“By the time the markets closed on Wednesday, Apple had lost about $37 billion of its market cap,” Michael Simon writes for Macworld. “It’s a big number, but one that was totally expected; despite setting another quarterly record for revenue, income and iPhone sales, its outlook for the second quarter was uncharacteristically weak, and investors are preparing for the unthinkable: the first ever period of non-growth for the iPhone.”
“It was bound to happen. Nothing grows forever—particularly something that has gotten so big so fast —- but Wall Street doesn’t operate with that kind of logic,” Simon writes. “It demands continued growth, and none of Apple’s products seem poised to fill the void left by diminished iPhone sales.”
“So, 2016 might be a bumpy ride for Apple. While the company will almost certainly scoop up nearly all of the handset profits and still have a balance sheet most companies would kill for, there’s a distinct possibility it will lose its status as biggest company in the world (based on market capitalization) to Alphabet, while struggling to meet the lofty year-over-year sales goals set in 2015,” Simon writes. “But if history is any indicator, Apple might actually benefit from this surprising downturn, and come away all the stronger for it.”
Read more in the full article here.
MacDailyNews Take: The problem is that the elephant in the room is no longer there.
Can Apple really, truly innovate without Steve Jobs there herding cats, saying “no,” and demanding more, more, more until the merely good turns into insanely great?
We shall see.
Surprising downturn. Really?
Investors have been expecting to see the peak in iPhone sales growth for a while now. It certainly wasn’t “unthinkable” to them.
It seems counterintuitive, but perhaps the reason for the lackluster performance of Apple stock is because Apple has done so well. It’s difficult to see where the world’s largest company can grow to, i.e. how it will increase it’s value when it’s primary money maker ( the iPhone ) is slowing down.
The value of an equity share in a company is not tied to how cool the products are. The value of a share is not an award. When you buy a share of a company, you are purchasing a fraction of the value of the company. In order for your share to grow the overall value of the organization must increase. So why spend $100 on a share of Apple if it doesn’t look like Apple will be dramatically increasing its size anytime soon. You want to put your money where it has the most chance to grow, right? Of course.
In other words investors are saying “Great, good on you Apple, love my iPhone, but seriously how many more of these things can you sell? I’m afraid I’m going to put my money in this two bit solar company that has the potential for some serious growth in the next year or so. Nothing personal.”
We Apple fans historically scoff at the importance market share, but not Wall Street. Market share is their primary growth indicator. Potential for market share growth ultimately equals potential for greater equity value.
While Android phones are not even remotely as profitable as iPhones they are less expensive and widely regarded to have a much greater market share, and more importantly, the potential to continue increasing that marketshare. It is said that Africa will be an Android continent. So Android will grow. Unfortunately, no one really reaps the benefits of Android in the same way that Apple reaps the benefits of iOS. Which means that ironically there Is no real reason to invest in Google because of Android. But now suppose Apple were to bring her apps, and services en mass to Android.? Makes you want to vomit, right? It makes investor ears perk up and their eyes twinkle like when I say the word, ‘Hungry?’ to my dog.
On top of this it seems like the governments of the world have targeted Apple’s wealth and are going to be working very hard to gouge and shrink Apple’s value. Governments are just like bank robbers. They’re going after Apple because that’s where the money is.
In addition, the world economy is slowing down and this will certainly not help Apple to grow. Apple is branding itself as a lifestyle company. Lifestyles suffer in bad economies.
Also, in the minds of many people, there are no new Apple products that look revolutionary and are poised to provide iPhone like growth.
So yeah while Apple may be the greatest company in the world as far as we of the MDN peanut gallery are concerned, and Tim Cook is God’s gift to social justice warriors, the prospects of Apple expansion look less than ideal from the perspective of a Wall Street investor.
While a freakishly large number of us who already have iPhones will rush to buy the iPhone 7 when it comes out, we do not count as growth to Wall Street. This is why the whole Chinese market thing is so terribly important to investors.
While the Apple Watch might to do reasonably well, it’s not going to sell in the numbers that the iPhone does. Apple doesn’t even make the numbers on the Apple Watch available. And I still say there is no real wearables market. Saying that Apple has conquered the wearables market is irrelevant and silly. Apple has merely sold X number of watches to as many existing iPhone users, while the vast majority of iPhone users seem uninterested. Keep in mind, the Apple Watch has zero value to a non-iPhone user. No one buys an iPhone so they can buy an Apple Watch. Not really.
There was an unexpected uptick in services but isn’t that just because of the added revenue due to Apple Music? Indeed Apple’s services are so peculiar in the way they work most people prefer competitive cloud services.
And there is no point in even mentioning the Apple automobile. For now it’s still just a rumor. Even if it were released today, it would have to be spectacular, and spectacularly affordable, to represent growth. They won’t be selling in Botswana.
So there is every reason to believe that Apple will do fine and keep making money but very few reasons to believe that Apple will dramatically grow, and many reasons to believe that Apple will possibly shrink. Consequently the stock is doing exactly what it should.
Apple’s real dirty little secret? They’re concentrating on making their existing stuff better. Better than anyone can hope to compete with, but unfortunately that doesn’t equate to market share increases. Though it does equate to joy for the faithful.
Would Steve Jobs have committed Apple and hundreds of billions of dollars to make an electric car when almost nobody wants an electric car?
I’d like an electric car but definitely not a self-driving one. I believe electric cars are the future as petroleum reserves dwindle and pollution increases but that really seems like a long way off to me. However, I’m glad there are companies looking towards the future.
I think a diesel plug-in hybrid would be good.. Biodiesel would become more popular created from organic waste material and that type of vehicle would also be attractive to areas that can’t or don’t have the infrastructure to support pure electric vehicles.
Remember when SJ presented a telephone without a physical keyboard, that nobody wanted…?
At the point they were entering a market so big that even a tiny percentage of marketshare noticeably increased Apple’s size.
There are very few markets left like that. The smartphone market is genuinely one of the largest most concentrated markets in the world. Vehicles is one of the few, which is why they are even thinking about that.
What other market of that size is becoming computer/tech oriented? I can’t think of any. Virtual reality might turn out to be huge, but probably not nearly as huge as smartphones for the foreseeable future. People use smartphones all day, no way are they going to use VR all day. Even non-techies need a smartphone in today’s works, they will get by fine without VR.
A lot of great new things will happen over the next few decades. But very very few will have the impact of the smartphone, which was compatible to the impact of the PC, which was compatible to the steam engine, etc. Those huge new markets don’t appear very often no matter how innovative a company is.
I read the little typos in my post and wish, wish, wish for an MDN edit.
another person wanting someone else to compensate for their poor proofreading skills (if you even proofread before posting)
Apple is becoming the mouse for Alphabet’s elephant and I must admit I didn’t think it would happen so soon. Having the top market cap has never been easy to sustain so I suppose it’s only natural Apple would eventually have to relinquish its position. I honestly don’t know what happened to the trillion dollar company Apple was claimed to become.
It looks as though Apple shareholders are about to become the biggest fools on Wall Street for being loyal to Apple. Well, it’s always been said to never fall in love with a stock and playing the field is a lot safer. I like the company, so I support it even during the rough spots.
You must be the biggest tool in your mechanics tool box. Apple is a blue chip company that makes good money in a bad economy or a good one. What is Alphashit going to do when people cannot afford to buy anything that’s advertised and those companies that advertise drastically cut back their ad budgets.
Troll elsewhere.
At this price level, wonder how many shares Apple will buy back.
That’s an interesting question.
Probably only limited to what the stockholders agreed to the last time a buyback total was set.
Let’s not forget the shareholders are still taking home good value in the quarterly dividends.
Apple won’t increase the dividends to IBM level, but if they did I could walk away and retire, Apple is profitable and simply does too many things much better, than their so-called Ad men give it away competition.