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Tech Daily: AAPL Wearables, MSFT Leadership, GOOGL Pressures, More

Sejuti Banerjea

Apple’s AAPL wearables business is poised to pop, regulators combining resources to investigate Alphabet GOOGL, Microsoft MSFT-owned LinkedIn changes its CEO and other stories follow-

Analyst on Apple Wearables

Jeffries analyst Kyle McNealy is very optimistic about Apple’s wearables business, and in particular, its AirPods. The analyst sees “fiscal 2020 as a breakout year for Apple's Wearables business" with "multiple 2019 product launches, potential average selling price expansion from AirPods Pro, and strong customer interest across product lines.”

He expects wearables to contribute 3-4% of the company’s growth in 2020, with AirPods accounting for up to 3% and generating revenue and earnings of $6 billon and 22 cents, respectively, and watches accounting for the balance.

McNealy raised his 2020 EPS estimate from $14.15 to $14.25 and his 2021 EPS estimate from $16.20 to $16.45. His price target is $370, implying 15% upside from the stock's current level.  

AG Meet on Google

All the state Attorneys General (AG) and the Justice Department are taking a collaborative approach "to continue strengthening their multilateral antitrust law enforcement cooperation concerning technology markets." They even recused the head of the Justice Department's Antitrust Division, Makan Delrahim because of a possible conflict of interest “in an abundance of caution.” The AGs met with Deputy Attorney General Jeffrey Rosen, Associate Deputy Attorney General Ryan Shores and officials from the department's Antitrust Division.

So they’re trying to determine how much if at all Alphabet’s search business is engaging in anti-competitive practices (search bias, advertising, Android OS, the integration of its ad server with its ad exchange and its policy that YouTube advertisers must use Google solutions to buy ads on the platform). Earlier this week, they met to compare notes and devise strategies to get this wrapped up by year-end, as U.S. Attorney General William Barr would like.

At the meeting held Tuesday, Utah Attorney General Sean Reyes said that the goal was to coordinate efforts to speed up the process. “We are hoping to go as quickly as we possibly can but I don't have a specific timetable."

Texas Attorney General Ken Paxton, who is leading the multi-state investigation, has said that he would go to any lengths to enforce the law. “I’m literally open to doing what works. I would look at any remedy as a possible solution,” he said. He’s not thinking in terms of preferring one remedy over another when he “doesn’t even know fully what the problem is.” As long as it benefits the most number of consumers, “everything is on the table. It’s kind of up to them to take stuff off the table.”

The WSJ reported that the DOJ has contacted more than a dozen companies and that questions to Google executives are getting increasingly more detailed.

Google’s response was: “We have been working constructively with the Texas attorney general and have produced a substantial volume of information in response to his inquiry even as we seek assurances that our confidential business information won’t be shared with competitors or vocal complainants.”

LinkedIn Changes CEO

LinkedIn CEO Jeff Weiner, whose responsibilities have been expanding of late, has formally stepped down from the position to become the new executive chairman. He’s making way for Ryan Roslansky, the man he first hired, the man who has the greatest experience at the enterprise social network across departments, having played a leadership role in developing LinkedIn’s influencer program and publishing platform and having overseen the reorganization of the consumer and enterprise applications into a single ecosystem. His position as the product head now goes to Tomer Cohen, currently vice president of marketing solutions. Roslansky will report to Microsoft CEO Satya Nadella.

Microsoft has changed a number of things since Nadella took over, one of which was to take a collaborative approach to bring the greatest choice to customers. In his own words, Nadella wanted to “make it possible for new experiences such as a LinkedIn newsfeed that serves up articles based on the project you are working on and Office suggesting an expert to connect with via LinkedIn to help with a task you're trying to complete."

And with the resultant increase in Office 365 engagement, “new opportunities will be created for monetization through individual and organization subscriptions and targeted advertising." Today, Microsoft keeps LinkedIn separate to allow the maximum number of people to use the service, while proceeding with its strategy for product and operational synergies.

Microsoft has also announced a few other executive changes. Accordingly, Surface chief Panos Panay will also oversee Windows software and experiences, retiring Teams lead Brian MacDonald will be replaced by an Office veteran Jeff Teper and veteran Windows executive Joe Belfiore who’s currently working on browser software will go on leave and return to a different role in the Office unit.

CIA Opens Up to Amazon Competitors

About a year ago, the CIA voiced intentions to expand its group of cloud providers after the first $600 million contract was awarded to Amazon AMZN, back in 2013. With draft requirements posted this week and with Amazon’s rivals boosting their capabilities and obtaining necessary regulatory approvals, winning this time round won’t be as easy. Not even if the requirements are stringent in terms of global reach, innovation and “operational excellence.”

The documents show that the CIA has a number of contracts that could run up to 15 years (5-year base period with two follow-ons) on the table for both cloud infrastructure and cloud-based software.

This opens the door to not only Microsoft, but also Alphabet, IBM and Oracle.

Disney+ Results Aren’t Negative for Netflix

Analysts that commented on Netflix NFLX while discussing Disney DIS results largely agreed that the strength in Disney+ and the way domestic customers have jumped on to the service aren’t necessarily negative for streaming pioneer Netflix.

Stifel Nicolaus analyst Justin Patterson for one thinks that rather than this strength being a negative on competitive considerations, it is instead a clear indication that cord-cutting is becoming a broader trend. "The success of Disney+ is partially attributable to Netflix's role as a pioneer, which helped drive video hardware and software innovation, encourage media bundling by broadband and wireless providers and shift consumer behavior away from linear." He adds that “we continue to see Netflix and Disney co-existing."

BofA analyst Nat Schindler highlighted both positive and negative implications for Netflix but said that the “positive outweighs the negative.”

On the positive side were engagement levels where Netflix leads Disney, the fact that Disney’s bigger originals and shows are slated for a second-half launch thus pushing out competition for Netflix, and the fact that Hulu’s international rollout wasn’t likely to happen until 2021.

On the negative side, he talked about Disney’s bundling strategy that limited customer churn, Hulu’s huge ad-supported tier that Netflix lacks and its India launch on March 29 that will be able to leverage the Hotstar app it inherited via the 21st Century Fox acquisition.

Raymond James, which reiterated its strong buy rating on Netflix shares, agreed with BofA.

India is a very important market for streaming companies because it has half a billion Internet users, according to Nielsen estimates. So both Netflix and Amazon Prime have invested heavily in local content. While Disney lacks this content, Hotstar gives it access to some local content and allows it to launch a multi-tiered service within the app. Hotstar, which has 300 million users, thrives on the free tier but also offers a paid tier.

So, Wedbush analyst Daniel Ives says, "India is a key market for Disney & Iger internationally given the hunger for streaming content and the demand potential. That said, Netflix and Amazon have built strong local content... We believe 10 million to 15 million subs in 2 years would be an initial success story."

Hotstar's paid services cost anything between 40 cents per month to $4.20. Netflix ranges from $3 for a mobile-only plan to as high as around $11. Amazon Prime costs around $1.80 per month.

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