At issue is the announcement of a beta subscription music service from Internet giant Yahoo!, which the company introduced Wednesday morning. The service is being launched with a yearly subscription fee of US$59.98 that allows people to rent as much music as they want, and take it with them on any digital media device that supports Microsoftis Windows Media digital rights management (DRM) scheme.
That price significantly undercuts Napsteris Napster-To-Go and RealNetworksi subscription services, the two leaders in the music rental business, and the markets reacted to the news in a mixed fashion. The result was a 5% drop in Appleis stock in Wednesday morning trading (AAPL recovered some of those losses, trading down 3% in the afternoon session), and Piper Jaffray was fast out of the blocks with buying advice for its customers.
"We view the pull-back in shares of AAPL as a buying opportunity," wrote Mr. Munster, "given we do not anticipate the market share of the iPod will be meaningfully impacted by the emergence of Yahoo! and other music subscription services."
He also told clients that he believed Apple would introduce its own music service by the end of 2005 if the rental business model should prove successful.
More importantly, however, Mr. Munster told clients that the real threat to Appleis dominance in the online music business is not another music service, but rather the emergence of killer MP3 player.
"Despite new music services in the past year, Apple has maintained its ~80% market share in the portable audio device market," wrote Mr. Munster. "In other words, the risk to Apple is a killer new MP3 player, not a new online music service."
Lastly, Mr. Munster said that the iPod is not Appleis only potential growth avenue, as he expects the iPod Halo Effect to continue to bring new customers to Appleis other product lines, including the Mac. He backed that up by pointing to Appleis increased Mac sales during the March quarter.
Mr. Munster maintained his "Outperform" rating on AAPL, as well as his $52 price target on the stock.
*In the interest of full disclosure, the author holds a small share in AAPL stock that was not an influence in the creation of this article.
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