Goldman Sachs’s 26% cut in Apple’s target price will lower the profit margin of the iPhone

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Sina Technologies News Beijing time September 15 noon news, Goldman Sachs sharply lowered the target price of Apple shares, it predicted that Apple shares will fall 26%. Why? Because Apple TV + is about to be tried out, the accounting methods adopted by Apple during the trial period will have a negative impact on profits.
Rod Hall, an analyst at Goldman Sachs, said in the report: “We believe that Apple will offer a discount of $60 for bundling hardware and services during the TV + 1-year trial period.”
“In fact, Apple’s accounting method essentially shifts revenue from hardware to services, although customers don’t feel like they’re paying for TV +. This does improve Apple’s service revenue, but it will put pressure on hardware ASP (average sales price) and profit margin during the peak sales season (such as the fiscal quarter of fiscal year 2020 ending in December).
After the report was released, Apple shares fell 2.6% in Friday local time trading. Goldman Sachs lowered its target price of Apple stock from $187 to $165 over the next 12 months and gave it a “neutral” rating.
In a statement, Apple responded: “We do not believe that the introduction of Apple TV + (including accounting and statistics methods for services) will have a significant impact on financial performance.”
After the announcement, Apple shares rebounded slightly, but closed down 1.9% at $218.75.
Note that Goldman Sachs does not mean that Apple’s accounting methods are inappropriate. It simply believes that Apple’s statistical methods will affect hardware margins.
How is it calculated? Hall cites an example: Users pay $1,000 for an iPhone 11 Pro (originally $999, for statistical convenience, Hall set the price at $1,000), Apple bundles sales, users can get an iPhone 11 Pro, and a year’s TV + service, worth $1,060; not all the $60 discount comes from T. V+, but shared by both.
By dividing $60 by $1060, the overall discount rate is 5.7%. After the apportionment, the equivalent price for the iPhone is $943.40, and the discount price for one year’s TV + service is $56.60.
Hall found that the average price of the iPhone was lower when bundled, and profit margins were also lower because costs were not affected by discounts. “According to our calculations, Apple’s use of this accounting method will have a negative impact of about 7% on ASP in the first quarter of fiscal 2020 and the whole fiscal year,” Hall said. (Xinghai)