Apple (NASDAQ:AAPL) leapt into the social media arena last week by bundling a new, music-oriented social network called Ping with iTunes 10, the latest version of the company’s digital media player.
Through Ping, iTunes users can follow friends and artists, find concert information, post opinions about their favorite bands, and so on. In an earlier article, we argued that because iTunes contributes a tiny percentage of Apple’s total revenues, the iTunes 10 launch is unlikely to have much impact on the company’s stock.
In the most optimistic scenario, we could see Ping producing a 3% upside to our $337 stock price estimate for Apple. Our analysis follows below.
Could Ping lift Apple’s music sales?
Ping is available only to iTunes users. In theory, Apple’s music revenues could rise if Ping stimulates more music purchases on iTunes. Apple sold around 2.6 billion songs in 2009, and we expect annual sales to reach 6.9 billion songs by the end of the Trefis forecast period.
There could be an upside of 1% to our Apple stock price estimate if annual song sales reach 10 billion by 2016, instead of the 6.9 billion that we currently forecast.
You can drag the trend-line in the chart below to create your own song sales forecast for Apple and see how it impacts the company’s estimated share price.
And what about advertising?
There are currently about 160 million iTunes users worldwide, according to Apple. Although Apple is currently marketing Ping to music fans, we expect that the new social network will eventually cater to other media sold on iTunes, including TV shows, e-books and movies.
So how much advertising revenue could Ping potentially produce? Privately-held Facebook currently has around 500 million users and generated about $800 million in revenue last year. Private equity firm Elevation Partners recently valued Facebook at about $23 billion when it bought 2.4 million shares of the company on the secondary market, according to a recent Reuters analysis published in the New York Times.
The iTunes user base is currently about one third the size of Facebook’s and if iTunes were able to generate comparable per-user ad revenues as Facebook, it could add about $7 billion in value to our $307 billion estimate for Apple’s market cap. This is likely an aggressive scenario that would require iTunes to emphasize advertising as much as Facebook does, but it could produce a 2% upside to our Apple price estimate.
Combining the two scenarios above, we see a possible 3% to our stock price estimate for Apple if Ping produces significant ad revenues and also stimulates song sales on iTunes.
You can see the complete $337 Trefis Price estimate for Apple’s stock here.
