The Significance of Apple’s 12.4% One Day Stock Market Drop

Apple's 12 Percent Drop -sm
Today, Apple announced quarterly profit of $13.1 billion along with 28% sales growth in iPhones and 48% more iPads, its two biggest products. And in return, the market punished their stock with a 12.4% drop.

Apple announced that it has sold 47.8 million iPhones, but the market wanted 50 million, triggering analysts and news media alike to yet again question whether Apple could make it without Steve Jobs.

Do the Math

Problem is Apple, who plays in the highly competitive technology space with only $150 Billion in revenues is somehow valued higher than Exxon, a company with $486 Billion in revenues in a recession proof, almost monopolistic business. That’s not right folks.

If Steve Jobs were alive today:

  1. He wouldn’t have launched any new earth shattering products
  2. He wouldn’t have been able to talk his way out of this hit

In order for Apple to continue its sales growth for the next 5 years it would need to grow 47%! That is their historical 5 year growth. It happened because they literally invented new markets, and capitalized on them.

Without inventing something else revolutionary, they will continue to build boring, loveable products. But they can’t possibly grow that much again.

Bring the Pain

Assuming an average iPhone earned Apple $500, and rounding up sales to 48 million, that means they were short about $1 Billion in revenues from the shortfall in sales. But Apple’s 12.4% drop equated to a $60 Billion valuation hit.

Make no mistake, today’s adjustment had nothing to do with this quarter’s earnings. It had everything to do with the market realizing there is no quick fix for Apple’s change from a market creation machine to a normal technology company that once had a few good ideas.

Comments

  1. Nope.jpg says

    How about we give credit where credit is due? Apple has ‘invented’ very little, as opposed to outright stealing from other companies, and then turning around claiming THEY were the ones who had things stolen from them. I’ll agree that apple INNOVATED already-created things (The tablet for instance, certainly NOT an apple invention, nor were they the first to have one) and invent MARKETS for those things. Steve Jobs was merely a brilliant businessman (And a brilliant asshole). You don’t have to invent something if you know how to sell it to someone. I can invent my ass off and yet not make a single sale… if I can’t “Tell you why your world, your life, your family, your work NEEDS this product.”

  2. Tim says

    Your comparisons with Exxon ignore the long-term speculative nature of the stock market. The valuation is about what may happen in the future. Exxon’s future is: find more oil reserves and get it from A to B without spilling it. A solid business, but not exactly market disrupting stuff. The high valuation for Apple is based on the likelihood of them disrupting the market AGAIN! We know that new consumer electronic markets will be created and — where these markets are adjacent to Apple and Apple can leverage their platform — Apple is the most likely vendor today to succeed. 10 years ago, people couldn’t believe that Amazon’s valuation was more than the entire book market combined, but today we see Amazon as much more than just a book retailer. So good on the investors with the vision who bought into Amazon.
    While the sudden dip in Apple’s share price is directly related to iPhone sales, focusing on this as a measure of Apple’s of future potential misses the point about speculation. It’s the current trend to write Apple off, yet the Analysts bemoaning Apple’s iPhone product line also threw their arms up in horror because the iMac didn’t have a floppy drive, the iPhone didn’t have a keyboard and the iPad didn’t have a USB port.

  3. MDcourier says

    Has anyone brought up that Al Gore and others bought millions of Apple stock at $7.00 because they are on the board and where unloading it for their own fortunes. Just saying,

  4. Stefan says

    A few good ideas?? That’s a bit of an understatement.
    Revolutionizing music biz, putting computers in our pockets (iPhone), the Mac. These were a lot more than good ideas. They changed, no, redefined the game.

  5. says

    Great article. Cuts to the quick! But do remember that Apple has at least one big market in which to innovate — television. They did it with music, and they did it with phones. Plus, they were the first to crack the tablet code. Nothing to say they couldn’t do it again with televisions. But without Steve Jobs? Remains to be seen.

  6. Witchblade says

    It’s a shame Apple builds very little of it’s own now.
    Using Intel chips, Asus keyboards and many Samsung intenals as well.

    Apple used to create, not they just design and put together but still charge far
    too much. Even the iOs is a rehash if you look at it’s guts.

    Tech markets are fickle.
    Up one day…… Down the next.
    As long as people like their stuff, and are willing to pay the asking price,
    they will survive.

    • Tyson says

      I’m not an Apple fanboy, believe me, but the Mac OS is not just a “rehash”. It adds a lot of relevant tech to BSD Unix. Their display, type, and other extensions turned BSD Unix into an envelope-pushing OS. I still prefer the openness of Windows by comparison, but do envy a few of the things Apple has done with OS X.

  7. Brad says

    Excellent well written article. I don’t know where Apple can go from here. They’ve covered sound, visual, recording, transmitting, and played with dimensions. Can there be anything else? Maybe venture into smell technology so I can scratch and sniff my iPhone and get better restaurant reviews. Maybe a built in 4k pico projector with 5000 lumens and 7.1 surround sound, sure.

    • Tyson says

      How about just catching up to the rest of the smartphone market by implementing NFC and a HDMI port? There is plenty of relevant tech that has been available for at least the last two years that Apple has not integrated into their iPhone.

  8. says

    Apple pushing like mad company, but fears of Android being to strong for them. So Apples releasing so many 7″ tablets and etc.. Most in my field is Android members who rather use Android tablets and smartphones over Apple iPad and iPhone. Frankly if their stocks drop and then shoot back up that’s the way the business and stock market is played out here.

    I’ve been with Android Tablet since 2010 and code new code to make the Android tablets run better than the code Google Android uses. Oh-by- the way when I test Android Tablets I always have Geekbeat-TV on in the tablets to show how smooth the tablets run. I’ve enjoyed the shows you all have done!

    Keep up the excellent work you done for us all in this business! Peace and keep on smiling! :)

  9. Aldo B says

    Totally Agree. As I see it, there are only a few ways to get stock to see the same growth that people seem to be used to:
    1. Reinvent something again like they did the iPhone. Not the same as improving something…they need to create something extraordinary. Or
    2. Buy back stock to lower their ratio making the stock more attractive. And/Or
    3. Since they now seem to be a value stock, increase the dividend which will make the stock more attractive from an investment standpoint.

    This doesn’t mean that Apple isn’t an extremely successful business, but they are also a public company and investors want return. In the absence of creating something new that will generate hyper-growth, I believe they should buy back stock and increase the dividend.

  10. Jorge Santana says

    Well Amazon and Netflix valuation really don’t make any sense. Thinking that Apple will stop innovating is ridiculous. So just because one of the most innovative companies Ever has 2 years on iterations means they will stop innovating makes absolutely no sense. TV, Gaming, Portable computers, etc… All will be disrupted or created and Apple will be in the forefront. No other tech company besides google can innovate like apple and apple has the $$$ to make their dreams come true.

    • Profile photo of John P. says

      Jorge,

      Innovation is an iterative process and Apple’s experienced management team certainly has the ability to continue improving their products and their market position. They can also make a lot of money. But there is a difference between invention and innovation.

      Apple is likely to become the American version of Sony. A strong company with great products, but in order to stay relevant they must continue inventing new areas in which to expand. This is the story of all businesses, build something new, then watch as margins erode when competitors enters the market.

      Microsoft, Panasonic, Yahoo, eBay… we could name different companies all day long who dominated their industries for years or even decades, but eventually all succumb to competition. The only question is – is this Apple’s time?

    • Peter says

      Jorge¸ I assume you are aware that among the multi billion tech companies, Apple invest the least. Google with half their revenue invest double the tech and Microsoft even more. Apple relied quite significantly on visionary leaders and unique products and their brand value. Now, then the visions are fading and their products are no longer unique and with “little” research and development compared to their competitor, they are facing a though market and are, rightly or wrongly, punished for it.