I think what apple will find is that the market won't stand for their high-priced iPhones forever. If they have any sense, they'll notice this and put their prices down again.
In many ways, it mirrors the issues for Hacker News entrepreneurs. To get VC capital, you have to dangle promises high returns on your equity — even if a consistent cashflow business is a great outcome for an entrepreneur (these businesses are pejoratively called "lifestyle businesses").
It's a fallacy that many people fall for though. See Berkshire Hathaway for the prime example.
Any decent vc funded company could blow my product out of the water but they won't bother
See altababa / Yahoo for example
I don't believe apple's shareholders would let them burn a singificant amount of their cash reserves for R&D over next 5 years...unless investors truley believe said R&D has solid ROI.
1. Apple does innovate. Every year. But doesn't tend to follow fads or new technologies for the sake of newness and those tend to be confused with innovation all the time.
2. As markets saturate and the smartphone becomes an everyday object, the behavior starts to resemble the fashion and accessories industry where brand image, and customer loyalty plays a larger role in purchase decisions. If Louis Vuitton sales 10% less bags YoY in China, nobody thinks it's because they have not innovated enough in handbag technology.
Apple is ok. At least as of now. They are still selling 84 billion $ worth of products on a given quarter.
If it turns out that in reality the revenues will be stable/stagnant, then the owners of Apple are in for a rude shock (since it'd mean that Apple is worth much, much less), would not consider this situation as acceptable, and would be ready to install new management and approve radical changes to try and continue growth (of both revenues and share value) by any means possible.
Is it? It has a P/E of ~10, the same as IBM ('big and steady')
IMHO, that's not "creative destruction," it's more "we had to destroy the village in order to save it." "By any means possible" will inevitably turn into short-term, customer-hostile actions that will erode the value provided by the company to society.
Narrow focus on financial metrics by shareholders sometimes seems to be more of a destroyer of real value than a creator of it.
Here's a serious question: what should the valuation be for a company that is not growing, but generating $X amount of profit year after year, with no risk, forever (and assuming the profit keeps up with inflation).
Logically, companies are valued on their expected future profits. Since you want those to be as big as possible, growth in general is good. But at some point, in rare cases, a company may get so big that it has reached the point where it's just extremely profitable. Wasn't that supposed to be the end-goal?
Indeed, which breaks down the entire market rationale of capitalism right. It seems that we ought to put minimum hold times on shares. There shouldn't be any medium and certainly no short-term shareholders.
The main variables are the annual cash flow amount and a “discount rate” which is the interest rate you would earn at equivalent risk.
Each year’s cash flow is divided by (1 + i)^n where I is the interest rate, and n is the number of years out.
For example, 10 years of future annual recurring revenue of $100mm per year, at a discount rate of 5%, has a net present value of $772mm.
That 10th year’s $100mm is only worth $61.4mm in present value based on the 5% interest rate. It is the same thing as saying: $61.4mm invested at 5% would turn into $100mm in 10 years.
If Apple’s net profit turned into a steady $50b stream from here on out, at a 5% discount rate, it comes to a NPV of $673b over the next 20 years. Their current market cap is $680b by the way.
It's anything but odd. That's the basis of how the stock market works. If Stock XYZ is big in a large, not-growing market, and trades at $50 per share... why would the stock price ever appreciate?
Reinvested dividend money; see a sibling comment somewhere in here that addresses this. If the company doesn't pay a dividend, that money has to go somewhere, so it gets accounted for in the stock price (a vast oversimplification, yes).
Share price _increases_ however only occur when the market expects the company to _grow_ revenues (profits), not sustain them. In other words, your comment isn't accurate, that would not cause the share price to increase. Only actual growth, expectation of growth, or market manipulation will cause share prices to increase.
Why should the stock price ever appreciate?
The word "profitable" covers wide range of possible outcomes.
This is how capitalism works. Everything has to be growing all the time, or it's seen as failing. Requiring infinite growth on a finite planet is a problem, but so far all the alternatives are considered fringe: https://en.wikipedia.org/wiki/Steady-state_economy