Imagine sitting in your living room watching a flat panel TV made by Apple that gives you access to an array of channels direct from content creators, your DVD collection, pay-per-view movies, as well as your music and work files—all stored in a giant data center using a cloud-based system also accessible via your iPhone or iPad.
AP
That’s the vision laid out by Jefferies analyst Peter Misek, who believes the “far reaching cloud-based service” will launch next year or early 2013, broadening Apple’s so-called halo effect even further and taking the stock 35 percent higher to $450.
“We would find it easy to believe that Jobs’ final hurrah before turning the reins over would be to revolutionize video much in the same way Apple has transformed the mobile, computing, and music world,” said Misek in his note earlier the week that’s grabbing the attention of investors. “It’s also notable that his authorized biography is due in 2012.”
CEO Steve Jobs is currently on a medical leave of absence announced at the start of the year, but did feel well enough to personally unveil the iPad 2 on March 2 and appears to still be very involved in the operations of the largest tech company in the world.
The shares are off about eight percent from their all-time high reached in February on uncertainty about Jobs’ health, as well as disappointment that the iPhone 5 may be released in the fall now and not the summer. Analysts expect some sort of cloud-based music service to be announced this summer. Perhaps that will be the start of something much bigger.
“Misek’s report is fascinating,” said Karen Finerman, president of hedge fund Metropolitan Capital Advisors and a ‘Fast Money’ trader. “I do believe there are untapped resources in the cloud area and if this is true, it would justify a much higher valuation.”
The Jefferies analyst said the data center Apple built in North Carolina is already up and running and he has reason to believe that another super data center with the size to handle massive video storage will be built in the same area.
“Aerial footage shows Apple has cleared adjacent land and at the announcement ceremony for the facility, a mock-up showed two side-by-side data centers,” said Misek, who predicts the new living room device accessing this data center could could also be a redesigned set-top box instead of a big-screen TV.
The analyst believes Apple’s move into the so-called cloud is inevitable since video is more of a single-use model, whereas people like to own their music. Misek believes the Hollywood content creators could be convinced to come on board if Apple employs similar tactics that it does with its App store.
“Let them take the vast majority of the revenue while you use the content to drive device sales and monetize it that way,” states the report.
To be sure, there are big obstacles in the way of this plan. Apple may own the data centers, but it won’t own the pipes that will give high-speed access to its cloud halo. Cable companies like Comcast , the largest broadband provider in the country, may have a problem with Apple using the company’s Internet service to act as a Trojan Horse to its core cable business.
Plus, flat-panel TVs and server farms may be a drag on Apple’s industry leading profit margins. Apple’s gross margin in the fourth quarter was 38.5 percent, above analysts’ already high expectations.
“Server farms are becoming the ultimate commoditized product that has huge capital expenditures associated with it,” said Dan Nathan, trader and founder of Riskreversal.com , whose short-term skepticism about Apple has been spot on.
But Misek believes revenue growth in 2012 could leap by an enormous 50 percent to 70 percent from 2011 on the launch of this subscription service, more than offsetting an estimated 1 to 2 percent hit to gross margins.
Said the Jefferies analyst, “We believe Apple has learned much from having Netflix on Apple TV and we cannot help but feel Apple will try to improve this model somehow.”
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Trader disclosure: On April 14, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Adami owns (AGU); Adami owns (GS); Adami owns (INTC); Adami owns (MSFT); Adami owns (NUE); Adami owns (BTU); Adami owns (C); Finerman and Finerman's firm own (AAPL); Finerman and Finerman's firm own (BP); Finerman owns (C); Finerman and Finerman's firm own (CVS); Finerman's firm owns (HAIN); Finerman's firm owns (HPQ); Finerman's firm owns (JPM) and (JPM) leaps; Finerman owns (JPM); Finerman and Finerman's firm own (MSFT); Finerman's firm owns (TGT); Finerman's firm owns (UNG); Finerman owns (USO); Finerman's firm owns (WMT); Finerman's firm is short (IWM), (MDY), (SPY), (XRT); Finerman's firm is long S&P 500 puts; Finerman's firm is long Russell 2000 puts; Finerman's Firm Owns (BAC) Leaps; Terranova owns (JPM); Terranova owns (VRTS); Terranova owns (V); Terranova owns (BX); Terranova owns (GS); Terranova owns (UPL); Terranova owns (HOC); Terranova owns (TCK); Terranova owns (BAX); Terranova owns (OXY); Terranova owns (XOM); Terranova owns (AKAM)
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Comcast Is The Parent Company Of CNBC
Comcast Is The Parent Company Of NBCUniversal
GE Owns 49% Of NBCUniversal
GE Owns 49% Of CNBC
