Apple loses $34.9 billion in market cap
thenextweb.com
thenextweb.com
That said, most of the volatility comes from all the prop trading firms trying to turn a profit. AAPL is considered a bullish stock amongst fund managers and is often used to hedge against other riskier positions in the market. Often times big dips in Apples stock can be attributed to profit taking (especially around this time as we finish up for the year and get nearer to the end of an American financial quarter – gotta look good on the books to the get Christmas bonus) and margin calls on bad trading days. You’ll notice a dip in the afternoon of any bad trading day as prop firms start getting margin calls on their failing positions and have to sell to cover their losses.
Apple is just a high-end tablet maker, and they are getting hit very heavily by their competition. You can't ride forever on the fanboy wave and the brand wave. Fanboys will realize the competition is better, cooler, cheaper, and Apple brand is already toxic, it's not cool anymore.
I just wanted to make a point about comparing P/E ratios. You know, from my Macbook.
I agree that Apple used to be on the cutting edge of technology and innovation. Now they are desperately trying to catch up with the competition, and fail every time. They still do have good sales, but that won't last.
Needless to say, "the rest of the world" is much bigger than San Francisco. Apple has already peaked.
Remember, Apple's market cap is still much larger than that of Amazon. Even though Amazon has what over the long term might end up being a much more lucrative model, in that it is poised to more or less control retail and retail logistics everywhere.
They're both great companies, but the P/E of each company tells a different story about their business (neither story is bad).
What I should have said is: The expected future profits of Amazon would have to be 283x their own current profit (sorry, not Apple's profit), to arrive at a P/E similar to Apple's now. (In other words, to match Apple's strategy of extracting max profits to cash.)
That is a smaller number than I implied above, but it would still require Amazon at some point in the future to make a profit of $178 billion in 2012 dollars--more than 4x Apple's current profits.
To achieve that with, for example, the profit margin of Walmart (the current dominant retailer), they would need to do about $5 trillion in sales, again in 2012 dollars--about one third of U.S. GDP, or 1/14 of world GDP.
If we spot them Apple's current profit margin, sales would still need to be about $670 billion--about $180 billion over Walmart's current sales (at much higher product prices).
So while I totally understand the idea that Amazon is reinvesting for future growth, I just don't think future growth could ever be high enough to justify the stock price now.
Most fundamentally, from a corporate perspective it's not like the company "loses" anything on its balance sheet when its shares change hands at a particular price. The share price does affect the company's cost of capital, but not so simply and not directly. Apple in particular is not going to need cash any time soon.
The more relevant measures of corporate health are the traditional revenue, net income, free cash flow, etc. It's true we don't get updates to those quantities every microsecond but they are still more important.
To the extent a 6% drop might reflect somebody somewhere with groundbreaking secret information that casts Apple's future income in doubt who has decided to place a big bet, yeah, it's possible, but it's too soon to tell and we don't really know what it means. (As Steve Jobs said, "Stocks go up and down.")
In the last year Apple generated $55B in pre-tax earnings. They had $80B in revenue from the iPhone at a margin of >60% or $48B. They sell the iPhone for an average of $642 while the Nexus 4 retails at $299. If the iPhone dropped to a wholesale price of $399 ($100 pricing advantage), it would reduce pre-tax earnings by $30B (55%). If iPhone sales double that would offset about 60% of that decline.
Another way to ask this question is what total mobile phone profits will be in mature market. If there are 7B phones replaced every 4 years, that implies 1.75B phones sold. Cost will likely fall so revenue could be 437.5B. If Apple can capture 30% of that with margins more similar to the Mac (~30%), this suggests even if Apple continues to make better products and can maintain significant market share, they'll earn 20% less from the iPhone than they do today.
Of course Apple has an extraordinarily successful iPad business but its margins are much lower than the iPhone and as an unsubsidized device will likely face greater pressure.
The questions to ask is evaluating Apple are: When will their earnings peak and by how much do will they fall before they reach an equilibrium. While this may be anathema to some and I admire what Apple has achieved, large economic profits cannot exist in the long run in a competitive market. Why is a longer discussion but I challenge the reader to pose a counterexample.
A better comparison would be a recent 4G smartphone like the Samsung Galaxy Note 2. It lists for $699 and is available with a 2-year contract for $299 from Verizon--$100 more than the iPhone 5. Or the HTC Droid DNA, which lists for $599, available on contract for $199. Like Apple, Samsung and HTC are actual competitors in the market and need to make money on each phone they sell.
The flaw I see in your analysis is that it presupposes that competitors to Apple are going to be able to significantly undercut Apple on price. Apart from subsidized Nexus phones, I don't see much evidence that is true.
It's also interesting to see how its P/E is lower than Microsoft's now. Given the generally lukewarm reception towards Windows 8 / Surface, you'd think more investors would be fleeing from MSFT. I sold my MSFT shares and went short last month after buying (and returning) the Surface RT.
http://www.bloomberg.com/news/2012-12-05/apple-declines-as-n...
There was an obscure clearing house that upped its margin requirement for APPL holdings that made the news this afternoon. Now why that triggered a sell off, I couldn't tell you. I'm no Apple bull, but this was sort of odd. Can't really trust anything happening in the markets the past few months.
I guess China Mobila signing a deal with Nokia for its Lumia Windows-phone 8 for it's 700 million subscribers, wont mark any improvements for Apple's already declining global market-share among smartphones.
Soon Apple's iPhone and iOS will be a sub 10% market-share actor, and then people are going to ask themselves if they are going to bother to develop for the platform at all.
Seeing as Apple currently lives on two products only, the iPhone and the iPad, both dependent on each other for its success, being in the position where one of those two products turns into a failure speaks badly about its future.
Pretty much everyone who made it to the $700 valuation did so on an early, lucrative buy. It's all taxes.
http://taxfoundation.org/blog/fiscal-cliff-capital-gains-and...