It's not that often that my professional expertise is relevant on this forum but, let me offer some insight into what is going on here - Revenue Recognition, Bundles, and Multi-Element Arrangements.
To the customer, the service is being offered as free however from an accounting perspective Apple is combining two products into a single hardware + software revenue contract where one of the products is being discounted at 100%. Since this product has standalone value (something called SSP under ASC 606) Apple needs to apply an accounting policy that appropriately estimates how much recurring revenue uplift they will receive from people continuing to use AppleTV+ after the free trial..
What the analyst is concerned about is Apple taking the full $60 and moving it from hardware to services and overstating how much of their revenue growth is coming from selling new services (analysts prefer subscription services growth since it's recurring - so this number accelerating is beneficial to a company).
What is important to note here is that in Jan 2018 the way that every public company reports their revenue numbers changed under new regulation known as ASC 606. Companies, analysts, and auditors still have different opinions on how the principals of this new standard should be applied so disagreements like this have been really common over the past year and will continue to be for a few years. To put it another way.. the bugs are still being worked out with how companies recognize revenue.
Here are some good articles for people who would like more information:
https://www.accountingtoday.com/opinion/welcome-to-year-one-of-asc-606
https://www.investors.com/news/tech...oking-revenue-faster-could-shake-up-earnings/
https://www.accountingtoday.com/new...ouble-from-fasbs-revenue-recognition-standard
thanks.
really well said. and the links you included were very explanatory.
there was (and now again, is) also a kind of similar event going on. not services, but hardware.
in the early days of iPhone (maybe 2008 or 2009?) there was some piece of internal hardware included in the iPhone that was not being "turned on" (yet).
and the discussion was about how to handle this from an accounting perspective, as it was likely that apple at some future date would in fact simply make a software adjustment to turn on this functionality.
and at that time, apple decided to change accounting practices to a way to defer a part of the initial sales that could be attributable to that piece of hardware.
this method of deferring sales to a later, even recurring, was heavily opposed by the securities analysts at the time (!).
but, in fact, GAAP really forced apple to account for it this way.
now there is the most the recent rumor with iPhone 11 that there may be wireless recharging capability already inside the iPhone 11, but simply not ready to be used without necessary software to access that feature.
we will never ever see how apple is attributing revenue from this hardware, but if we could, we would know if apple is intending to turn on that feature at some point for these iPhones that have that hardware.
one additional point about the GS analyst's final conclusion that the apple TV+ subscription model would have such a huge negative impact on APPL:
the analyst was actually using standard GAAP accounting practices as a large part of his reason to downgrade his forecast very very heavily.
in fact, to make that large of a downgrade assertion/calculation, the analyst at the same time is also saying that this particular "bundling" of hardware+services somehow will yield potentially less benefits to apple's total sales and profitability.
other analysts would mention this GAAP accounting practice, and move on, saying it was a net change overall at worst.
