CNN Questions iTunes Music Store’s Contribution To Apple’s Bottom Line

May 27th, 2003 at 3:00 PM - Apple Stock Watch by Bryan Chaffin

CNNMoney has published an editorial that questions the wisdom of recent run up of Appleis stock. The article, penned by Eric Hellweg, says that the euphoria over Appleis iTunes Music Store (iMS) is overblown, doesnit justify the US$1.5 billion in market cap that the stock has gained since the iMS was announced, and that sales at the iMS wonit last.

Appleis stock has gained some 25% in value since Apple announced the iMS on April 28th. The stock is currently trading at 18.35, down 0.53 (-2.81%).

When the company issued a press release on May 5 announcing that 1 million songs had been downloaded in one week, the stock shot up 11 percent in a single day, on trading levels five times what they were the day before.

Itis a compelling story and, to some extent, a compelling product. But investors who are buying into the idea that iTunes will continue to sell at its current rate and become a real growth engine for the company are misguided.

Iim betting that this sales clip wonit last, and I predict that, aside from a brief future blip when a Windows version is introduced, sales will eventually slow to a steady trickle. A respectable trickle, perhaps, but hardly a revenue stream worth the stock gains the service recently brought the company.

Mr. Hellweg goes on to offer his estimate of the number of customers using the iMS, and says that he thinks the initial burst of activity at the iMS is due only to pent up demand. Since most of the online music services eschew Mac offerings, reasons the author, frustrated Mac users were downloading songs in an unsustainable rush.

Read more in the full article at CNNMoney.