Valuing Apple with oranges

“The fundamentals of finance, attempting to discount future cash flows to arrive at a valuation, which then if offering intrinsic value beyond the markets would offer a margin of safety for investors, cannot possibly account for future disruptive innovations,” adanaclivinglab writes for Curating Ideas.

“Historically, this unknown factor had been perceived as excellence in innovation; recently, the idea of Apple’s continued disruptive innovation being too good to be true, beyond a traditional maturity curve, has resulted in irrational discount of the company’s shares and in creating what should be valued as a phenomenal margin of safety,” adanaclivinglab writes. “Disruptive technologies generate new innovations that unexpectedly bring an established market to an end (Christensen 1997)… The fact that Apple is not predictable in what it’s about to disrupt should not translate to an ignorant valuation of its underlying potential.”

adanaclivinglab writes, “Every product that Apple has released has been associated with disruption of multiple industries, making the prediction of demand for its products, rather unpredictable. Beyond demand, the company’s ecosystem has no compar[e] and it’s so well integrated with the product that the ecosystem’s stand-alone valuation is not yet addressed. As such, attempting to valuate Apple, merely on sale of individual products, without accounting for the fact that it’s establishing a way of life, would underestimate the role of Apple worldwide.”

Read more in the full article here.

[Thanks to MacDailyNews Readers “Dmitry” for the heads up.]

16 Comments

  1. I don’t see the difficulty in determining the valuation of a company if it is becoming just like all of the other uninspired herd-followers. Pulling existing geekware off of the shelf, tweaking the screen, adding a Facebook icon, and giving the case rounded corners, is not innovation. Apple stopped becoming a difficult-to-trend innovator over a year ago. Downwards is a very east trend to extrapolate. EMF is dead, reached its limits, all you can do now is put a new rainbow-unicorn sticker on your geekware and call it innovative; quantum CPUs and communications are next.

    1. I believe the point of this article is that Apple is undervalued, even if you completely discount its future potential as an innovator and treat it as (your words) “…just like all of the other uninspired herd-followers.”

      I, for one, maintain that Apple retains the seeds of greatness and will continue to be the best despite the loss of SJ. There may never be another decade like the series of OS X, iPod, iTunes, Intel conversion, iPhone, and iPad. It was essentially a new startup for the company. But there is still much greatness to come.

      It may be irrational, but if the Apple ship goes down, then I will go down with it until I am forced to deploy the lifeboat. I stuck with Apple through the mid-1990s, and it was worth it.

      1. No, I did not even get into the lifeboat as my retirement portfolio was cut almost in half. (I own a lot of AAPL and did not sell a share. Same thing happened 4 plus years ago.) So, I believe I will go down with the ship if necessary because I see what Apple is and will be.

        Your list of what makes Apple’s turn key life system is almost complete. View all of it as resting on a foundation and you realize that they haven’t even finished the first floor of what will be the world’s greatest multi level structure. Everyone is still looking at what the first floor will be and I am looking at the second floor.

        1. Having your retirement portfolio cut in half is nothing to be happy about. Nor anything to boast about. Next time step in the lifeboat. Then when the water starts to rise again you can get out at a much more profitable level. As in now is much better than it was in September. It’s just fundamental investing. You could be retired sitting on the beach waiting to reenter Apple and make even more profit on top of what you made when you sold in September. Remember, you do not have to be in AAPL every day of your life! It’s okay to take your profit once and a while. In fact it’s necessary. And you don’t have to be a day trader or market timer. Next time AAPL or any stock you own runs up extremely high and you are way ahead…………………..take your profit! Don’t be greedy and don’t freeze like a deer in the headlights. Have a plan and execute that plan. Don’t you wish it was September 20, 2012? You’d better believe you do!

        2. Hang in there. The stock price matters not UNTIL you sell it.
          With any luck you will see apple gain much ground this year as the other guys lose money left and right.

          JAT

          En

  2. “Every product that Apple has released has been associated with disruption of multiple industries, making the prediction of demand for its products, rather unpredictable”

    You mean like Ping, or iAd, or iTools, or Mobile Me, or Safari for Windows, or Apple Maps, or iPod Socks, or the Apple TV?

    1. C’mon now, you’re gonna get em all worked up again. But ya had to do it didn’t ya? They’ll be waking up down in mom’s basement in a couple of hours getting ready to start their day. After a couple of Pop Tarts and a Red Bull, they’ll come gunning for you. Lock and load.

    2. Not forgetting “Agent Provocateur” on the list of Apple disruptions, as it seems that your hitherto semblance of an established life was disrupted radically when you were forced to consistently hang out on a website that celebrates a company that you care nothing for…

      1. I check in on MDN 2-3 times a day for a couple of minutes as I have for years.

        As to caring nothing for Apple, I am a shareholer since 2001 and this is being typed on a Mac Pro witn 24″ LED Cinema display through an Airport Extreme Dual Band with Improved Antenna as I sync my iPad and iPhone for my regular weekend out of town trip (I work a FT Weekend shift at a hospital).

        I’m just not a Fanboi and think Apple is mismanaged.

          1. A drop from $700+ to the low $400’s is not a little thing.

            I stopped buying in the $320-30s and sold off some @ just over $400 and bought a new car for cash with some of the post tax proceeds.

    3. Don’t forget the puck mouse. Mind you that came with the iMac so one wonders, just what is a product for Mac?

      Ping, iAd, iTools, Mobile Me, Safari for Windows, and Apple Maps are all part of the software that Apple makes and that has always changed, heck I used to think that Hypercard was fantastic, and at the time it was.

      The iPod Socks and the Apple TV devices, yeah well I think sometimes you have to have a little fun and a little hobby, especially when you are company like Apple.

      I agree that the journalist does not do justice when he says “Every product that Apple has released has been associated with the disruption of multiple industries” because there have indeed been a lot of dud products.

      Again, he is “valuing Apple with oranges” and from an ecosystem point of view that the orange is a singular species.

      A lot of people are tossing the word ecosystem without realizing a few of the biological implications (side note, ecology and economy both derive from the greek work “oikos” or the house).

      What Apple has done, and has done so very early on is establish a communication between the software and the hardware. That’s part of the DNA, and it still one of the few companies that does so in such an integrated fashion. That has allowed it to drive it’s products and software into extinction as it sees fit, and that’s important for an ecosystem. Estimates on the number species that have gone extinct on the planet are around 95% depending on your source.

      When Microsoft releases Windows it’s a disaster, partially because of all this legacy code. Microsoft and box makers do not determine what goes extinct… there is still DOS out there and legacy spaghetti ware.

      I could go on, but the point is that this is just another journalist using a singular species idea on an ecosystem and getting what is not to get but not getting what there is to get.

      Only Apple gets that, and shhhhhhh it’s a secret.

  3. We’ve become the empire! 6 years ago MDN was about technology and everything that’s cool about apple and why we love it… when we were called fanatics. Now it’s about stocks and lawsuits. lost our ways

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