Back in October, Apple was crowned the first company to be valued at more than $1 trillion. Well, the bigger they are, the harder they fall it has been said and so it would seem. Don’t look now, but Apple’s stock is in a free fall, losing almost 30% of its market capitalization in about three months—some $452 million. In a several trillion dollar stock market, it might serve well to put that figure in the context of other well-known companies.
With Apple’s market cap down to about $674 billion, its losses are larger than individual value of 496 members of the Standard and Poor’s 500 (S&P 500) — including Facebook. To give it further context, try this on for size: what it has lost is three times the size of McDonald’s total value as a company. Quite a humbling experience for Apple as it was recently the world’s wealthiest company.
Should This Concern You?
Ho-hum, you say, not being the least bit concerned about stock prices. Why should this bother me, you say? I’m a consumer—a product user, not a stock jockey, you say. Well, for one, if you’re employed in a company and participating in its pension scheme, the sharp sell-off might concern you a bit as it would be surprising if Apple wasn’t in the stock portfolio. Have you checked lately? If you’re lucky enough to have a U.S. 401k plan, it too may be looking a little ragged these days largely due to the tech sector’s decline in general over the past couple of months with widely-held Apple leading the way. If Apple is included in an institutional portfolio, there is not much you can do about it. But maybe you do own it or were thinking of owning it. What now?
There is much speculation about whether this plunge is more than the company simply missing its revenue forecasts. Some even posit that “Trump’s Trade War” is a cause. Perhaps, some argue there is an easier explanation– and one that makes sense. iPhones are a major part of Apple’s business, and a bad phone, or an unpopular one, is a large contributor to the missed revenue goals. In an internal memo to Apple employees, CEO Tim Cook specifically pointed to a failure to sell iPhones in China as the reason behind the company’s $5 billion revenue shortfall. People in China apparently just stopped buying Apple’s hype and thus its products. Is this Apple specific or signs of something more worrisome?
Pricing Itself Out Of Consumer’s Reach
The explanation may be no more complex than product- pricing according to a consensus of experts. The fault ultimately lies with Apple, which maintained high prices on a plateauing technology that is rapidly become a commodity and thus can’t justify the high price. Basically, Apple screwed up its pricing strategy, goes the prevailing thinking. A Goldman Sachs analyst claims Apple “miscalculated on the price/feature balance”. Another, long-time Apple enthusiast, which has always been quite bullish for Apple, wrote, “Maybe Apple pushed its ‘Apple tax’ a bit too far this time around,” in a piece titled “It’s Official: iPhones Are Too Expensive”.
Or maybe the new phones are too pricey in relation to innovation—or in this case, lack of something really new or better. One Apple aficionado, Garrison Douglas opined, “Just an idea, maybe you should stop releasing phones like they are revolutionary when all you did was upgrade the camera by a megapixel and upgrade the chip.” As a result, many Apple fans are simply keeping and repairing their phones for a fraction of the cost. Note: Apple lamented this fact in the memo.
Tim Cook’s Strategy Going Forward
Apple CEO, Tim Cook, hinted about Apple’s short-term and long-term strategies for the future to allay any investor/consumer fears. Without getting into specifics, he pointed to the debut of new services as well as the expected continued success of present businesses under the Apple umbrella. For example, its services business which currently includes Apple Music, iTunes, the App Store, and other entities has brought about $10 billion in revenue to the company and are forging ahead full-speed. By the way, those companies have grown their business almost six-fold in the last few years. This year, look for Apple to launch its long-anticipated TV streaming service which will spin of more millions in revenue.
But, at least in my opinion, the jewel of the future will be Apple’s foray into healthcare an area of great promise and profits. “On the healthcare, in particular, and sort of your well-being, this is an area that I believe, if you zoom out into the future and (after) look back and you ask the question ’What was Apple’s greatest contribution to mankind? It will be all about health. Because our business has always been about enriching people’s lives.” Product launches like the Apple Watch in 2015 are just the tip of the iceberg to Cook. Its expanded health-tracking capabilities will include even a defibrillator and only increase the already handsome profit additions to the balance sheet.
Don’t Bury The Body While It’s Still Alive
Perhaps all the kudos and the victory lap last fall were premature or uncalled for. It is just as likely that Apple’s epitaph is also unwarranted now—its demise greatly exaggerated, to paraphrase Mark Twain. It is highly unlikely that the company will follow in the failed footsteps of Nokia which was on top of the heap just a decade ago. What do you say we put the precipitous decline of Apple’s stock price into proper perspective?
Taking a giant step back from the short-term mayhem, it’s clear that the long-term uptrend remains fully intact, analysts say. In fact, they point out the stock is still trading well above the 50-and 200-month moving averages—indicative that, while it surely has declined precipitously, it hasn’t completely lost its appeal or promise. Don’t forget, this 30% pullback comes on the heels of a 2-year 160% surge!
So, whether you’re a consumer, an investor or just a casual observer, you would do well not sell either the stock or the company short. If you do, you may be missing out on all the promise of the future—not to mention the enjoyment of Apple’s prodigious tech wizardry.