Forget the Tech Bubble, What about the Apple Bubble? Can We Expect it to Burst Anytime Soon?
By: Hillel Fuld (@hilzfuld)
Here we go again. Another fanboy singing the praises of Apple. Well, no, this is not a review of the new iPad, nor is it a list of reasons why Apple is the world’s most valuable company, by far.
As Apple continues to make headlines with a $600 closing stock price, a $45 billion shareholder dividend, and a $1.5 billion/3 million iPad weekend, all I keep thinking is, when will the Apple bubble burst? I mean, can they really keep up this rate of growth? Apparently, they can!
Since Jobs’ death, the Apple stock is up 50%. Remember, this is a company that many believed would be in real trouble without its leader and visionary. But somehow Apple did not just prove them wrong. It actually increased its rate of growth.
Same thing with the iPhone 4S. When it was announced, all anyone could hear was an echo of disappointment with the lack of any new form factor or world-changing technologies. Unless, of course, you call a voice assistant that works when it wants to and doesn’t when it doesn’t, a revolutionary technology. Yet, the 4S sold more than any iPhone (or phone in history before and since the launch). 4 million iPhone 4S’ in the first weekend alone, including pre orders.
Then came the news that Cook was going to announce what the company is going to do with its insane $100 billion piggy bank. The rumors began. Would it be some huge acquisition? Perhaps Apple is buying Twitter? Well, Cook put all the rumors to rest with a dividend + stock buyback. Apple will begin offering a quarterly dividend of $2.65-a-share. And in September, they’ll initiate a $10 billion stock buyback (over three years). That is going to make a lot of people very happy!
Record-breaking stock price, blockbuster mobile phone, biggest dividend in history… Nothing new here… Then came the announcement of the iPad sales from the first weekend alone.
As rumors begin to circulate the Web of yet another hardware issue with an Apple product (who can forget Antennagate?), which is already being coined “Warmgate”, Cook announced on the dividend call that Apple had a record-breaking weekend for the iPad. But what does that mean? The rumor mill went to work. Again! Did he mean record in sales? Did he mean record-breaking for Retina iPads (of which this is the only one). Well, I guess we’ll never know since the words “record-breaking” is so vague and clearly, Apple is not disclosing more…
— Steve Kovach (@stevekovach) March 19, 2012
Until they did! 3 million iPads sold in its first weekend. $1.5 billion of revenue. The NY 5th Ave store alone sold 13,000 iPads in its first 24 hours since the release. “Daily store revenue, which typically falls between $700,000 to $1 million this quarter, was up to $11.5 million on launch day”
For the sake of comparison, the first iPad took 55 days to reach 3 million units sold and the iPad 2 sold one million in its first weekend.
Now, remember, this is an iPad that is both thicker and heavier than its predecessor. This is an iPad that many people cannot even differentiate from its predecessor. This is an iPad that offers enhancements which are mostly irrelevant to the average consumer. Most people don’t take pictures with a 9.7″ tablet. Most people don’t have 4G, if we are talking globally. Most people also won’t notice the difference between the screen on the iPad 2 and the new iPad, if I am judging by the tests conducted over the past few days. Like this one for example.
What most people WILL notice is that the battery life has not increased, but the size and weight have. Yet, 3 million iPads in one weekend.
So, the question is, is Apple defying all rules of a bubble that keeps growing and never bursts or can we expect to see Apple’s ridiculous market value, which many believe will actually hit a trillion dollars, eventually reverse its trend and start a decline?
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When you talk about Apple's price I see that it will continue to rise for a number of reasons. One is that Apple has yet to make a dent in corporate America IT infrastructure but cracks are starting in the PC dominated corporate world. Large companies I know are now preparing for "bring your own" computing device. Just yesterday, CNBC anchors said that their corporate IT staff are now supporting iPhones in addition to Blackberry devices.
When my son who is 15 years old, starts his career post college, he will see a corporate environment where he can work on the device of his choice, which will be Apple. Apple computing devices will increase and that is not factored heavily into the stock.
Also, last year in December a poll shared on CNBC said that only 11% of consumers in the US had a iPad yet Apple has dominated this market. Car manufacturers are integrating the iPad into their dashboards. The Apple eco-System is just building momentum outside of music.
Finally, Apple's P/E ratio is not very high at all and with a dividend added, the stock will attract mutual funds that require stocks with dividends. That fact that it is both a growth stock and a dividend play will bring more investors to the table.
Apple's not going anywhere. It's platform and ecosystem are too strong. It can take advantage of external innovation and a superior user experience.
Phil
http://www.theageoftheplatform.com
I believe in Apple. Period. But the recent stock move is parabolic and I've been investing for years and seen this before. parabolic moves all go higher than anyone expects, then do not last indefinitely, and almost always, the crash hard. It's not "if" its when. Tomorrow, when it hits 650, 700, who knows but it will crash hard. Mark my words.
Exactly. I love apple; I have been trading apple for years and almost exclusively. I stare at its ticks every day for hours. But I am about to move on. Not yet but soon.
Apple went basically from 415 to 635 in one quarter.This is unnatural. I already started practicing shorting it. I don't have the stones to short apple overnight, but I have been shorting it intraday quite a bit. I am always long a 20 dollar weekly put just in case, for when that time comes. And when it happens, I can only hope I am there to catch it.
@ Brian Pasch
Doing rough math like that leads nowhere. Did you know that 50% of Americans can't even afford an iPad? Yup. Almost 50% of Americans could not come up with $2,000 within 30 days in case of an emergency. But that doesn't matter. Apple is great, and I know that. But the bubble is there not because Apple isn't the moneymaker incarnate itself, but it's because of your and everybody else's hype. If we had Apple at 550 now, I's say we were pretty good. But noooo. People just have to keep buying until it is out of control. Everybody can calculate P/E's. It doesn't matter that the ratio is low. Very low indeed. The bubble is happening.
I’m no economist, but have been watching the same thing for a while. Everything you mention here is dangerous territory for apple, i.e. consumers not being able to differentiate the old and new, yet still blowing a few 100 quid on it. Its all about fashion, and with many many competitors gaining traction real fast, this expensive fashion trend may quickly shift and investors may become nervous. They need to innovate, but I fear they’ve hit the ceiling.