I was watching the TV this morning and they were talking about Apple’s sliding share price. The stock of the most valuable company in the world has dropped by more than 20% over the last few weeks from its all time high of $700 in September.
As you would expect with Apple, there has been lots of speculation as to why the stock is performing so badly while the underlying performance of the company remains solid. Apple met analyst expectations in their latest quarterly report last month and ended another spectacular financial year with a 45% increase in revenues and 61% increase in profits.
Theories as to why the stock is sliding include supply chain problems, margin erosion, increased competition from the likes of Samsung and Microsoft, profit taking before expected increases in capital gains tax and the recent departure of one of their key executives, Scott Forstall, who ran their mobile software department. These are all significant factors but I still don’t think can justify the current share price.
When you look at the price in terms of a multiple of earnings, Apple is now at 12x earnings against the average for all US public companies of more than 15x. So Apple is now trading below the average – all despite its very unaverage revenue growth, cash pile of more than $120bn and world-leading and recently updated product line that includes the recent launch of the iPad Mini that has had great reviews.
So what’s going on? I think Apple is a victim of the amazing standards of innovation they have set for themselves. It’s not good enough to maintain extraordinary levels of revenue and profit growth. It’s not good enough to keep improving a very impressive roster of products.
As the guy said on the TV – there’s no ‘OMG’ factor in what they are doing right now. In the 2000’s Apple almost routinely turned whole industries on their heads, dazzled us with amazing innovation and gave us products we didn’t even know we needed. The company’s new product launches during that time looked like this:
2001 – iPod
2006 – MacBook
2007 – iPhone2008 – MacBook Air
2010 – iPad
Since then we have ‘just’ had incremental improvements to this product line. This can keep revenues and profits moving in the right direction for months or even years. But we all know that eventually the music stops if a company doesn’t keep innovating. And innovation for Apple doesn’t just mean incremental steps. It means inventing new product categories, giving us that thrill of seeing something that we weren’t expecting and making us look at the world differently. Essentially it means the OMG moment.
Until the next big product release comes, investors will wonder whether the future of the company is in good hands without its legendary founder. Investors will wonder whether Job’s amazing vision and ability to deliver on that vision can be maintained. The world demands to see what’s next and, until the company answers this question, the doubts will remain no matter how well they are performing.