Apple Inc launches a new line of business

Apple Inc launches a new line of business

US markets are closed today due to the public holiday in the United States, while the European markets are next to frozen, awaiting the Greek Referendum results this Sunday.

As not much of activity is going on right now, lets have a look at the famous stock of Apple Inc. (NASDAQ:AAPL), as the company has just launched a new line of business, its own music streaming service, Apple Music.

Apple Music is entering an already saturated and established market with multiple offerings. It is therefore challenging to pull people away from a streaming service where they have invested a lot of time to create their favourite playlists.

However, Apple’s competitive advantage is certainly the possibility to preload the software into all iPhones and iPads updated to iOS 8.4 operating system.

To penetrate into the market, this music streaming service with a curated playlist, Connect (social service for musicians and fans), and a 24/7 worldwide radio station (Beats 1) needs to offer attractive prices. The service will be available to Apple users in more than 115 countries around the world with monthly subscription charge of $9.99 for an individual account.

Apple is currently offering the service free of charge during the three-month trial period. In addition, users who do not have a subscription plan can use Beats 1 radio’s free version. Apple also has a “Family Sharing plan” that provides unlimited streaming for up to six people for a price of $11.99 per month. This plan is notably cheaper than family plans offered by the main competitors.

For instance, Spotify charges additional $4.99 to the monthly fees for every family member and that is added on top of the regular individual account cost amounting to $9.99. This means that a six-member family would need to pay roughly $35 per month.

Meanwhile, Rdio charges $17.99 for the first two users offering the same price as Spotify per additional user.

Senior Research Analyst Gene Munster underlined the importance of the music service to the iPhone experience. He added that the company could hope to sell more iPhones by offering a compelling music experience.

However, Mr. Munster believes that the music streaming service would not have a significant impact on Apple’s revenue. Namely, if Apple were to grow its subscriber base to reach 15 million as its key competitor Spotify, it would add only $1.8 billion to the yearly revenue. The figure represents less than 1% of the 2016 forecasted revenue.

According to a note released on Wednesday, Piper Jaffray & Co analysts share his view. They believe that Apple Music will certainly improve the experience of iPhone users but its contribution to the company overall revenue will be negligible.

It is worth noting that Apple Music will also be available on Windows and Android platforms. Even if this move of the tech giant is highly unlikely to boost revenues in the short run, it is perceived as an important strategic move from the long run perspective.

Of the 56 analysts at Bloomberg, 39 rate Apple stock a Buy, 15 rate it a Hold whereas only two favour a Sell. Although Apple stock closed 0.13% down at 126.44 on Thursday, this price represents a 0.81% increase with respect to the close price on June 30, the day when Apple Music was launched.