Apple Inc. (AAPL) - Get Report shares slipped on Friday after analysts at Goldman Sachs slashed their price target on the tech giant amid concerns that the free trial offered for is Apple TV+ offering will eat into its bottom line.
Goldman analyst Rod Hall, who carries a neutral rating on the stock, cut his price target on the group to $165 per share, from a prior level of $187, arguing the free trial period would "likely result in lower up front (average selling prices) and margins" and hurt the group's gross profit and earnings per share in the coming year.
"Effectively, Apple's method of accounting moves revenue from hardware to Services even though customers do not perceive themselves to be paying for TV+," Hall wrote. "Though this might appear convenient for Apple's services revenue line it is equally inconvenient for both apparent hardware ASPs and margins in high sales quarters like the upcoming FQ1'20 to December."
"We are modifying our model to account for this change but we currently assume this is an introductory offer that runs for just one year," he added. "Should it run longer our out year forecasts would also likely need to be adjusted in a similar way."
Apple, however, disputed that Apple TV+ would have any material impact on its financial results, telling CNBC on Friday afternoon in a statement that "We do not expect the introduction of Apple TV+, including the accounting treatment for the service, to have a material impact on our financial results."
Apple shares were down as much as 2.6% on Friday following publication of the Goldman note, but recovered slightly after the company released the statement to CNBC. They were lately down 1.8% to $219.20, leaving the stock with a year-to-date gain of around 40% and a market value of approximately $989 billion.
Apple said earlier this week that is Apple TV+ offering will be priced at $4.99 after a one-month free trial, but noted that buyers of new Apple hardware would be offered the service free for up to one year.
Hall has previously noted that the "longer trial period equates to an even smaller likely earning contribution than the 0.4% we currently calculate in fiscal year 2020", adding that the "combination of a lower base model iPhone price and the dual camera system as likely to drive even more unit volume out of the higher priced Pro lineup".
Apple released three new versions of its iconic smartphone yesterday during its typically glamorous event broadcast from the Steve Jobs Theater on the company's sprawling Cupertino, California campus Tuesday, marking the 11th upgrade of its top-selling product.
However, the benchmark iPhone 11 version was priced just under $700, a $50 discount to the current iPhone XR, and pricing for older adaptations of the phone will either be held in check or modestly reduced in order to spur demand as customers continue to extend the life of their current handsets.
Apple also indicated a drive towards more competitive pricing with a $4.99 base cost for its Apple TV+ streaming service, a similar tag for its gaming offering -- Apple Arcade -- and a reduced $199 price for its retained AppleWatch 3, announced alongside a new fifth generation offered unveiled by CEO Tim Cook.