📱 Can Apple Scale Beyond $3T?
Tesla recalls half a million electric cars.
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📱 Apple: A Bite Worth $3T?
$182.86 - that's the price Apple Inc. ($AAPL) shares need to breach for Apple to become the world's first company with a market cap of $3T. While the first trillion dollars were 38 years in the making, the second trillion came within 24 months and the third within 16 months. Can Apple put a wrong step? (Tweet This)
Four Decades, Many Milestones
In the largest IPO since Ford, Apple went public in December 1980 with a market cap of $1.8B. Still, it was hardly ever a fairytale. The commercial failure of the first Mac, high costs, disagreements within the leadership team, and the departure of Steve Jobs in September 1985 - these issues overshadowed the promise of Apple.
Between 1980 and 1997, Apple added only $500M to its market value. 1997 was when the company was teetering on the edge of bankruptcy only to be bailed out by Microsoft, which paid Apple $150M in exchange for a few rights. That same year, Steve Jobs was back as CEO to try and effect a turnaround. The iMac launched in 1998 was a massive success.
In June 2007 came the iPhone that took the world by storm. Apple, by then, had clocked $100B in market cap. The iPhone became the prime revenue generator (even today). By the end of 2009, Apple was the third most valuable company in the world at $269B, behind PetroChina and ExxonMobil.
After Steve Jobs' passing, Tim Cook took over the reins, and the company surpassed ExxonMobil as the most valuable in the world at $337B. Apple's product portfolio continued to be upgraded, and alongside, the market cap kept growing as well.
In 2016, back when there were 1B active Apple devices globally, Apple valuation had crossed $608B. The race to the top was neck-to-neck between Saudi Aramco and Apple. In August 2018, Apple first crossed $1T in market value, but a bout of correction saw the company slump back to $750B. It reclaimed the $1T mark in October 2019.
Two years later, in August 2020, Apple crossed $2T in market value, becoming the first public company to do so. Microsoft, Tesla, and Alphabet have now joined Apple in the trillion-dollar club.
The Road Ahead
Apple's next focus is the Apple car. Shares received a boost in November when the company announced that it is accelerating efforts to launch a self-driving vehicle. It has set itself an internal deadline of 2025 for an autonomous vehicle. Apple's EV would then be in direct competition with players like Rivian, Lucid, and traditional automakers that are moving away from fossil fuels.
It's, however, a bed of roses, thorns included. Talent retention has been a critical issue, with Meta poaching over 100 Apple engineers over the past few months. To stave off defections, the company issued significantly high stock bonuses to some engineers. These bonuses range from $50K to $180K and will vest over a four-year period.
Earlier this month, the company warned iPhone 13 component suppliers that it might not order as many components due to a drop in demand. The company had already cut orders for the year to 80M, down from its 90M target. Chip shortage and Covid-19 impact on supply chain meant Apple took a $~6B hit last quarter. The current quarter might only see a larger impact on this front.
On the regulatory front, last week, the Netherlands Authority for Consumers and Markets ordered Apple to adjust its App Store policies to allow dating app providers to use payment systems other than Apple's. Apple immediately filed an injunction before the District Court to have the decision suspended. The court promptly reinforced to Apple that it has until January 15 to implement these changes, failing which, the company may face fines of up to $56.6M.
The company also faces an investigation in Poland over whether its new privacy and personal data processing rules for iOS devices violate competition laws. A federal judge also ruled that Apple cannot push back the deadline to update its App Store policies. The company is also on a collision course with regulators in South Korea, who believe it's not doing enough to comply with the country's new laws.
In the past three years, Apple shares have returned 86%, 81%, and 38% (this year). Investors would eagerly await the company crossing the $3T market cap. When that happens, the uncertainties facing the company, albeit briefly, would be put on standby while the investors soak in the new milestone.
AAPL ended at $178.20, down 0.66%. Shares are up 38% this year.
Company Snapshot 📈
AAPL $178.20 -1.18 (0.66%)
Analyst Ratings (41 Analysts) BUY 76% HOLD 22% SELL 2%
Today's Market Terminology: Earnings Yield
Earnings yield is the ratio of Earnings per Share, after allowing for tax and interest payments on fixed interest debt, to the current share price. It is the inverse of price-to-earnings ratio
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