“As Apple continues to set new records for revenue and profits seemingly every single quarter, it’s become common for analysts and Apple observers alike to say that Apple’s tremendous growth can’t continue because the company is quickly running into the law of large numbers,” Yoni Heisler writes for Network World.
“When people reference the law of large numbers with respect to Apple, what they really mean to say is that Apple can’t keep growing at 20+% increments indefinitely because it will eventually become so large that maintaining these growth levels becomes practically impossible,” Heisler writes. “After all, a company with $100 million in revenue need only earn an additional $20 million to increase revenue by 20% while company with revenue of $40 billion needs to earn additional $8 billion to achieve the same 20% increase in revenue. Clearly, the latter is much more daunting.”
Heisler writes, “But as is typically the case, Apple is poised to buck this trend longer than most people realize… The real operative variable isn’t revenue, but rather the factors that drive revenue – margins and marketshare. And when it comes to those two metrics, Apple is sitting pretty… Whether Apple can continue to deliver outstanding quarterly earnings result is a valid question, but that analysis should focus on marketshare, margins, new products, new revenue streams, increased competition – all of these are much more relevant to an analysis concerning Apple’s future financial prospects.”
Much more in the full article – recommended – here.
MacDailyNews Take: As we wrote as recently as yesterday:
What is Apple’s share of the smartphone market? What’s Mac’s share of the PC market? How many hundreds of millions are primed to buy their first tablet, a market that Apple created and dominates with iPad?
Apple’s current size is meaningless because their addressable market is virtually limitless.
[Thanks to MacDailyNews Reader “Carl” for the heads up.]
Eventually, even undertakers will run out of customers… just sayin…
heh…but then who buries them?
They also serve who only stand and wait.
-Pvt. Jimmy Jones, while standing in the Army chow line
Not sure how the laws of large numbers would apply to a computer company.
Since the computer company knows how to ride their bicycle, they should be capable of doing so much more with numbers!
What would Apple be worth if there were NO growth, i.e. what if we looked at them purely from a view similar to say, M$FT or Exxon? If they got as big as they were ever going to get next quarter (hypothetically) and continued to spew profits, how would investors value them?
Unlike many other companies, Apple’s main goal is to create and sell insanely great products, the market will take care of itself . . . after the market manipulators take their money and run.
There is no myth. Even the author states this. Instead, the myth is that Apple is close to hitting the ceiling. “Close” can have different definitions.
Take the iPhone for example. How many can Apple sell each year? Realistically, maybe a billion people in the world can afford an iPhone. And the more you go down the economic scale, the longer the lifespan is of the product, so a 2 year average lifespan isn’t unreasonable to expect.
That means maybe only 500 million people in the world could buy a new iPhone each year. Apple isn’t “close” to that? No, not if you’re thinking Apple is at around 125 million a year. But at the growth rate, Apple hits that theoretical max in just 2 years. So either growth slows in the next 2 years, or Apple hits a brick wall and sales stop growing at all 2 years from now.
The numbers may be off, maybe it’s 2 billion people in the world as a theoretical max of iPhone owners, ok, then, Apple’s growth slows in the next 3 years or sales hit a break wall. 4 billion as a theoretical max, is 4 years, but 8 billion (that’s more than the population of the planet) is hit in 5 years.
As you see, close in numbers is far, but close in time is very near… as in the iPhone sales are already half-way to exceeding the population of the planet, or having sales slow.
You can do the same math with the iPad, which has a faster growth curve, so while it is further away in terms of numbers, it’s actually closer in terms of time.
Mac sales have a ton of growth left in them in terms of both numbers and time, which is good, but the growth is relatively slow compared to Apple’s other products.
And while Apple may release the “next big thing”, one could argue that there may not be that many next big things left for Apple to do. With convergence, Apple has innovated and brought us hit after hit, but it also means there are fewer product categories for Apple to dominate.
Like the author, I’ll say that there’s nothing to worry about, for now, but in 5 years, Apple may very well be a multi-trillion dollar company that has simply stopped growing because they’ve maxed out what is possible based on the number of people on the planet.