Friday, February 10, 2012

An Apple a day... or, will it ever hit a trillion bucks?

Couple years ago, when the Apple stock was trading in the $200s, I read a geek's note in a user forum claiming the stock would hit 1000 bucks one day, bringing the company's market cap close to a trillion dollars. Despite my ever lasting obsession and geekism about the company, I couldn't help thinking "a trillion bucks? You wish, dude" and get a big sarcastic smile all over my face.

Mind you, more than 10 years ago there has been a bunch of much 'smaller' companies than Apple is today, who had crawled over the $500B mark of market cap and stayed there for quite a bit of time, until the bubble burst. Sometime after the millennium turn, it was. A few months later. Microsoft, Intel, and... Cisco of all people, all three managed to be there, a select group of outliers and top technology performers, when the sky didn't use to be the limit. I remember the day when the media announced that Bill Gates was the first man ever worth more than 100B greenbacks. That was probably the day he also decided to quit Microsoft and leave it to Monkey Boy (also a Steve), become a benefactor and seek the Peace Nobel Prize courtesy of his Bill/Melinda Foundation related work...

At 200 bucks a share the trillion dollar mark seemed pure insanity back then. We all knew and hoped they'd hit the $500B market cap point real soon, perhaps not before His Jobness passed, but pretty soon after that. Well, we are almost there. The stock has been flirting today with the $500 a share point, which puts them at cruising altitude to hit it pretty soon anyway, or say, in the next couple of trading days. With 932 million shares outstanding, you then realize that only a few percent points value growth will be sufficient to bring them over the incredible $500B market cap point. Today, they were even valued more than Monkey boy's and Largey's companies put together (that's Microsoft and Google, I guess)!

How about that trillion then? Well, if they continue to deliver numbers like those they did in this last quarter, they'll have set aside approximately $150B sometime at the back end of this fiscal, growing it probably to more than $200B by the end of next year. That's a lot of dough, mind you. Add to it the market value of their brand names (iPod, iPad, iPhone) and consider the future business prospects of their products in countries like China, where everybody wants to own a genuine iPhone, and Bob's your uncle. MSFT, INTC and CSCO hit the $500B market cap point with relatively much lesser fundamentals and multiples. Why couldn't Apple hit the trillion bucks eventually with its far better ratio's and future profit prospects? Are they now, all of a sudden, going to perform badly for a change? Just because His Jobness passed? Will they lose their flare and ability to scale? You better not believe that. Besides, a stock is being pushed upwards by other factors as well. For instance, today's rally resulted, they said, from a speculation that Apple might be unloading some of their cash mountain real soon in the form of paid-out dividends. Jobs was always against this. But sadly, Jobs is no more, and the new kids look far 'humanly weaker' than he ever was. In other words, they'd hugely benefit too if dividends were paid, as they're also holding shedloads of stock in their pockets. The biggest impact on the share value though remains the probability of pension funds coming in if the dividends fable proved real. Because, as the savvy among you already know, that's a condition for pension fund managers to take a position in a given company's share capital. The return of dividends. Pension funds need hard dollar income coming in regularly. Value growth alone won't cut it. And then, when demand for a company's stock suddenly increases from new entrants, the share price knows only one way to move. And that's a two letter word!

Some also suggested today's rally was partly due to alleged plans for announcement of the iPad 3.0, scheduled for early March. But that would be the last possible factor to explain today's almost 4% rise. The high jump was most probably due to the dividend rumor and the company's current multiples and fundamentals, especially their mountain cash, enough to help the Greeks out of their misery for ever.

Well, is Apple gonna be valued at more than a trillion, eventually? Better believe it... sure thing! Sounds kinda peculiar but it's sure seems like being within range, even today. Before we know, Apple will be making the best part of $300B in annual revenues and $100B in annual profit. Already operate in more than 40% margins! Your Jobness Almighty, St-Steven, bless us from above! And the geek in the forum, who predicted this years back, and probably had no clue what he was talking about, will eventually prove prophetic beyond belief. Wasn't that the way it happened with St-John the Baptist? 2000 years ago? Give and take?

2 comments:

Anonymous said...

could you please explain more about the The biggest impact on the share value though remains the probability of pension funds coming in if the dividends fable proved real. Because, as the savvy among you already know, that's a condition for pension fund managers to take a position in a given company's share capital. The return of dividends. Pension funds need hard dollar income coming in regularly. Value growth alone won't cut it. And then, when demand for a company's stock suddenly increases from new entrants, the share price knows only one way to move. And that's a two letter word!

VJK said...

There's nothing more to explain. It's exactly like it sez. A pension fund manager is only allowed to take a position in a particular stock, if, and only if the stock pays out dividends. If the question was about the two-letter word, that's simple. How many words in English do you know denoting an upwards movement? With two letters? Kinda like the first one that comes to mind? More help?