

Apple loses $34.9 billion in market cap - toksaitov
http://thenextweb.com/apple/2012/12/05/apples-terrible-horrible-no-good-very-bad-recent-time-in-the-public-market-appears-to-be/

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elliotanderson
Apple's share price has not had any correlation to its fundamentals for the
last few years. If you were to compare its P/E ratio to that of other tech
companies out there (Amazon's is 3628) it would technically be undervalued
even at its current price.

That said, most of the volatility comes from all the prop trading firms trying
to turn a profit. AAPL is considered a bullish stock amongst fund managers and
is often used to hedge against other riskier positions in the market. Often
times big dips in Apples stock can be attributed to profit taking (especially
around this time as we finish up for the year and get nearer to the end of an
American financial quarter – gotta look good on the books to the get Christmas
bonus) and margin calls on bad trading days. You’ll notice a dip in the
afternoon of any bad trading day as prop firms start getting margin calls on
their failing positions and have to sell to cover their losses.

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tptacek
But it's also not reasonable to compare Apple's P/E with Amazon's. There's
more to valuation that industry; Apple and Amazon are both "tech companies",
but they have wildly differing business models. In particular, Amazon is
aggressively buying market share and the market is financing that. The market
says Amazon could radically more lucrative in the future, in a way Apple won't
(it's already absurdly profitable).

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snowwrestler
I understand this point of view, but it doesn't seem likely to me that the
expected future profits of Amazon can be realistically expected to be 283x the
expected future profits of Apple. I just don't see any way to support such a
big multiplier.

~~~
tptacek
Without getting into the specifics, we can think of the P/E both as a measure
of how speculative the future earnings are (Amazon, which is consistently and
deliberately barely profitable, reflects little of its upside in its earnings;
Apple, on the other hand, is milking its cash cows for all they're worth);
another way to think about it is, Amazon is plowing more of their earnings
back into efforts to buy market share, where Apple is extracting them into
cash reserves right now.

Remember, Apple's market cap is still much larger than that of Amazon. Even
though Amazon has what over the long term might end up being a much more
lucrative model, in that it is poised to more or less control retail and
retail logistics everywhere.

They're both great companies, but the P/E of each company tells a different
story about their business (neither story is bad).

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keithwinstein
This renewed focus on market capitalization (and "valuation") has gotten a bit
absurd. Market capitalization is an _approximate_ measure of _implied_ whole-
company value. Approximate because we don't really know the number of shares
outstanding, and whether you should use shares outstanding or fully-diluted
equity, or heck, fully-diluted equity net of cash, depends on the application.
It's also approximate because the share price only reflects the last trade or
the inside quote. But that is only the price that _somebody_ (the most
aggressive buyer or seller) was willing to pay/accept; if you wanted to buy or
sell lots of shares (e.g. a whole company) obviously you wouldn't get the
inside quote for all of it.

Most fundamentally, from a corporate perspective it's not like the company
"loses" anything on its balance sheet when its shares change hands at a
particular price. The share price does affect the company's cost of capital,
but not so simply and not directly. Apple in particular is not going to need
cash any time soon.

The more relevant measures of corporate health are the traditional revenue,
net income, free cash flow, etc. It's true we don't get updates to those
quantities every microsecond but they are still more important.

To the extent a 6% drop might reflect somebody somewhere with groundbreaking
secret information that casts Apple's future income in doubt who has decided
to place a big bet, yeah, it's possible, but it's too soon to tell and we
don't really know what it means. (As Steve Jobs said, "Stocks go up and
down.")

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absherwin
The key risk for Apple is what its future earnings will be. Given that its
current earnings dwarf anyone else, one must believe they will be able to be
maintained which is equivalent to a bet that the iPhone will continue to be
sold in high quantities with high margins.

In the last year Apple generated $55B in pre-tax earnings. They had $80B in
revenue from the iPhone at a margin of >60% or $48B. They sell the iPhone for
an average of $642 while the Nexus 4 retails at $299. If the iPhone dropped to
a wholesale price of $399 ($100 pricing advantage), it would reduce pre-tax
earnings by $30B (55%). If iPhone sales double that would offset about 60% of
that decline.

Another way to ask this question is what total mobile phone profits will be in
mature market. If there are 7B phones replaced every 4 years, that implies
1.75B phones sold. Cost will likely fall so revenue could be 437.5B. If Apple
can capture 30% of that with margins more similar to the Mac (~30%), this
suggests even if Apple continues to make better products and can maintain
significant market share, they'll earn 20% less from the iPhone than they do
today.

Of course Apple has an extraordinarily successful iPad business but its
margins are much lower than the iPhone and as an unsubsidized device will
likely face greater pressure.

The questions to ask is evaluating Apple are: When will their earnings peak
and by how much do will they fall before they reach an equilibrium. While this
may be anathema to some and I admire what Apple has achieved, large economic
profits cannot exist in the long run in a competitive market. Why is a longer
discussion but I challenge the reader to pose a counterexample.

~~~
snowwrestler
The Nexus 4 sells so cheaply because Google subsidizes its price heavily.
Google is losing money on every single one that is sold, which is why it sells
in such low volumes. It is a competitor to the iPhone in concept only.

A better comparison would be a recent 4G smartphone like the Samsung Galaxy
Note 2. It lists for $699 and is available with a 2-year contract for $299
from Verizon--$100 more than the iPhone 5. Or the HTC Droid DNA, which lists
for $599, available on contract for $199. Like Apple, Samsung and HTC are
actual competitors in the market and need to make money on each phone they
sell.

The flaw I see in your analysis is that it presupposes that competitors to
Apple are going to be able to significantly undercut Apple on price. Apart
from subsidized Nexus phones, I don't see much evidence that is true.

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czhiddy
Were there any rumors/news/anything today that triggered the movement? AAPL is
behaving more like a penny stock than the $500-billion behemoth it is.

It's also interesting to see how its P/E is lower than Microsoft's now. Given
the generally lukewarm reception towards Windows 8 / Surface, you'd think more
investors would be fleeing from MSFT. I sold my MSFT shares and went short
last month after buying (and returning) the Surface RT.

~~~
tatsuke95
> _"Were there any rumors/news/anything today that triggered the movement?"_

There was an obscure clearing house that upped its margin requirement for APPL
holdings that made the news this afternoon. Now why _that_ triggered a sell
off, I couldn't tell you. I'm no Apple bull, but this was sort of odd. Can't
really trust anything happening in the markets the past few months.

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TootsMagoon
Taxes on the wealthy and their capital gains are going up! Between now and the
end of the year I believe you will see a LOT of selling from people and
institutions holding large positions. Regardless of whether or not we go over
the 'Cliff', capital gains tax rates will be going up and lots of selling will
occur that drives down stock prices.

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doctorpangloss
Investors are selling Apple stock in anticipation of changes in U.S. capital
gains and other taxes.

Pretty much everyone who made it to the $700 valuation did so on an early,
lucrative buy. It's all taxes.

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gte910h
The apple selloff is all fiscal cliff hedging:

[http://taxfoundation.org/blog/fiscal-cliff-capital-gains-
and...](http://taxfoundation.org/blog/fiscal-cliff-capital-gains-and-dividend-
tax-increases-pose-greatest-threat-economy)

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assharif
This would never have happened if Steve Jobs was alive.

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DigitalSea
Steve Jobs was an exceptional marketing guy, but even manipulating stock
prices would have been out of his reach. I seriously doubt that Steve being
alive or dead would have changed much.

~~~
josephlord
I'm pretty sure assharif was being funny and/or a deliberate troll. But I'm
not completely sure.

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Gorgias
This is an interesting headline given the main argument of the article.

