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.
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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