Understood. I said that the growth should start to level off, you indicated that no, it would continue to grow, I assumed you meant at the current rate, thus the question, $1000?
Just a simple question no argument.
I can see Apple continuing to grow with remarkable financial numbers, but I doubt it will continue, long term, at the same percentage they've been growing, and that's simply because the amount of money they would need to bring in to provide the same sort of return on investment they've provided to their customers would become increasingly more and more impressive and difficult to attain. They certainly do still have remarkable potential, though.
So yes, I expect they will continue to grow. But I don't expect the stock to offer the sort of percentage growth, year-to-year, that it has offered since it was devalued in the recession. Numbers like $1000 become pretty wild speculation (especially short term). Apple would have to continue growing their existing products with remarkable success (quite possible), but would probably also need to disrupt entirely new markets with similarly successful products.
I'd like to think he's right, but the numbers don't reflect current realities. He's looking for AAPL to appreciate faster than their EPS (67% vs. 54%). The truth is, over the last several years, the opposite has occurred. Why he thinks multiples will actually increase at this stage is hard to figure.
He thinks that the multiple has been hammered down to an insanely low level and that it will recover. This is possible. It's also possible that the multiple won't recover. Time will tell, but I certainly couldn't declare him wrong in advance.
Anyway, this analyst seems to think the opposite trend is at work. It's not clear to me how he gets there.
Well, as far as I can tell, the decreasing multiple afforded to AAPL over the last few years is a direct consequence of investors (perhaps wrongly) invoking the law of large numbers (exacerbated by concerns over Jobs' health). There's a prevailing attitude that once your company gets so large, you simply can't continue to grow your earnings. In general, that is true, because such companies typically dominate markets that are fully saturated. In Apple's case, that is far from true, so it seems apparent that the multiple compression has occurred before it rightly should. In other words, AAPL is already being treated as a "value" company even while it is still in "growth" stage. All that means is that Wall Street is saying "show me the growth" instead of anticipating it.
Now, per your point: what could happen to *snap* Wall street out of that impression and get them to raise the multiple again? Well, I think that the 2011 performance of iPhone 4 and iPad 2 may just do the trick of showing that Apple is no where near saturated in these markets. The multiple may then "eke' up away from the "Dell's" of the world.
He thinks that the multiple has been hammered down to an insanely low level and that it will recover. This is possible. It's also possible that the multiple won't recover. Time will tell, but I certainly couldn't declare him wrong in advance.
Thompson
2024 rolls around... 20 fantastic new products and services have been added since 2011... Apple still adds 50% year over year... forward p/e = 12.37, trailing p/e = 14.94
One analyst to another analyst,
"hmmmm... AAPL sure looks like a good buy but I remember when they tanked a couple of times in the 80s and 90s and I'm not sure if the 12 years that has passed since Jobs was CEO is enough time to see if the new management team has the right stuff..."
I don't think that's quite right. If Apple's P/E today were the same as AMZN, then the market would be expecting much higher profit growth from Apple than it currently is, and Apple's stock price would not have much room to rise. In that case, there would not be a very good buying opportunity.
But because Apple's P/E is (if you believe Asymco and similar folks) too low right now, there is a buying opportunity. That doesn't mean that the P/E ratio will rise in the future... more likely it will stay the same or even fall a bit. But if earnings growth (that's the E in P/E) is above expectations, then the P will have to rise in order to keep P/E the same. And when you buy and sell a stock, you pay P, not P/E.
Multiples have been compressing for the last few years, also according to Asymco (and according to me, if that matters). That can only be interpreted as a collective bet by investors that Apple just can't keep the growth rate up. I can understand that sentiment when it's expressed over a period of a few quarters or a year even, but not two or three, when all the evidence is to the contrary.
The point about AMZN is that investors are prepared to get the share price way, way ahead of actual earnings. The the forward PE for AMZN is 51 and the PEG is 2.6. The second number tells you how much of a premium investors are willing to pay for future earnings. That number is sky high. For AAPL the numbers are 13 and 0.7, very low for a company growing earnings as they have been. And there's nothing to say that AAPL's multiples and PEG won't remain just that way, or even go lower. So it may not represent a buying opportunity at all. There's just no saying for sure why Apple's earnings growth is so much less attractive to investors than Amazon's, only that it is.
So yes, if earnings continue to rise, the stock price will probably also rise -- but if the recent past is any guide, not at the rate earnings rise or are projected to rise. Thus, a continued PE compression is quite possible.
He thinks that the multiple has been hammered down to an insanely low level and that it will recover. This is possible. It's also possible that the multiple won't recover. Time will tell, but I certainly couldn't declare him wrong in advance.
Thompson
I'm not. I just don't see his justification, which may be more than I should expect from a digested report on this site. So I'm really just wondering what it is.
Quote:
Originally Posted by thompr
Well, as far as I can tell, the decreasing multiple afforded to AAPL over the last few years is a direct consequence of investors (perhaps wrongly) invoking the law of large numbers (exacerbated by concerns over Jobs' health). There's a prevailing attitude that once your company gets so large, you simply can't continue to grow your earnings. In general, that is true, because such companies typically dominate markets that are fully saturated. In Apple's case, that is far from true, so it seems apparent that the multiple compression has occurred before it rightly should. In other words, AAPL is already being treated as a "value" company even while it is still in "growth" stage. All that means is that Wall Street is saying "show me the growth" instead of anticipating it.
Now, per your point: what could happen to *snap* Wall street out of that impression and get them to raise the multiple again? Well, I think that the 2011 performance of iPhone 4 and iPad 2 may just do the trick of showing that Apple is no where near saturated in these markets. The multiple may then "eke' up away from the "Dell's" of the world.
Thompson
Good points. I think you may be on to something with the Jobs situation. If I'm getting testy with Apple management's handling of this, then I can well imagine that a lot of institutional investors are even more so. They're not going to crawl too far out on a limb if they have questions about a company's management. It's impossible to know how much shareholder value has been depressed by this, but I think some for sure.
If I'm getting testy with Apple management's handling of this, then I can well imagine that a lot of institutional investors are even more so. They're not going to crawl too far out on a limb if they have questions about a company's management. It's impossible to know how much shareholder value has been depressed by this, but I think some for sure.
I've heard this sentiment a lot out there, so I'm certain that the shares are depressed over the uncertainty. But here's the problem I see with the opinions of Apple's mishandling of the situation: I have yet to hear anyone present a specific example of a BETTER way to handle this tragedy that would have caused any less damage than what has already been done, not to mention even provide a modicum of privacy to Mr Jobs. In other words, I think that the desire for specifics in this situation would ever drive for more, more, and still more details... anything short of a prognosis quote directly from Steve's doctor. In short, I'm not believing that the complaint against Apple's handling of this is well-founded and realistic. My hunch is that it just doesn't get any better than this, so Jobs may as well have as much privacy as he wishes.
People say, "Apple could have handled it better, because [fill in the blank]." But I believe that if you invented any specific example of what they could have done differently, I could invent a plausible reason for why it wouldn't have helped, or possibly could have made matters worse.
Not that it can't be done, but it is very difficult to double a company from $300 billion in market cap to $600 billion. So hard in fact, that to date, it has never been done.
Microsoft had a market cap over $600B on December 22, 1999.
I've heard this sentiment a lot out there, so I'm certain that the shares are depressed over the uncertainty. But here's the problem I see with the opinions of Apple's mishandling of the situation: I have yet to hear anyone present a specific example of a BETTER way to handle this tragedy that would have caused any less damage than what has already been done, not to mention even provide a modicum of privacy to Mr Jobs. In other words, I think that the desire for specifics in this situation would ever drive for more, more, and still more details... anything short of a prognosis quote directly from Steve's doctor. In short, I'm not believing that the complaint against Apple's handling of this is well-founded and realistic. My hunch is that it just doesn't get any better than this, so Jobs may as well have as much privacy as he wishes.
People say, "Apple could have handled it better, because [fill in the blank]." But I believe that if you invented any specific example of what they could have done differently, I could invent a plausible reason for why it wouldn't have helped, or possibly could have made matters worse.
Thompson
I'm sure you could, and I agree that some of the negative reaction going to be inevitable, due to the nature of the situation. However, Apple has been pressed for some clarity on management succession for some time. I think they could reduce some of the uncertainty there without any plausible downside impact. Nobody that I've heard is demanding medical details (this is the persistent and pernicious straw man argument), but they could say something a bit more descriptive about how Steve can run the company when he's not there, if indeed he can. Investors do worry about leadership issues, and rightfully so. Apple does not need to leave us dangling on this point. It's a choice. Finally, the most drastic (for lack of a better word) measure is to name Tim Cook as CEO and Steve as Chair. I can see an immediate downside to this move, but one that over time creates a sense that the company is not going through leadership flux on an ongoing basis. This also reduces uncertainty. Do you see where I'm going with this? Investors hate uncertainty. They vote against it with their dollars. Apple could readily demonstrate that they are prepared for a post-Steve era, whether it comes tomorrow or ten years from now. For the time being, they are simply not prepared to do this, and it causes investors to worry about whether they are prepared.
I'm sure you could, and I agree that some of the negative reaction going to be inevitable, due to the nature of the situation. However, Apple has been pressed for some clarity on management succession for some time. I think they could reduce some of the uncertainty there without any plausible downside impact. Nobody that I've heard is demanding medical details (this is the persistent and pernicious straw man argument), but they could say something a bit more descriptive about how Steve can run the company when he's not there, if indeed he can. Investors do worry about leadership issues, and rightfully so. Apple does not need to leave us dangling on this point. It's a choice. Finally, the most drastic (for lack of a better word) measure is to name Tim Cook as CEO and Steve as Chair. I can see an immediate downside to this move, but one that over time creates a sense that the company is not going through leadership flux on an ongoing basis. This also reduces uncertainty. Do you see where I'm going with this? Investors hate uncertainty. They vote against it with their dollars. Apple could readily demonstrate that they are prepared for a post-Steve era, whether it comes tomorrow or ten years from now. For the time being, they are simply not prepared to do this, and it causes investors to worry about whether they are prepared.
You know my stance here: I believe that Jobs will initiate the succession plan upon his return and that we will have Cook as CEO and Jobs as COB.
In an interesting aside regarding Cook's suitability as CEO, I think people forget that he graduated with a degree in Industrial Design. I am not suggesting that he could directly replace Jobs but, between his formal education and his "internship" with Jobs, I suspect he knows how to do design-led products. At the very least, it relieves me that the most like CEO candidate has a background in engineering and design rather than just accounting or finance.
I wasn't estimating the size of the investment world, just the size of the investment community that is not already highly invested in AAPL. Funds are not allowed (by their own bylaws, by federal law, and/or by their risk ratings) from putting more than X% into any given security. And a lot of folks have taken money out of securities since the big recession. And there's a lot less leverage out there to run up bubbles than there was 10 years ago. That means that the perceived risk of having "all your eggs in one basket" starts to be a greater and greater reason any given fund chooses not to invest in Apple. Since that risk has nothing to do with Apple's fundamentals, I would expect to see the stock price growth increasingly diverge from the earnings growth.
This is an important angle for people to think about, especially if they are prone to bellyaching about periods of time when AAPL's price seems to move sideways. It should be noted that people are not just taking money out of funds, due to the poor economy. Many people, who would ordinarily contribute a percentage of their wages to retirement plans who invest in funds, are out of work. When these people begin working again, they will begin making fund contributions again, giving the funds more headroom to make further investments in AAPL. Of course, a better economy will also embolden retail investors, many of whom took profits in AAPL, to reenter the market.
2024 rolls around... 20 fantastic new products and services have been added since 2011... Apple still adds 50% year over year... forward p/e = 12.37, trailing p/e = 14.94
One analyst to another analyst,
"hmmmm... AAPL sure looks like a good buy but I remember when they tanked a couple of times in the 80s and 90s and I'm not sure if the 12 years that has passed since Jobs was CEO is enough time to see if the new management team has the right stuff..."
I'm sure you could, and I agree that some of the negative reaction going to be inevitable, due to the nature of the situation. However, Apple has been pressed for some clarity on management succession for some time. I think they could reduce some of the uncertainty there without any plausible downside impact. Nobody that I've heard is demanding medical details (this is the persistent and pernicious straw man argument), but they could say something a bit more descriptive about how Steve can run the company when he's not there, if indeed he can. Investors do worry about leadership issues, and rightfully so. Apple does not need to leave us dangling on this point. It's a choice. Finally, the most drastic (for lack of a better word) measure is to name Tim Cook as CEO and Steve as Chair. I can see an immediate downside to this move, but one that over time creates a sense that the company is not going through leadership flux on an ongoing basis. This also reduces uncertainty. Do you see where I'm going with this? Investors hate uncertainty. They vote against it with their dollars. Apple could readily demonstrate that they are prepared for a post-Steve era, whether it comes tomorrow or ten years from now. For the time being, they are simply not prepared to do this, and it causes investors to worry about whether they are prepared.
No I totally get where you are coming from, and I agree with the principle. But I disagree with the reality of it all. I mean honestly, if your premise is that there is a better way to handle the disclosure, then it would be reasonable to assume that the board of directors would have to sit down and engage in a debate on the possible alternatives. And someone would have to get specific. If anyone suggested something generic like "this way is the worst possible way and there must be better answers", then a logical response would be, "in that case, it should be easy for you to name just one". Otherwise, someone might suggest something specific, and then they would debate the merits. And so you have suggested two. Let's consider...
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(1) but they could say something a bit more descriptive about how Steve can run the company when he's not there, if indeed he can.
I believe this would do absolutely nothing for the shares. Most investors are not worried about the day-to-day running of the Apple ship. They already know Tim can handle that aspect (better than Steve, truth be told). Investors are worried about Apple's future ability to continue redefining (or inventing) markets, looking years ahead, and the primary question in that regard is whether Steve Jobs is terminal. (I hate to be so blunt, but there you have it, IMO.) Investors are keen to know whether Steve is seeing his last days and whether the Apple magic is ending with iPhone, iPad, and whatever else is already on the Jobs-inspired pipeline (which may go out another 5 years, for all we know).
(2) Finally, the most drastic (for lack of a better word) measure is to name Tim Cook as CEO and Steve as Chair. I can see an immediate downside to this move, but one that over time creates a sense that the company is not going through leadership flux on an ongoing basis.
Again, I don't see this helping, for the same reasons. People are worried that Steve Jobs is going away, period. You make this move, and instantly some of the Fudsters in the media will suggest that Steve is dying, and the stock will get instantly hammered. And unless Apple refutes that interpretation with some details (which they won't) then the uncertainty that you are speaking of will remain. I think everybody is pretty darn sure what the succession plans are. It will be Tim, and he'll do better than just about anyone on the planet... except Apple will be missing Steve Jobs. I don't think there's any mode of communication or title spinning that would change that stark fear in investors minds.
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In my opinion, the bottom line is whether Steve Jobs is really going to continue his role, or whether he is on his last legs as an Apple visionary. That is the source of the uncertainty, not this other stuff that pundits point to. (They are fooling themselves if they think the things you suggested above will really sate their thirst for information.) And the only way to remove that uncertainty is to get the details that Steve is not about to give - nor should he have to.
You know my stance here: I believe that Jobs will initiate the succession plan upon his return and that we will have Cook as CEO and Jobs as COB.
In an interesting aside regarding Cook's suitability as CEO, I think people forget that he graduated with a degree in Industrial Design. I am not suggesting that he could directly replace Jobs but, between his formal education and his "internship" with Jobs, I suspect he knows how to do design-led products. At the very least, it relieves me that the most like CEO candidate has a background in engineering and design rather than just accounting or finance.
Guys, lest we forget...
Tim Cook is ALREADY THERE.
Steve Jobs is STILL THERE.
Jonathan Ive is STILL THERE.
Phil Schiller is STILL THERE.
When Steve finally leaves, for whatever reason, these guys may change their titles, but they aren't going to change their duties much. They will try their best to emulate the forward vision that Steve has, but they aren't going to replace him. Succession plans or no, uncertainty or no, Apple will be a less than what it was with Jobs (the magnitude of which is open for debate). My personal feeling is that they'll still kick butt and take names because of the skills of the others mentioned above. And the stock will ultimately recover.
But I don't believe for a second that there's any particular hoops that the directors could jump through to satisfy nervous investors here. I just don't.
When Steve finally leaves, for whatever reason, these guys may change their titles, but they aren't going to change their duties much. They will try their best to emulate the forward vision that Steve has, but they aren't going to replace him. Succession plans or no, uncertainty or no, Apple will be a less than what it was with Jobs (the magnitude of which is open for debate). My personal feeling is that they'll still kick butt and take names because of the skills of the others mentioned above. And the stock will ultimately recover.
But I don't believe for a second that there's any particular hoops that the directors could jump through to satisfy nervous investors here. I just don't.
My point was mostly that people severely underrate Cook and what his leadership might look like. The fact that he has engineering and industrial design cred will count for something even though we know that he is not likely the product visionary that Steve is. He also lacks the charisma of Jobs.
After Jobs is gone, I suspect Ive will do product introductions. He comes closest to Steve in terms of charisma although he has a completely different vibe. For instance, when Steve says "amazing" it's like "Wow! Gee whiz!" whereas when Ive says "amazing" it's more like "how obvious". It's a much cooler and more detached affect.
For those that feel certain that Apple will be diminished upon Jobs' departure, I am not so sure - there will be pluses and minuses. It will no doubt be different but if Steve has truly instilled into the Apple culture his vision for product excellence, Apple will be just fine.
I hope that Steve comes back soon and puts the succession plan into motion. This will remove some of the uncertainty although Cook will be considered an unknown until his regime is seen leading product design and development (i.e., the product pipeline does not carry Jobs imprint). That will be the only thing that could dissuade the naysayers and, unfortunately, I don't think there is any shortcut - Apple will simply have to live through it.
You know my stance here: I believe that Jobs will initiate the succession plan upon his return and that we will have Cook as CEO and Jobs as COB.
In an interesting aside regarding Cook's suitability as CEO, I think people forget that he graduated with a degree in Industrial Design. I am not suggesting that he could directly replace Jobs but, between his formal education and his "internship" with Jobs, I suspect he knows how to do design-led products. At the very least, it relieves me that the most like CEO candidate has a background in engineering and design rather than just accounting or finance.
I don't have any serious doubts about Cook's ability to run Apple. In fact, the evidence is, for all intents and purposes, that he has been running Apple for the last couple of years possibly. I'm saying that it's beginning to look like Steve will try to hang on until it's obvious to everyone that Apple needs to have a CEO who can be on campus full time, and the issue gets forced. This is not a radical idea -- it's an entirely normal and pragmatic one for business. Lots of talented businesspeople had to know when the time was right to allow someone else to step up. The message we're getting from Apple now is "not yet." So the natural question is, "why not yet?"
Quote:
Originally Posted by thompr
No I totally get where you are coming from, and I agree with the principle. But I disagree with the reality of it all. I mean honestly, if your premise is that there is a better way to handle the disclosure, then it would be reasonable to assume that the board of directors would have to sit down and engage in a debate on the possible alternatives. And someone would have to get specific. If anyone suggested something generic like "this way is the worst possible way and there must be better answers", then a logical response would be, "in that case, it should be easy for you to name just one". Otherwise, someone might suggest something specific, and then they would debate the merits. And so you have suggested two. Let's consider...
I felt I was quite specific in my suggestions.
I'm concerned not with tomorrow or next week or even next month. If Apple announced tomorrow that Cook is now CEO and Steve is staying on as the chair of the board, I suspect that the initial market reaction would verge on panic. But over a matter of months, if not less, the reality would sink in that maybe Apple isn't really a cult of personality dressed up as a corporation, that it really does have a solid culture and talented leadership team, which has been overshadowed by Steve and his rock star status. I think all this fretting, which is being artificially prolonged, would come to an end. And this, in the long run, would be better for investors who could stop hanging on the latest rumors about Steve's health and focus on the company's products and how much money they make. Normal stuff.
I don't think it's fully appreciated how much Steve's health issues have taken over the narrative about Apple. Every company, even one as high-profile as Apple, gets only so much bandwidth to get their message across. In Apple's case, you can see how much of it is absorbed by speculation about Steve's condition. Just look at the recent stories about their earnings report -- half of most of them don't talk so much about products or profits, as about Steve's cancer. Over time, that has a corrosive affect, as the story that Apple is nothing without Steve sounds more and more valid, and is virtually endorsed by Apple through its actions and inactions.
Comments
Understood. I said that the growth should start to level off, you indicated that no, it would continue to grow, I assumed you meant at the current rate, thus the question, $1000?
Just a simple question no argument.
I can see Apple continuing to grow with remarkable financial numbers, but I doubt it will continue, long term, at the same percentage they've been growing, and that's simply because the amount of money they would need to bring in to provide the same sort of return on investment they've provided to their customers would become increasingly more and more impressive and difficult to attain. They certainly do still have remarkable potential, though.
So yes, I expect they will continue to grow. But I don't expect the stock to offer the sort of percentage growth, year-to-year, that it has offered since it was devalued in the recession. Numbers like $1000 become pretty wild speculation (especially short term). Apple would have to continue growing their existing products with remarkable success (quite possible), but would probably also need to disrupt entirely new markets with similarly successful products.
I'd like to think he's right, but the numbers don't reflect current realities. He's looking for AAPL to appreciate faster than their EPS (67% vs. 54%). The truth is, over the last several years, the opposite has occurred. Why he thinks multiples will actually increase at this stage is hard to figure.
He thinks that the multiple has been hammered down to an insanely low level and that it will recover. This is possible. It's also possible that the multiple won't recover. Time will tell, but I certainly couldn't declare him wrong in advance.
Thompson
The only problem is it's not a random number. It's the market cap of AAPL right now.
And that's completely meaningless within the scope of the point you were making.
Anyway, this analyst seems to think the opposite trend is at work. It's not clear to me how he gets there.
Well, as far as I can tell, the decreasing multiple afforded to AAPL over the last few years is a direct consequence of investors (perhaps wrongly) invoking the law of large numbers (exacerbated by concerns over Jobs' health). There's a prevailing attitude that once your company gets so large, you simply can't continue to grow your earnings. In general, that is true, because such companies typically dominate markets that are fully saturated. In Apple's case, that is far from true, so it seems apparent that the multiple compression has occurred before it rightly should. In other words, AAPL is already being treated as a "value" company even while it is still in "growth" stage. All that means is that Wall Street is saying "show me the growth" instead of anticipating it.
Now, per your point: what could happen to *snap* Wall street out of that impression and get them to raise the multiple again? Well, I think that the 2011 performance of iPhone 4 and iPad 2 may just do the trick of showing that Apple is no where near saturated in these markets. The multiple may then "eke' up away from the "Dell's" of the world.
Thompson
He thinks that the multiple has been hammered down to an insanely low level and that it will recover. This is possible. It's also possible that the multiple won't recover. Time will tell, but I certainly couldn't declare him wrong in advance.
Thompson
2024 rolls around... 20 fantastic new products and services have been added since 2011... Apple still adds 50% year over year... forward p/e = 12.37, trailing p/e = 14.94
One analyst to another analyst,
"hmmmm... AAPL sure looks like a good buy but I remember when they tanked a couple of times in the 80s and 90s and I'm not sure if the 12 years that has passed since Jobs was CEO is enough time to see if the new management team has the right stuff..."
I don't think that's quite right. If Apple's P/E today were the same as AMZN, then the market would be expecting much higher profit growth from Apple than it currently is, and Apple's stock price would not have much room to rise. In that case, there would not be a very good buying opportunity.
But because Apple's P/E is (if you believe Asymco and similar folks) too low right now, there is a buying opportunity. That doesn't mean that the P/E ratio will rise in the future... more likely it will stay the same or even fall a bit. But if earnings growth (that's the E in P/E) is above expectations, then the P will have to rise in order to keep P/E the same. And when you buy and sell a stock, you pay P, not P/E.
Multiples have been compressing for the last few years, also according to Asymco (and according to me, if that matters). That can only be interpreted as a collective bet by investors that Apple just can't keep the growth rate up. I can understand that sentiment when it's expressed over a period of a few quarters or a year even, but not two or three, when all the evidence is to the contrary.
The point about AMZN is that investors are prepared to get the share price way, way ahead of actual earnings. The the forward PE for AMZN is 51 and the PEG is 2.6. The second number tells you how much of a premium investors are willing to pay for future earnings. That number is sky high. For AAPL the numbers are 13 and 0.7, very low for a company growing earnings as they have been. And there's nothing to say that AAPL's multiples and PEG won't remain just that way, or even go lower. So it may not represent a buying opportunity at all. There's just no saying for sure why Apple's earnings growth is so much less attractive to investors than Amazon's, only that it is.
So yes, if earnings continue to rise, the stock price will probably also rise -- but if the recent past is any guide, not at the rate earnings rise or are projected to rise. Thus, a continued PE compression is quite possible.
Company prospects without genius creator is key investor question.
I recently compared Apple with Walt Disney Productions? reporting on Walt Disney?s 1966 health problems and sudden death as well as stock's reaction.
(The article is at Seeking Alpha: http://seekingalpha.com/article/2472...om-walt-disney)
He thinks that the multiple has been hammered down to an insanely low level and that it will recover. This is possible. It's also possible that the multiple won't recover. Time will tell, but I certainly couldn't declare him wrong in advance.
Thompson
I'm not. I just don't see his justification, which may be more than I should expect from a digested report on this site. So I'm really just wondering what it is.
Well, as far as I can tell, the decreasing multiple afforded to AAPL over the last few years is a direct consequence of investors (perhaps wrongly) invoking the law of large numbers (exacerbated by concerns over Jobs' health). There's a prevailing attitude that once your company gets so large, you simply can't continue to grow your earnings. In general, that is true, because such companies typically dominate markets that are fully saturated. In Apple's case, that is far from true, so it seems apparent that the multiple compression has occurred before it rightly should. In other words, AAPL is already being treated as a "value" company even while it is still in "growth" stage. All that means is that Wall Street is saying "show me the growth" instead of anticipating it.
Now, per your point: what could happen to *snap* Wall street out of that impression and get them to raise the multiple again? Well, I think that the 2011 performance of iPhone 4 and iPad 2 may just do the trick of showing that Apple is no where near saturated in these markets. The multiple may then "eke' up away from the "Dell's" of the world.
Thompson
Good points. I think you may be on to something with the Jobs situation. If I'm getting testy with Apple management's handling of this, then I can well imagine that a lot of institutional investors are even more so. They're not going to crawl too far out on a limb if they have questions about a company's management. It's impossible to know how much shareholder value has been depressed by this, but I think some for sure.
If I'm getting testy with Apple management's handling of this, then I can well imagine that a lot of institutional investors are even more so. They're not going to crawl too far out on a limb if they have questions about a company's management. It's impossible to know how much shareholder value has been depressed by this, but I think some for sure.
I've heard this sentiment a lot out there, so I'm certain that the shares are depressed over the uncertainty. But here's the problem I see with the opinions of Apple's mishandling of the situation: I have yet to hear anyone present a specific example of a BETTER way to handle this tragedy that would have caused any less damage than what has already been done, not to mention even provide a modicum of privacy to Mr Jobs. In other words, I think that the desire for specifics in this situation would ever drive for more, more, and still more details... anything short of a prognosis quote directly from Steve's doctor. In short, I'm not believing that the complaint against Apple's handling of this is well-founded and realistic. My hunch is that it just doesn't get any better than this, so Jobs may as well have as much privacy as he wishes.
People say, "Apple could have handled it better, because [fill in the blank]." But I believe that if you invented any specific example of what they could have done differently, I could invent a plausible reason for why it wouldn't have helped, or possibly could have made matters worse.
Thompson
Not that it can't be done, but it is very difficult to double a company from $300 billion in market cap to $600 billion. So hard in fact, that to date, it has never been done.
Microsoft had a market cap over $600B on December 22, 1999.
Petro China had a cap of $724B in 2007.
Keeping it can be the hard part.
Health disclosure is an age-old question, and medical privacy usually wins out.
Company prospects without genius creator is key investor question.
I recently compared Apple with Walt Disney Productions? reporting on Walt Disney?s 1966 health problems and sudden death as well as stock's reaction.
(The article is at Seeking Alpha: http://seekingalpha.com/article/2472...om-walt-disney)
Can you give us a summary of your insights, instead of link-bait?
Based on that we can decide whether to click or not.
I've heard this sentiment a lot out there, so I'm certain that the shares are depressed over the uncertainty. But here's the problem I see with the opinions of Apple's mishandling of the situation: I have yet to hear anyone present a specific example of a BETTER way to handle this tragedy that would have caused any less damage than what has already been done, not to mention even provide a modicum of privacy to Mr Jobs. In other words, I think that the desire for specifics in this situation would ever drive for more, more, and still more details... anything short of a prognosis quote directly from Steve's doctor. In short, I'm not believing that the complaint against Apple's handling of this is well-founded and realistic. My hunch is that it just doesn't get any better than this, so Jobs may as well have as much privacy as he wishes.
People say, "Apple could have handled it better, because [fill in the blank]." But I believe that if you invented any specific example of what they could have done differently, I could invent a plausible reason for why it wouldn't have helped, or possibly could have made matters worse.
Thompson
I'm sure you could, and I agree that some of the negative reaction going to be inevitable, due to the nature of the situation. However, Apple has been pressed for some clarity on management succession for some time. I think they could reduce some of the uncertainty there without any plausible downside impact. Nobody that I've heard is demanding medical details (this is the persistent and pernicious straw man argument), but they could say something a bit more descriptive about how Steve can run the company when he's not there, if indeed he can. Investors do worry about leadership issues, and rightfully so. Apple does not need to leave us dangling on this point. It's a choice. Finally, the most drastic (for lack of a better word) measure is to name Tim Cook as CEO and Steve as Chair. I can see an immediate downside to this move, but one that over time creates a sense that the company is not going through leadership flux on an ongoing basis. This also reduces uncertainty. Do you see where I'm going with this? Investors hate uncertainty. They vote against it with their dollars. Apple could readily demonstrate that they are prepared for a post-Steve era, whether it comes tomorrow or ten years from now. For the time being, they are simply not prepared to do this, and it causes investors to worry about whether they are prepared.
I'm sure you could, and I agree that some of the negative reaction going to be inevitable, due to the nature of the situation. However, Apple has been pressed for some clarity on management succession for some time. I think they could reduce some of the uncertainty there without any plausible downside impact. Nobody that I've heard is demanding medical details (this is the persistent and pernicious straw man argument), but they could say something a bit more descriptive about how Steve can run the company when he's not there, if indeed he can. Investors do worry about leadership issues, and rightfully so. Apple does not need to leave us dangling on this point. It's a choice. Finally, the most drastic (for lack of a better word) measure is to name Tim Cook as CEO and Steve as Chair. I can see an immediate downside to this move, but one that over time creates a sense that the company is not going through leadership flux on an ongoing basis. This also reduces uncertainty. Do you see where I'm going with this? Investors hate uncertainty. They vote against it with their dollars. Apple could readily demonstrate that they are prepared for a post-Steve era, whether it comes tomorrow or ten years from now. For the time being, they are simply not prepared to do this, and it causes investors to worry about whether they are prepared.
You know my stance here: I believe that Jobs will initiate the succession plan upon his return and that we will have Cook as CEO and Jobs as COB.
In an interesting aside regarding Cook's suitability as CEO, I think people forget that he graduated with a degree in Industrial Design. I am not suggesting that he could directly replace Jobs but, between his formal education and his "internship" with Jobs, I suspect he knows how to do design-led products. At the very least, it relieves me that the most like CEO candidate has a background in engineering and design rather than just accounting or finance.
I wasn't estimating the size of the investment world, just the size of the investment community that is not already highly invested in AAPL. Funds are not allowed (by their own bylaws, by federal law, and/or by their risk ratings) from putting more than X% into any given security. And a lot of folks have taken money out of securities since the big recession. And there's a lot less leverage out there to run up bubbles than there was 10 years ago. That means that the perceived risk of having "all your eggs in one basket" starts to be a greater and greater reason any given fund chooses not to invest in Apple. Since that risk has nothing to do with Apple's fundamentals, I would expect to see the stock price growth increasingly diverge from the earnings growth.
This is an important angle for people to think about, especially if they are prone to bellyaching about periods of time when AAPL's price seems to move sideways. It should be noted that people are not just taking money out of funds, due to the poor economy. Many people, who would ordinarily contribute a percentage of their wages to retirement plans who invest in funds, are out of work. When these people begin working again, they will begin making fund contributions again, giving the funds more headroom to make further investments in AAPL. Of course, a better economy will also embolden retail investors, many of whom took profits in AAPL, to reenter the market.
2024 rolls around... 20 fantastic new products and services have been added since 2011... Apple still adds 50% year over year... forward p/e = 12.37, trailing p/e = 14.94
One analyst to another analyst,
"hmmmm... AAPL sure looks like a good buy but I remember when they tanked a couple of times in the 80s and 90s and I'm not sure if the 12 years that has passed since Jobs was CEO is enough time to see if the new management team has the right stuff..."
I can totally see that scene going down.
Thompson
I'm sure you could, and I agree that some of the negative reaction going to be inevitable, due to the nature of the situation. However, Apple has been pressed for some clarity on management succession for some time. I think they could reduce some of the uncertainty there without any plausible downside impact. Nobody that I've heard is demanding medical details (this is the persistent and pernicious straw man argument), but they could say something a bit more descriptive about how Steve can run the company when he's not there, if indeed he can. Investors do worry about leadership issues, and rightfully so. Apple does not need to leave us dangling on this point. It's a choice. Finally, the most drastic (for lack of a better word) measure is to name Tim Cook as CEO and Steve as Chair. I can see an immediate downside to this move, but one that over time creates a sense that the company is not going through leadership flux on an ongoing basis. This also reduces uncertainty. Do you see where I'm going with this? Investors hate uncertainty. They vote against it with their dollars. Apple could readily demonstrate that they are prepared for a post-Steve era, whether it comes tomorrow or ten years from now. For the time being, they are simply not prepared to do this, and it causes investors to worry about whether they are prepared.
No I totally get where you are coming from, and I agree with the principle. But I disagree with the reality of it all. I mean honestly, if your premise is that there is a better way to handle the disclosure, then it would be reasonable to assume that the board of directors would have to sit down and engage in a debate on the possible alternatives. And someone would have to get specific. If anyone suggested something generic like "this way is the worst possible way and there must be better answers", then a logical response would be, "in that case, it should be easy for you to name just one". Otherwise, someone might suggest something specific, and then they would debate the merits. And so you have suggested two. Let's consider...
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(1) but they could say something a bit more descriptive about how Steve can run the company when he's not there, if indeed he can.
I believe this would do absolutely nothing for the shares. Most investors are not worried about the day-to-day running of the Apple ship. They already know Tim can handle that aspect (better than Steve, truth be told). Investors are worried about Apple's future ability to continue redefining (or inventing) markets, looking years ahead, and the primary question in that regard is whether Steve Jobs is terminal. (I hate to be so blunt, but there you have it, IMO.) Investors are keen to know whether Steve is seeing his last days and whether the Apple magic is ending with iPhone, iPad, and whatever else is already on the Jobs-inspired pipeline (which may go out another 5 years, for all we know).
(2) Finally, the most drastic (for lack of a better word) measure is to name Tim Cook as CEO and Steve as Chair. I can see an immediate downside to this move, but one that over time creates a sense that the company is not going through leadership flux on an ongoing basis.
Again, I don't see this helping, for the same reasons. People are worried that Steve Jobs is going away, period. You make this move, and instantly some of the Fudsters in the media will suggest that Steve is dying, and the stock will get instantly hammered. And unless Apple refutes that interpretation with some details (which they won't) then the uncertainty that you are speaking of will remain. I think everybody is pretty darn sure what the succession plans are. It will be Tim, and he'll do better than just about anyone on the planet... except Apple will be missing Steve Jobs. I don't think there's any mode of communication or title spinning that would change that stark fear in investors minds.
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In my opinion, the bottom line is whether Steve Jobs is really going to continue his role, or whether he is on his last legs as an Apple visionary. That is the source of the uncertainty, not this other stuff that pundits point to. (They are fooling themselves if they think the things you suggested above will really sate their thirst for information.) And the only way to remove that uncertainty is to get the details that Steve is not about to give - nor should he have to.
Thompson
You know my stance here: I believe that Jobs will initiate the succession plan upon his return and that we will have Cook as CEO and Jobs as COB.
In an interesting aside regarding Cook's suitability as CEO, I think people forget that he graduated with a degree in Industrial Design. I am not suggesting that he could directly replace Jobs but, between his formal education and his "internship" with Jobs, I suspect he knows how to do design-led products. At the very least, it relieves me that the most like CEO candidate has a background in engineering and design rather than just accounting or finance.
Guys, lest we forget...
Tim Cook is ALREADY THERE.
Steve Jobs is STILL THERE.
Jonathan Ive is STILL THERE.
Phil Schiller is STILL THERE.
When Steve finally leaves, for whatever reason, these guys may change their titles, but they aren't going to change their duties much. They will try their best to emulate the forward vision that Steve has, but they aren't going to replace him. Succession plans or no, uncertainty or no, Apple will be a less than what it was with Jobs (the magnitude of which is open for debate). My personal feeling is that they'll still kick butt and take names because of the skills of the others mentioned above. And the stock will ultimately recover.
But I don't believe for a second that there's any particular hoops that the directors could jump through to satisfy nervous investors here. I just don't.
Thompson
When Steve finally leaves, for whatever reason, these guys may change their titles, but they aren't going to change their duties much. They will try their best to emulate the forward vision that Steve has, but they aren't going to replace him. Succession plans or no, uncertainty or no, Apple will be a less than what it was with Jobs (the magnitude of which is open for debate). My personal feeling is that they'll still kick butt and take names because of the skills of the others mentioned above. And the stock will ultimately recover.
But I don't believe for a second that there's any particular hoops that the directors could jump through to satisfy nervous investors here. I just don't.
My point was mostly that people severely underrate Cook and what his leadership might look like. The fact that he has engineering and industrial design cred will count for something even though we know that he is not likely the product visionary that Steve is. He also lacks the charisma of Jobs.
After Jobs is gone, I suspect Ive will do product introductions. He comes closest to Steve in terms of charisma although he has a completely different vibe. For instance, when Steve says "amazing" it's like "Wow! Gee whiz!" whereas when Ive says "amazing" it's more like "how obvious". It's a much cooler and more detached affect.
For those that feel certain that Apple will be diminished upon Jobs' departure, I am not so sure - there will be pluses and minuses. It will no doubt be different but if Steve has truly instilled into the Apple culture his vision for product excellence, Apple will be just fine.
I hope that Steve comes back soon and puts the succession plan into motion. This will remove some of the uncertainty although Cook will be considered an unknown until his regime is seen leading product design and development (i.e., the product pipeline does not carry Jobs imprint). That will be the only thing that could dissuade the naysayers and, unfortunately, I don't think there is any shortcut - Apple will simply have to live through it.
You know my stance here: I believe that Jobs will initiate the succession plan upon his return and that we will have Cook as CEO and Jobs as COB.
In an interesting aside regarding Cook's suitability as CEO, I think people forget that he graduated with a degree in Industrial Design. I am not suggesting that he could directly replace Jobs but, between his formal education and his "internship" with Jobs, I suspect he knows how to do design-led products. At the very least, it relieves me that the most like CEO candidate has a background in engineering and design rather than just accounting or finance.
I don't have any serious doubts about Cook's ability to run Apple. In fact, the evidence is, for all intents and purposes, that he has been running Apple for the last couple of years possibly. I'm saying that it's beginning to look like Steve will try to hang on until it's obvious to everyone that Apple needs to have a CEO who can be on campus full time, and the issue gets forced. This is not a radical idea -- it's an entirely normal and pragmatic one for business. Lots of talented businesspeople had to know when the time was right to allow someone else to step up. The message we're getting from Apple now is "not yet." So the natural question is, "why not yet?"
No I totally get where you are coming from, and I agree with the principle. But I disagree with the reality of it all. I mean honestly, if your premise is that there is a better way to handle the disclosure, then it would be reasonable to assume that the board of directors would have to sit down and engage in a debate on the possible alternatives. And someone would have to get specific. If anyone suggested something generic like "this way is the worst possible way and there must be better answers", then a logical response would be, "in that case, it should be easy for you to name just one". Otherwise, someone might suggest something specific, and then they would debate the merits. And so you have suggested two. Let's consider...
I felt I was quite specific in my suggestions.
I'm concerned not with tomorrow or next week or even next month. If Apple announced tomorrow that Cook is now CEO and Steve is staying on as the chair of the board, I suspect that the initial market reaction would verge on panic. But over a matter of months, if not less, the reality would sink in that maybe Apple isn't really a cult of personality dressed up as a corporation, that it really does have a solid culture and talented leadership team, which has been overshadowed by Steve and his rock star status. I think all this fretting, which is being artificially prolonged, would come to an end. And this, in the long run, would be better for investors who could stop hanging on the latest rumors about Steve's health and focus on the company's products and how much money they make. Normal stuff.
I don't think it's fully appreciated how much Steve's health issues have taken over the narrative about Apple. Every company, even one as high-profile as Apple, gets only so much bandwidth to get their message across. In Apple's case, you can see how much of it is absorbed by speculation about Steve's condition. Just look at the recent stories about their earnings report -- half of most of them don't talk so much about products or profits, as about Steve's cancer. Over time, that has a corrosive affect, as the story that Apple is nothing without Steve sounds more and more valid, and is virtually endorsed by Apple through its actions and inactions.