We believe there is significant opportunity cost to Apple TV+. Admittedly it is difficult to quantify. Apple is transitioning from a transaction revenue model (iPhone and related device sales) to a hybrid revenue model as services such as Apple TV+ introduce a recurring revenue element. We like recurring revenue. By definition recurring revenue is predictable to a degree, certainly more predictable than one-time hardware sales. Yet there is nothing uniquely “Apple” about Apple TV+. Unlike the iPhone and other Apple devices which share a certain design aesthetic, Apple TV+ does not enjoy differentiated attributes that would provide a sustainable competitive advantage. Nothing about Apple TV+ suggests that it will enable Apple to redefine the industry. Here are three options that we prefer to Apple TV+ in its current form – in no particular order – none of which are mutually exclusive:
1.) Go Big or Go Home: Acquire Disney (tkr: DIS), which would enable Apple to leverage a unique portfolio of popular content IP including legacy Disney animation, Pixar, lucasfilm/Star Wars, Marvel and Fox.
2.) AR/VR: Invest heavily in augmented reality and virtual reality to create new forms of entertainment as well as productivity applications. We include gaming in this bucket (Apple Arcade).
3.) Healthcare: minimize the investment in entertainment content and instead focus on Healthcare. Apple has invested in Healthcare. The problem is nobody knows it. Apple is uniquely positioned to deliver a one-of-a-kind personalized health experience including portable electronic medical records. An acquisition by Apple of Cerner (tkr: CERN) or Epic (private), to accelerate electronic medical record innovation would be welcome news.