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How Apple’s Streaming Service Could Affect Its Earnings

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Apple stock falls despite a jump in major indexes

Apple (AAPL) stock fell ~1.0% yesterday while broader markets rose after investors were underwhelmed by the iPhone maker’s keynote presentation on Monday. At its event, Apple revealed little about its streaming service, set to be launched this fall. The company also revealed Apple Arcade, a credit card, and a $9.99 per month news subscription set to give subscribers access to hundreds of magazines and newspapers.

These services will likely boost its service revenue in the long term. However, Apple is entering the video streaming space quite late, with Netflix (NFLX) and Hulu having already established themselves.

Apple will have to plow a lot of capital into its streaming service

While Apple’s financial strength is unparalleled, it may have to spend billions to have the kind of library required to compete with the likes of Netflix. With media giants such as Disney (DIS) and Comcast’s (CMCSA) NBCUniversal also launching video services, acquiring third-party content and talent could get more expensive.

Therefore, unlike Apple’s iPhone business, which generates huge cash flow, its video streaming business is likely to see negative cash flow for years before becoming a laudable service. As the graph above shows, Netflix has reported millions of dollars in negative free cash flow every year.

Apple’s streaming service launch also comes as viewers are becoming overwhelmed by the sheer number of services out there. Although Apple’s service could make a material difference to its bottom line, that change could take years.

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