Apple Inc. (AAPL, Financial) was up 0.78% to under $168 a share after an announcement that Apple Watch would host Spotify, the Swedish provider of music, podcast and video streaming service.
MacRumors.com, is reporting that the American global technology company based in California is expected to announce the deal at its 2018 Apple Worldwide Developers Conference, which is scheduled for June 4 and 8Â in Cupertino. The conference will be an opportunity to discover the latest versions of Apple's software.
Spotify, which will go public on April 3, provides protected content from media companies and record labels through the management of digital rights.
Basic features are provided by Spotify to its users for free but those have either limitations or embedded advertisements. Users can also gain access to improved streaming quality and music downloads upon paid subscriptions. Most of the modern devices are equipped with the service, which is available in many European and American countries and in some parts of Asia, and for most of the modern devices which are on the market. Users of Spotify can have access to more than 30 million lyrics database, where the music can be sorted by album, artist, genre, playlist and record company.
The strategy to equip Apple Watch with Spotify will increase the number of users as well as the profit of the company. As of Jan. 4, 2018, Spotify sold over 70 million subscriptions, while the number of monthly active users should currently stand at around 140 million.
The business model of Spotify is apparently simple: The Swedish company derives its revenues from advertisements, which are placed to third parties through freemium streaming, and the sale of subscriptions. Approximately 70% of the company’s total revenue is then returned to right holders in the form of royalties. The artists are paid based on individual agreements that they have with the right holders, record labels and media companies.
The agreement with Spotify will also be of benefit to Apple, which is also expected to introduce WatchOS 5 at the conference. The new Apple smartwatch operating system should increase the functionality and operating time of the Lte version of the device. According to Ming-Chi Kuo, a Kgi's analyst, Apple's next smartwatch will have a display that is 15% larger than the current version, reports CNBC.
Apple Inc. is trading at $167.78 per share and has a market capitalization of $851.32 billion. The tech stock has lost 2.6% so far this year and has underperformed the Nasdaq by 3.4%.
Source: Yahoo Finance
According to GuruFocus, Apple has a price-book ratio of 6.08 times versus an industry median of 1.83 and a price-sales ratio of 3.65 times versus an industry median of 1.15.
GuruFocus indicates that Apple is trading above the Peter Lynch earnings line (P/E = 15) and the price at Med P/E without NRI (18.86).
The company has a forward and yield dividend of $2.52 and 1.46%.
The only issue that could undermine the profitability and therefore investor confidence in Spotify is the circulation of a hacked version of Spotify freemium that has allowed about 2 million users to remove advertising from songs.
(Disclosure: I have no positions in any stock mentioned in this article.)
