Analysts Have Mixed Views On Apple Card, Subscription Services

Apple Card

That Apple events are tightly produced headline magnets is nothing new.

Almost twelve years out from the launch of the iPhone announcement and about 20 years since legendary showman CEO Steve Job first introduced the world to the phrase “just one more thing,” Apple watchers have long since come to expect a show when Apple wants to introduce the world to something new and exciting.

In the context of a normal corporate event, seeing Oprah, Steven Spielberg, Jennifer Anniston and Reese Witherspoon making an appearance would be extraordinary news.  At an Apple device event, seeing all four hanging around the Steve Jobs auditorium is perhaps not quite par for the course — but it’s far from extraordinary, or even really all that surprising.

Except of course, there’s just one more thing, and it is what makes yesterday’s event rather noteworthy.  Yesterday’s event had nothing to do with devices, at the same time it had everything to do with devices — Apple’s of course.

As CEO Tim Cook made clear when he hit the stage, Monday’s event was all about the Apple ecosystem and the enhanced line-up of services it will be offering to keep the world’s 1.4 billion apple device owners inside of it.

Highlights of the afternoon that got the most attention were the Apple TV Plus video streaming service. Hype was big, details were sparse — original programs are in development, and shows from networks like HBO, Showtime and CBS will be on offer. Netflix and Amazon most definitely will not.  No price was given.

Also announced without much in the way of pricing detail was Apple new Apple Arcade feature. That was described by Apple as an extension of the App Store that will split off premium paid games from the free into the new subscription gaming service. Note that this isn’t game streaming — it’s an all-you-can-eat subscription service launching with over 100 games.

More color was also added to the previously announced Apple News Plus, which was described as the “Netflix of news.” Well, more likely the Flipboard of news. That subscription will cost $9.99 a month and will give subscribers access to 300 magazines as well as articles from newspapers including The Los Angeles Times and The Wall Street Journal.  Thus far neither The New York Times nor The Washington Post have been persuaded to join up.

For payments peeps, the day’s highlight event was the announcement of the coming Apple credit card.  Released through Apple Pay, the coming card will allow customers to apply for and be approved via Apple Wallet.  The card, upon approval, will available for immediate use via Apple Wallet — a digital card issued. The card is stored in the company’s Wallet application, and can keep users informed of transactions and minimum payments due, while helping them track spending habits. The card will offer daily cash rewards of 3 percent on purchases made directly with Apple, 2 percent on purchases made with Apple Pay and 1 percent on purchases made on the card.  Consumers can request a physical card to use at locations that do not accept Apple Pay. That card will come with no card number or expiration date on it.

What wasn’t said at the time, but later discovered, is that Apple will now only support P2P payments using that card and has added an instant transfer feature that lets users transfer money from Apple Pay Cash to a debit card for a 1 percent fee.

It is a lot to take in, but 24 hours out a lot of digesting has gone on.  So what did the people think?

Well, the opinions were fairly mixed.

Powerful Potential…

A common theme in the reviews that came in from media, analysts and pundits yesterday was that everything the saw could potentially be quite powerful.

As Slate writer Will Oremus  pointed out, Apple has likely found the right niche in terms of trend lines and consumer spend. Devices — after a powerful 12 year run — aren’t going to ever be the revenue powerhouse they once were, and so Apple is smart to find new territory.

“It’s setting itself up as the middleman between its users and TV, gaming, the news, and whatever else it might think of next. And while that might sound like a losing proposition for both content creators and consumers, there are reasons to believe it might work.”

Consumers, he noted, are already paying for a lot of these services, and if Apple can package and price them in a tempting light, it might be onto something.  But, of course, it has to price them right and package them right — and do it in a high-competition environment where they are a late entrant, not an early innovator.

CNBC’s Jim Cramer was similarly enthused, praising the releases as focused on the need of the majority of consumers.

“These are all services for the 99 percent of America, not the 1 percent,” Cramer noted.

Gene Munster, long time Apple analyst and founder of the Loup Venture Capital group, was also positive on the day’s announcement, noting that Apple’s past track record of taking items and improving and innovating on our day-to-day interactions with them is going to be telling.  He predicts that it will ultimately build both a higher share price for Apple, and a business worth $15 billion.

“That gets lost in the conversation today — these subtle little approaches that Apple does to make our lives just a little bit better. And I think that ultimately is going to yield a higher share price,” Munster said on “Fast Money.”

However, while Munster affirmed his high levels of confidence in Apple’s ability to roll out with a competitive high quality-offering, others seemed less sure.

Notably, Wall Street investors.

…  Lots Of Questions

Judging by the 1.2 percent hit Apple’s stock price took after the event, it seem evident that investors weren’t quite as wowed by the rollout of new services as Apple might have hoped. Jim Cramer chalked that up to the new offerings being “pedestrian,” normal people pleasers instead of higher flash offerings.

“In the end, today was ‘Apple Day’ and as much as I like all the bells and whistles, I know the Wall Street jackals were not appeased,” he said. “They wanted a game-changer that cost a fortune, not a bunch of pedestrian incremental improvements. I think they’re wrong, which is why I continue to say you need to own Apple, not trade it.”

The jackals, apparently, were more appeased by day two, as Apple’s stock price had climbed 1.65 percent in overnight trading.

But there were still some strongly lingering doubts.  Many analysts agreed with a note out from JPMorgan that while there were interesting offerings in the mix, there wasn’t enough detail on offer about pricing or programming to help them really evaluate it.

“The announcements offered more breadth than investors expected, but at the same time failed to offer the same depth that investors would have liked to see to position each category for success,” the note said.

The lack of transparency on pricing, The Washington Post’s  Geoffrey A. Fowler  noted, also makes it hard to evaluate how competitive these offerings actually will be to consumers.  There is an underlying assumption that Apple’s bundling offers will save consumers money — but that is far from guaranteed.

“Savings is the No. 1 benefit we get from Apple’s arch-rival Amazon, with a $120 annual Prime membership that packages free shipping, TV shows, music, online storage and other goodies. Yet Apple was short on details about how it might sell its new services together — or, all told, how they would impact your bottom line.”

And while lack of detail was a leading complaint, it wasn’t the only one.

The new card product also took a some tough reviews.  Lifehacker more or less wrote it off as “an average rewards card.”  Goldman Sachs research analysts were even tougher in their review of the credit card their bank is offering jointly with Apple. The problem, according to the analysts, is Apple Pay, which is still so limited in use that most users aren’t going to really tap into much in the way of value with the card.

“Even though Apple Pay is becoming more available, we would still expect a large percentage of transactions to be done at the 1% return level (using the physical card), so we would expect the typical consumer to perceive the cash return rate to be OK but not great,” the analysts wrote.

JPMorgan, interestingly, was more bullish on the coming Apple card.

“Apple Card offers several customer benefits that might trigger significant adoption,” the note said.

The coming streaming service also took some tough reviews, given how late it is to the game, and how crowded the streaming field is becoming.

“We see limited pricing power given the small content library at launch, and if Apple is playing the long game here, it could pressure financials for years,” Jefferies wrote in a Tuesday note.

Morgan Stanley was more positive, though it too bemoaned the lack of specific data.

Nonetheless, they wrote “the most important takeaway…is the breadth of content partners that have signed up to work with Apple across news, gaming, and TV.”

The obvious takeaway thus far is that there is not an obvious takeaway, simply because too many known unknowns are still floating around out there.  There are a lot of ideas, and certainly a lot of analysts seeing a lot of potential for Apple’s post iPhone-dominated future — but of course, as in all things, it comes does to how well they are actually executed.

We’ll keep you updated as details emerge.