Apple Inc. reached a market capitalization of over $100 billion for the first time of its history on Wednesday. MacScoop provides you a retrospective and a full analysis of Apple's current situation for the occasion.
The company's shares closed on an all-time high of $118.77 and continued to climb above $119 during the after hours trading session. Shares were helped by several announcements made by the company during the day. Among them, the arrival of DRM-free [1] on iTunes, the availability [2] of YouTube's content on the Apple TV by June and a 160GB storage option for the company's living-room appliance.
Apple also joined [3] the S&P 100 Index today, something that usually boosts the stock of companies that are joining it, due to the fact several portfolio managers track the Index.
Why is this good news?
What means a such big market capitalization for Apple and its shareholders? The market capitalization is the value of all of its outstanding shares additionned. It gives an idea of the price another company needs to pay so as to buy 100% of Apple, though in most cases a little more than half of this is needed for a take over. This means that, the bigger Apple gets, the most difficult it is for potential predators to take it over.
The last recorded annual revenue for Apple is $21.59 billion and analysts are predicting 2007 revenue to be nearly $30 billion.
To help you realizing how big $100 billion is for a NASDAQ company, let's compare its market cap and annual revenue with other companies in the PC and consumer electronics industry and also with some Apple partners:
Notice that it's not really worth being among the first PC makers in the industry (DELL) or among the pioneers of consumer electronics (Sony). We can also see that Apple can finally be compared to the biggest names of the NASDAQ as it's not so far from HP, Intel, IBM!
However, if we take a look at the revenue and compare it to other companies of the sector, we can see that there's still some way to go for Apple before it has similar revenue to its competitors and suppliers.
Apple and Google are a good illustration of the fact that the value of a company is far from being totally linked to its annual revenue but has more to do with its outlook.
Continued... (page 1 of 3)
Retrospective
A few weeks ago, when Apple's shares were trading at near $90, who would have bet on such an upside in a so short timeframe? This recent upside was certailnly triggered by two things: the happy end of the company's stock-options issues and the non-delay of the iPhone. The launch of iTunes Plus helped Apple to pass the $100 billion market value milestone.
Here is how the stock performed during the last five years:
[4]Source: Yahoo Finance [5]
Now let's take a look back to when Steve Jobs arrived at the head of Apple in 1997. In 10 years of leadership, Apple has generated market value of more than 90 billion, though most of the upside happened in the last four years.
Just to realize what mess Apple is coming from, I suggest you to take a look on this New York Times article [6] dated January 24th, 1996, it relates rumours that Sun may be on the verge of taking over Apple. Pretty funny if you read this now.
Continued... (page 2 of 3)
Outlook / Analysis
Apple is also poised to become the fastest growing company of the NASDAQ in terms of market value generation for 2007. Last year, Google was the one but Apple did also quite fine by taking the second spot.
By the end of the year and beyond that timeframe, Apple has several opportunities to push its value even higher:
- the possible success of the iPhone and the positive financial impact an entrance into a multi-billion market implies
- increase of Macs' market share,
- chances to remain the leader in the digital media devices market,
- strong possibility that Apple becomes a leader of media distribution as well (think iPod, Apple TV and iTunes combination)
- may win further market share in Pro software
There are potential threats though:
- high competition in all areas, including Macs, mobile phones and digital media players,
- possibility the compay encounters production issues on one of its core businesses,
- stock-option issues could resurface and involve management,
- may face law suits from intellectual property, trademark and share holders,
- may face sector weakness.
Apple can count on the following strengths:
- very good brand image and visibility (cool factor, buzz),
- products recognized as being high quality and high end,
- ability to initiate strong partnerships (hardware suppliers, majors, internet companies),
- competent, charismatic and influencial board of executives,
- strong position in the digital music market,
- strong financial position (very profitable, growth, much available cash).
But may face issues because of its weaknesses:
- still minor player in the PC industry,
- beginner in the mobile phones business
- almost inexistant presence in the corporate market,
- workforce insufisence (though its executives do not admit this),
- no presence in important markets such as Internet services,
- current offering does not address completely the markets it's in, especially the low-end part,
- occasionnal quality glitches,
- depends way too much on its CEO.
Analysts have been pretty positive on the company lately, with latest stock target prices averaging $130~$140. You may notice on the above SWOT analysis that there are a couple of things that could make Apple continue growing, among them, the iPhone and potential gains of Mac market share.
To finnish, let's mention Michael Dell's statement when questionned in 1997 on what he would do if he was the boss of Apple:
"What would I do? I'd shut it down and give the money back to the shareholders."
Sounds pretty fun now! Doesn't it?
In the interest of full disclosure, we inform you that the author of this article holds a small share in AAPL stock since 2001 that was not an influence in the creation and the publication of this article.