EDITORIAL: Apple likely to hold its value
Apple, along with Amazon, is in the vanguard of the change in the way the world lives and transacts
Apple has reached an extraordinary milestone. Its market capitalisation has reached $1 trillion, reinforcing its position as the world’s largest business and cementing the shift from heavy industry to technology and innovation that has been under way over the past decade.
Apple is not the first company to top the $1-trillion mark. PetroChina crossed that mark shortly after its market debut in 2007. Following a spectacular collapse, it now has a market capitalisation of under $200bn. Its performance has been described by Bloomberg as "the biggest stock slump in world history".
The possibility of Apple experiencing such a collapse is remote, not least because it has built its value on real-world sales of devices and services. It, along with Amazon, is in the vanguard of the change in the way the world lives and transacts.
It is not without significance that Apple’s milestone comes a month after General Electric suffered the ignominy of being removed from the benchmark Dow Jones industrial average index. After more than 100 years on the Dow, GE was no longer considered an appropriate member of the benchmark against which the performance of US stocks is measured.
In the words of David Blitzer of S&P Dow Jones Indices, dumping GE "will make the index a better measure of the economy and the stock market". This trend has been under way for some time. Apple itself replaced another industrial behemoth, AT&T, on the index.
The shift from industrial production to technological innovation led to the phenomenon of the "FAANGs" – Facebook, Amazon, Apple, Netflix and Google – being identified as high-growth stocks of the future. But as with any disruption, the moment comes when innovation must be backed up by finan-cial performance.
The FAANGs may finally be losing their lustre. Facebook has advised that its revenue will drop as it succumbs to greater regulation following scandals over how it sold private information to third parties who used it for political ends. Even the market’s darling, Netflix, has been rerated, with investors wondering how much longer it can burn through mountains of cash to fund its ambitious content offering.
Even as Apple becomes the mother of all businesses, some cracks are beginning to show. It invented the device that has changed everything — the modern touch-screen app-driven smartphone — but is now in third place to Samsung and Huawei when it comes to unit sales of handsets.
What Apple has on its side is the golden stream of annuity income it gets from subscriptions to its services as millions pay a monthly fee to use the cloud or stream music. It may sell fewer phones, but the average price paid for an Apple phone is significantly higher. All of this has combined to boost the company to record revenue and investors have responded by backing the stock, which was up more than 5% the day after it announced its recent quarterly results.
Market watchers are saying it is time to dump Facebook and Netflix and forget about FAANGs. Instead, they say, investors should be focused on MAGA — Microsoft, Apple, Google and Amazon — which have businesses grounded in solid earnings. What the world must now grapple with is how these behemoth tech companies are changing the way in which information is moved and manipulated.
While Facebook has been the fall guy, all the big tech companies have become extremely powerful. Apple’s market capitalisation is now three times the size of SA’s GDP, which stands at $349bn for 2017. Even on the more generous "purchasing power parity" definition of GDP at $765bn, Apple is bigger than the country’s GDP. The power to lobby to influence the regulatory environment is immense, as is the challenge facing new companies wanting to compete for their audiences.
SA should guard against the crushing of local technological innovation and the flight of talent as it struggles to compete in a world dominated by the fourth industrial revolution.