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Apple and bearish analyst save over free Apple TV + sample

Apple and Wall Street have had a pretty good friendship over the years. The company was published on December 12, 1980, and the first offer created more millionaires than any stock exchange listing in US history. The company has always been covered by a large number of brokerage analysts, and Apple has normally kept away from forecasts and estimates produced by them. But Apple is now surrounded by a battle with one of Street's giant investment houses, Goldman Sachs.

According to Reuters, the hit started after Goldman's Rod Hall took a shot at the accounting methods Apple is going to use for its Apple TV + video streaming service. Because Apple is giving away a free year of Apple TV + to those buying a new iPhone model from 201[ads1]9, the company will report the lawsuit as a discounted service bundled with hardware purchases. According to Hall, this will lead to a decline in gross profit margins and profits from the iPhone since the cost of the trial period will be deducted from iPhone revenue; this revenue will be added to the service unit, to which TV + belongs. Hall says that the accounting move, which is neither inappropriate nor illegal, will cut fiscal revenue per share in the quarter by 16%. Since this quarter includes the three months from October to December, it is usually Apple's biggest quarter in terms of sales and profits.

Goldman analyst Hall says Apple's accounting for the free TV + trial will result in a "material adverse effect" on earnings that Apple denies

The analyst says that the accounting choice made by Apple will increase revenue to its service unit, as we just pointed out. He said: "Effectively, Apple's method of accounting is moving revenue from hardware to services, even if customers don't perceive themselves to pay for TV +." This is also important to Apple because it has had a long-standing goal of doubling revenue in the service unit from $ 25 billion it generated in 2016 to $ 50 billion next year. During the fiscal second quarter, the latest released by Apple, the service unit raised a record $ 11.5 billion. The addition of Apple Arcade and TV + could bring the company to its goal of $ 50 billion in service revenue next year.

Because Hall believes the free one-year trial of Apple TV + will have a "significant negative impact" on earnings, the analyst cut his 12-month target price on the stock to $ 165 from his previous $ 187 target. The brokerage firm has been looking for a decline in the shares, which closed at $ 218.75 on Friday after falling nearly 2% following the dissemination of Goldman's research report.

But Apple has agreed to contest Hall's analysis. In a statement, Apple says "We do not expect the introduction of Apple TV +, including accounting for the service, to have a material impact on our financial performance." Not only is it uncharacteristic for Apple to respond to a single broker report, but Goldman also happens to be Apple's partner on the recently launched Apple Card. In addition, the investment house earned a nice hefty fee by advising Apple on its $ 1 billion purchase of Intel's smartphone modem business in July. And over the past decade, no investment firm has issued more listed debt for Apple, and helped the company borrow $ 44 billion from the capital markets.

A so-called Chinese wall at investment firms is intended to separate the research arm from the fee-generating investment banking unit. This wall prevents Wall Street companies from issuing too many bullish reports on a company in the hope that they will earn some insurance business from the said company. But in this case, the wall worked as it should; The Goldman analyst released a bearish report on Apple that downplayed the value of the tech giant. Still, it wouldn't be illegal if Apple decided to give up its next insurance contract, say Morgan Stanley or Bank of America's Merrill Lynch unit because of this disagreement.

For those not buying a new iPhone, Apple TV + will cost $ 4.99 a month (with access for up to six people) after a one-month free trial. The service starts November 1st.

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