Apple (AAPL) Streaming Music Service 'Tip of the Iceberg', FBR Capital Says

FBR Capital analyst Daniel Ives weighed in on Apple (NASDAQ: AAPL) ahead of tomorrow's launch of its much anticipated streaming music service Apple Music.

"Integrating the $3 billion Beats acquisition, consumers will ultimately be able to purchase this service at $9.99/month or $14.99/month as a family plan and access over 30 million songs," Ives commented. "Apple Music is a 24/7 streaming music service that will compete with the likes of Spotify and, thus, help build a "moat around the all-important iTunes franchise," in our view. We see streaming music as the tip of the iceberg for Apple, as the company looks to prove the merits of its Beats acquisition and ultimately embark further down the software/streaming services path over the coming years, helping to expand its massive market opportunity. We believe the company's massive installed base (e.g., iTunes) and ability to access/pay for high-quality content position Apple to gain significant market share versus incumbent vendors (e.g., Spotify, etc.) in the streaming music space."

He added, "While we continue to believe Apple is also ironing out work on a streaming TV service, we believe the company will continue to head down that path with the possibility of an announcement in the coming months/late 2015. Overall, although Apple remains laser-focused on strong iPhone 6/China hyper growth in the near term, we believe that its next-generation services fit well into its device/service ecosystem, with streaming music representing a natural evolution from the massively successful iTunes platform, as the "name of the game" for Apple around music is expanding its tentacles further into the consumer world and helping build out a broader stream of content (e.g., TV streaming) down the road."

The firm maintained an Outperform rating and price target of $185 on AAPL.

For an analyst ratings summary and ratings history on Apple click here. For more ratings news on Apple click here.

Shares of Apple closed at $126.75 yesterday.

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