1.57% at $151.80 Tuesday afternoon, according to Benzinga Pro.

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Posted In: Analyst ColorTechApple TVGene MunsterLupe Ventures
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