Apple’s stock price falls to lowest point in six months
arstechnica.com
arstechnica.com
"many investors were disappointed that Apple wasn’t able to blow through Wall Street’s estimates"
Well, great. Maybe their goat's entrails didn't predict well enough last time, but this time they were wrong the other way. Almost as if it were random - or as if the market had already compensated for their predictions?
There is no new information here. So allow me to share my own totally uninformed opinion about the future of Apple with you.
Apple sells physical devices for a massive profit. No one else has been able to sell phones/tablets for so much. Apple will keep doing that as long as it can, regardless of Google's efforts to undercut. I think Apple will pour more effort (or just marketing effort) into their app store, trying to promote it to developers as the "one you make money in, the one where people will actually spend money on apps". Now I leave it up to you to make quantitative predictions off that.
The article is about Apple's stock price, and I'm not sure you understand how that part works.
Yes, Apple will continue to make billions of dollars every quarter for quite a while, but their stock is likely to drop down significantly in the coming year.
http://www.zerohedge.com/news/2012-11-15/remember
On the other hand, just last month: "Apple is going to hit $1,000 a share by January 2014, and will hit $2,000 by the end of the decade, according to a report."
http://www.macworld.co.uk/apple-business/news/?newsid=340227...
Why? Don't just assert that it will do something. Their P/E is 12, so why won't it grow? Why haven't traders seen this "likely" scenario and sold/shorted Apple stock?
Care to put some money on it?
The problem here is that the stock has been over inflated for a long time due to surpassing analyst estimates year after year due to iphone growth. Investors are realizing the real threat of android that is stealing iphone market share..
Dont forget apple has always been a niche player. Thats how they are able to sell devices with large margins. Previously they were the leader in mobile devices but this has changed. They will never attain the previous level of market share. Investors are not that confident in apple's ability to continue major innovation without steve jobs.
Therefore that means lesser earnings (relative) in the future, which means a correction in their stock price.
The stock has been artificially inflated for too long and this was bound to happen some time.
Actually, Apple's P/E ratio has been fairly modest for a long time, especially compared to other tech companies that don't rake in as much cash. Microsoft's P/E is nearly 15, compared to Apple's 12.
The difference with Apple and other momentum stocks is that Apple isn't like Netflix, where hype deeply overshadowed the problem they have with increasing content costs, or Groupon, which simply has a terrible business model.
Apple makes an incredible amount of real money and real demand. In this 4th quarter, Apple will make more money than Cisco will throughout its entire year.
My concern isn't that people will all of a sudden stop buying Apple hardware... that simply won't happen. They will continue to make billions upon billions of dollars.
My concern is that there are a number of strategic missteps almost as soon as Steve Jobs died. I think the iPad mini will cannibalize iPad sales completely and I think a lot of strategic decisions appears to be fraught with confusion and desperation, like Apple Maps, releasing iPad 4 6 months after iPad 3, etc. I get the argument as to why they made the iPad Mini (my wife wants to get one because it will fit in her purse easier), but I still think very few will buy iPads, and they will need to double iPad Mini sales to make up for lost iPad sales, but I guess we'll see in January.
The major difference with Apple and a company like Microsoft or Cisco is that they don't have much recurring revenue streams. Most of their revenues come from consumers purchasing their goods quarter after quarter. In order to keep growing revenues, they really have to maintain their amazing pace of innovation.
If they make a really bad strategic misstep, and people slow down in terms of buying the products, it will show up immediately, and they won't have a strong enterprise pipeline to buffer them. In 2011, Apple sales were about $60B. In fiscal 2012, they were over $100B. So, could their revenues drop to $60B in a year? It's not probable, but it's possible.
That being said, their PE ratio is ridiculously low, something like 10x next year's earnings, and they have $120B in cash. They can do something ridiculous like buy Facebook or even Cisco for cash, and still have more money than most other companies out there, so there is a lot of room for dramatic and aggressive action by Apple.
It's likely been in the pipeline long enough to have Jobs's impressions, but if it lacks the final polish it will be glaringly obvious Apple is letting its focus slip. My expectation is something on par with the original iPhone launch.
So, the spirit of your statement is right on the money. This is Apples truth strength. Their lack of complacency.
The iPad Mini will eat the iPad. I would nearly guarantee that's the whole idea.
I think Apple prefer that to Android 7" tablets cannibalizing iPad sales.
I'm hoping they release a new product between now and then. Unfortunately iPad Mini has both lower margins and lower selling price than the iPad, so while it might get some secondary sales for people who own an iPad already (either a new one or upgrading sooner than otherwise), it will probably hurt more than that because it will cannibalize iPad 4 sales.
Supply issues also kind of suck -- they won't have the new iMacs in time for christmas or end of the year budget, and there's no retina external monitor, so the Mini isn't as great a choice as a desktop. The rMBP15 remains the high end choice. If there's any disruption to iPad 4, iPad Mini, or iPhone 5 supply, they're screwed (and it appears there are pretty big supply constraints for each, which might last through the season.)
Apple has been pretty horrible at services, so I think the best chance is a TV device, or potentially a sufficiently refreshed computing line as to take over more business sales.
Apple, for a long time were a high margins, low volume company. Excellent products that people are willing to pay extra for. It's what they called "differentiation" (as opposed to penetration) when I was at uni. Macs work like this. I'm willing to pay a lot for a mac, more than twice what I'd pay for a Windows machine because I want a mac specifically. Most people don't though. They want to pay less for a computer or they want something Apple don't make.
With ipods, iphones & ipads, Apple created or re-invented markets. They also learned to produce more cheaply. The upshot was that they go to keep their margins as high as always but got market leadership too, even dominance.
That's an anomaly though. In a free market a company is not going to be able to keep such high margins and high market share forever. Apple are impressive, but its probably inevitable that one or the other will give. Just like no company can maintain a startup rate of growth forever.
IMO, that at the heart of everything.
Let me repeat my comment there.
I would personally not buy their stock any time soon.
I keep meaning to write a blog entry on this. To understand my reasoning it helps to be familiar with The Innovator's Dilemma (see http://www.amazon.com/The-Innovators-Dilemma-Technologies-Ca... for the book). The basic assumption of that book (backed up with many examples in industries from ship technology to hard drives to backhoes) is that any technology that has a well-established value proposition will tend to show exponential improvement on that value proposition over time. Users needs also follow an exponential curve, but it tends to be slower than the technology improvement curve. (A lot slower.) Therefore if you have 2 technologies competing for that market, eventually the cheap crappy one will be good enough, and after that point hits it wins. The premium technology will always show great revenue curves even once their low-end users start switching, but those curves hide a great oncoming disaster.
In every market that Apple is in, it is the premium product. It has competitors. And its competitors have a pretty good sense of the value proposition that they need to deliver. Therefore every market line for Apple is doomed. They show no signs of having new ones to wow us with, so Apple has a world of hurt coming.
But, you may ask, why did they not have this problem historically? My answer is because Steve Jobs' genius lay in constantly finding and delivering new value propositions. He found and defined markets for pretty computers, light laptops, smartphones, and so on. The whole Innovator's Dilemma argument depends on competing on a known value proposition, and Jobs never sat still long enough for his competitors to do that.
Of course Jobs is now gone, and there is no sign that Apple has anyone who has that talent.
"In every market that Apple is in, it is the premium product." Why do you think that is, exactly? Apple has quality products because it is a culture designed to produce Quality. As long as that does not stop, they will continue to absolutely pave the streets with their competitors' remains, because, frankly, no other company in the market has the company-wide culture necessary to produce the end-to-end quality that Apple does. It's far too soon to tell if they can still innovate into new and unexpected markets, but they've only released a handful of products since Jobs' death. But the truth remains: whatever market they enter, they will dominate.
What do they need someone to come up with ideas? Shoot, I'll do it. How desperate do you think they are? If I show up at 1 Infinite Loop claiming to be channeling Steve Jobs, do you think they'd hire me?
Hogwash.
I wouldn't buy anytime soon either, but only because the stock price will continue to fall as short-sighted investors keep believing things like this.
Steve Jobs was a big part of defining that Quality culture. Culture is not static. Jobs was able to direct his teams towards specific goals. IE. iPhone, iPad, iMacs. etc. With each new product the culture shifted. The last major shift was towards tablets and iOS. I think those shifts allowed Apple to leap their competition. Without Jobs Apple's culture has shifted again. I think we have yet to really see what will happen in the market. I am not dismissing Apple's overall ability to continue their dominance. It will be a different "culture, a different company.
I guarantee you, as long as quality concerns remain a major motivating factor for Apple buyers, Apple will develop competitors who attempt to deliver it as well. They will never match Apple, but eventually will deliver good enough quality for the buying market.
And it isn't new ideas that they need. It is new value propositions that people will want to buy. And no, they aren't going to believe you if you show up claiming to be able to generate them. So your inability to suddenly rise to the top of Apple is not evidence against what I said.
Your claim that Apple probably has no new products in the pipeline is one the most laughable things I've ever read on HN. Apple is not Microsoft or Google, they don't demo a thousand shitty products five years early and hope some of them catch fire.
Your claim that Apple's current product lines are all doomed is also silly and disproved by inspection of their desktop and laptop business. Apple is an innovation machine and everyone else is trying to hit a moving target.
Yes it was drivel and hogwash.
Don't forget, we've seen this play before. Apple on top of the world, Steve Jobs removed from the picture, a guy at the top with a history of execution but not innovation. (OK, the current CEO's history is in a more relevant field than Sculley's background at Pepsi...) The result was very much not pretty.
They are going nowhere for a while. They are clearly ahead of the market, and they have a core constituency of fans. But I'm willing to bet money that in 10 years the luster is off, and in 20 they will be just another technology company to most of the world.
This may be unpopular, but I sort of think that the 25% haircut Apple has endured is a market correction bringing the stock back to more honest numbers. Investors got ahead of themselves. I'm not sure they ever deserved to be trading north of 700. Even the best performers can get overvalued in the hype cycle. Apple has fallen to 527 per share with half a trillion dollars in market cap. That's still pretty healthy, especially backed by their financials.
Does Apple face stronger competition from Samsung and others? Yes, but any reasonable investor should have factored in the fact that Apple's competitors would do a decent job building comparable products.
It seems to me that Apple's potential for growth remains unchanged - even if you don't factor in some new blockbuster product, in PCs they are growing at the expense of other manufacturers and they still have a lot of room for growth internationally. I don't see anything that's justified a 25% drop in value.
1. The idea that Steve Jobs, while immensely important and influential, was some sort of indispensable man. Yes, Sony faltered after Akio Morita passed, and Disney after Walt was gone. But is history so certain to repeat? Are corporations really impotent without the leadership of Randian ubermensch?
2. The idea that Apple simply had to create a new product this year. Not every year prior to Jobs' passing had new Apple products appearing. Certainly everyone is anxious to see what the company can produce in the post-Jobs era, but is it really realistic to expect the next iProduct within a year after Tim Cook became CEO?
While I don't buy into the "Maps would have never happened with Steve!!" the one thing that was undeniable was the man oversaw the iPod, the iPhone and the iPad. Unbelievable. Cook et al shows no signs of opening an entire new market. The iPhone is 47% of revenues today and now has several peers where even 2 years ago it had none. A lot of fund managers parked cash in Apple because it was assured of a better return than interest rates. Now that's gone away etc. So all of these things will add up and the stock will trade flat to down over the next few years (unless they change the TV or computing device market again etc)
MSFT was $26.x 14 years ago (even though this is all ignoring the ups & downs between, it's still dramatic).
Megacap stocks are horrible investments on average if you're seeking good returns, specifically because the law of big numbers cripples the ability for any truly massive company to keep a high growth rate. Not to mention that large companies typically begin paying their large profits out in dividends (rather than using it toward growth), and Apple will do the same. Microsoft has paid out the equivalent of half its current market cap in dividends over the past ten years.
It'll be little surprise if Apple is $550 ten years from now, and that's a good scenario given the history of big companies tumbling from the top of the mountain.
Unlike Microsoft, Apple has no 'monopoly' in anything, and they have a vicious annual upgrade cycle. If Apple screws up one version of the iPhone, their stock would crash spectacularly, probably losing at least 1/2 of its value. Microsoft botched a few versions of Windows, and took their time on releases, but their desktop monopoly shielded them from the fallout.
Whether we're talking McDonalds, Boeing, Coca Cola, Walmart, Berkshire Hathaway, Exxon, Intel, Microsoft, Cisco, HP, Dell, Chevron, etc. - eventually the growth boom ends, and stock returns race toward sub 10% annually. Walmart hasn't moved much in 12 years; McDonalds is now 'growing' at zero and their stock will follow; Coke hasn't moved in 15 years; HP and Dell are disasters, ditto Cisco's stock; Berkshire has returned about 3.x% annually over the last 14 years (with no dividend), radically below Buffett's historical record; Boeing has returned around 2.x% annually over the last 16 years. It's a very long list.
It's real simple in premise: you want Apple at $7, or $35, or $90, but not at $500 or $700 when the future returns are likely to be mediocre. Specifically, you want the next Apple, not the last one.
I think the bigger issue is that Apple has accumulated a ton of technical debt recently by having a ridiculous number of products in the market. To keep the plates spinning they've been forced to hire a massive number of new employees, which in the long term at best limits their growth potential and at worst is setting them up for a Microsoft-style lost decade.
Not that it means a lot.
See e.g. http://www.zerohedge.com/news/2012-11-08/apple-enters-gravti...
Note: VWAP means "volume weighted average price" and ES refers to contracts that track the price of the S&P 500 : http://www.cmegroup.com/trading/equity-index/us-index/e-mini...
If you are buying based on PE, good luck.
Yes I put my money where my mouth is. Sold AAPL, bought TSLA.
I can see Apple having a stock like Microsoft (i.e. flat for a decade), I can’t really see them being like Microsoft.