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How Apple Stock Could Rise Following CODA’s Best Picture Win

Following the Academy Awards event, Apple TV+ can no longer be thought of as the underdog in streaming. Here’s how Apple stock could benefit.

Since its launch, in November 2019, Apple TV+ has been the target of skepticism. Could the Cupertino company run a market-leading video streaming service that successfully competes with the likes of Netflix  (NFLX) - Get Netflix Inc. Report and becomes a viable, profitable business?

Many investors and experts had been leaning towards “no”. But with CODA having won best picture in 2022, Apple has received a much-needed vote of confidence. Here’s how the Academy Awards could even help to push Apple stock  (AAPL) - Get Apple Inc. Report higher.

Figure 1: How Apple Stock Could Rise Following CODA’s Best Picture Win

Figure 1: How Apple Stock Could Rise Following CODA’s Best Picture Win

(Read more from the Apple Maven: Apple Stock Has Been Lifting The Entire Market)

Apple TV+ is on the map

Apple’s CODA was not the top contender to win the best picture award. According to data compiled by DraftKings  (DKNG) - Get DraftKings Inc. Report, 28% of the public had been betting on “The Power of the Dog” to take home the golden statue.

Therefore, the win for Apple TV+ came as a surprise to many. It could now help to increase the general public’s interest in the Cupertino company’s streaming service. For example, think of how Hamilton helped to boost Disney+ app downloads by over 70% during its launch weekend.

So far, an underdog

To be clear, the path forward for Apple TV+ will not be easy. Despite a recent pickup in market share, Apple’s service is still estimated to be only the sixth largest by number of subscribers, outshining Paramount+ by only a small margin.

It will be interesting to see how CODA may help Apple TV+ to close the gap to Hulu, the fifth most popular service in the video streaming world. I bet that CEO Tim Cook and team will comment about it on fiscal Q2 earnings day, in about five weeks.

The impact to Apple’s finances

Wedbush’s Dan Ives was quick to provide his take on the results of the 2022 Academy Awards. According to the analyst, CODA could help Apple TV+ in a couple of ways:

  1. by bringing in more and better Hollywood talent, and
  2. by accelerating subscriber growth.

Of course, this is a self-reinforcing trend. The better Apple’s content becomes, the easier it is for the service to attract new users, which in turn helps to finance more movies and shows.

The caveat here is that growth would likely come at a steep cost. Dan Ives estimates that Apple spends $7 billion per year on content development, and this figure should only rise as Apple TV+ gains prominence. For reference, Apple produced $93 billion in free cash last fiscal year.

Now, let’s do some math. Estimates on the number of Apple TV+ subscribers point at 40 million globally and less than 20 million in the US and Canada alone. It is hard to confirm whether these numbers are accurate, but let’s take them as a decent approximation.

The service costs roughly $5 per month to subscribers in the US, Canada and Europe. In developing markets, like Brazil and Mexico, the price is as low as $2 to $3 per month. So, Apple TV+ revenues are probably close to $2.2 billion per year today.

If Dan Ives is correct in his assessment that Apple spends $7 billion per year on content, it is easy to see how Apple TV+ has been a massive money loser for the company.

Could subscription growth help to turn Apple TV+ into a profitable service? Probably not, at least in the near future. More users would likely mean more content costs, as discussed above.

However, there is an indirect benefit to Apple’s ecosystem that should not be ignored. The increased popularity of Apple TV+ could lead to higher demand for the company’s other products and services. The impact to financial performance is harder to estimate in this case.

How Apple stock benefits

In the end, I suspect that CODA will not cause enough of a positive impact to Apple’s P&L and cash flow to justify much investor enthusiasm. But I think that the Academy Award win could help to validate Apple’s streaming efforts and improve sentiment around Apple stock.

For now, AAPL remains a resilient tech name. So far in 2022, shares have dipped a modest 2%. Meanwhile, the tech-rich Nasdaq index is still trying to climb out of correction territory, and is still down 10% YTD.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)