Apple TV Orders Begin: A Small Yet Important Catalyst

By Daniel

As promised by Apple CEO Tim Cook last week, the tech giant began taking orders for its overhauled Apple TV set-top box on Monday. The redesigned box signals the company's reinvigorated efforts to be a trendsetter in television. Here's what investors need to know.

Image source: Apple.

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Logistics Apple began taking orders on Monday morning in 80 countries. In the U.S., customers who choose one-day shipping could receive their device as early as October 30.

The new Apple TV, which features improved hardware, an app store, and a remote with Siri, Bluetooth 4.0, a rechargeable battery, a touch screen, and its own accelerometer and gyroscope, is the company's first major redesign of the hardware since 2010.

Pricing for the new Apple TV begins at $149 for a $32GB version. The larger 64GB version costs $199. Apple is also selling an Apple Care Protection Plan, extra Siri Remotes, and remote loop wrist straps for $29, $79, and $13, respectively.

The bigger picture Even with a complete overhaul of Apple TV, sales of the device are unlikely to be material to the company's earnings. Sales of Apple TV are included in Apple's "other products" segment, along with Apple Watch, Beats Electronics products, iPod, and third-party accessories sales. Even with all these products lumped together, the category represents just 5% of Apple's sales. And given the lower price point for the Apple TV compared to its other products, it's likely the product's profit margin is slim.

But there's more to the economics for Apple TV than the hardware itself. The majority of earnings from the device over its lifetime with customers likely comes from iTunes sales on the device. And now, with the first-ever built-in app store for the device, Apple TV is now a medium for generating app sales.

Image source: Apple.

While Apple doesn't break out iTunes and app store sales separately, its services segment, which includes both of these categories along with revenue from AppleCare, Apple Pay, licensing, and other services, represents 10% of its revenue and accounts for more of sales than iPads do.

Its foray into apps with Apple TV is worth emphasizing. While it's difficult to know exactly how fast revenue from this category is growing, it's obviously at an impressive rate. The company said in its most recent 10Q that the more than $500 million year-over-year growth in its services segment for the quarter was "primarily due to growth from iOS app sales and licensing."

While Apple's decision to take television more seriously may represent only a small catalyst for the company today, investors shouldn't take the bolstered efforts lightly. Over the long haul, the device could play a key role in driving iTunes and app sales while also serving to provide greater incentive for users to be loyal to the Apple ecosystem of hardware, software, and services.

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Daniel Sparks owns shares of Apple. The Motley Fool owns shares of and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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