Apple's media price hike drives positives for Spotify, Warner Music - analysts
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Spotify (NYSE:SPOT) and Warner Music (NASDAQ:WMG) are maintaining Tuesday gains in the wake of Apple's (NASDAQ:AAPL) move to raise prices on its streaming music and TV subscription services for the first time - leading Street analysts to see positive vibes for the industry ahead.
Apple (AAPL) is 1.2% higher in a broadly positive market Tuesday, while Spotify (SPOT) is up 2.8%, and Warner Music (WMG) is 4.5% higher.
Apple's move (boosting prices on its Services subs by some $1-$3 per month) marks the first time a major service provider other than Spotify has boosted prices across tiers and geographies, Morgan Stanley's Benjamin Swinburne says - and it's likely to encourage other service providers to flex their own pricing power, "potentially on a recurring basis."
"Over time these price increases, particularly in maturing markets like the U.S., support our industry-level growth expectations," Swinburne says. And the "biggest beneficiary of platform price hikes in the streaming music value chain are music labels."
"As such, these price increases support our expectation for streaming growth acceleration at Warner (WMG) in FY23, key to both earnings and multiple expansion from here," he said. Meanwhile, Apple's price points now rise above market leader Spotify (SPOT), "making it more likely that Spotify takes more price in the U.S., which would further drive streaming revenue." Swinburne has Overweight ratings on Warner Music and Spotify.
The price hikes highlight the success that is Apple TV+, Evercore ISI's Amit Daryanani says. The move could add $1.8B in annual services revenue, he figures. And while the Apple Music increase looks more like a pass-through of higher costs, "the TV+ increase appears to be a reflection of the services' success."
It adds to his conviction that Apple is working to create a best-in-class premium streaming service: "The increase follows similar moves by other streams and provides support that Apple is organically building the next HBO."
The price hike is also thoughtfully timed, Daryanani says, fresh off a new season of critically acclaimed Acapulco and expected new seasons of some of its biggest shows (Ted Lasso, Severance, Mythic Quest). He's maintaining an Outperform rating on Apple with a $190 target, implying 26% upside.
"Pricing needs to happen to drive growth" because the U.S. market is so penetrated, KeyBanc says, agreeing that the move is a positive for both Apple and Spotify: âApple can demonstrate pricing power to re-accelerate services revenue in 2023, and ... Spotify has yet untapped music pricing power."