In China, iPhone sales surged from February as the market started recovering from the supply and demand shocks caused by the onset of Covid-19. Apple sold 3,9 million iPhones in April alone, a 160% increase from March. On Friday 31 July, Apple’s share price jumped up by 10% in a single day. BizNews founder Alec Hogg was joined by market commentator David Shapiro during his Rational Radio webinar this week and the two stock market experts discussed Apple’s sudden and impressive share price increase and its continued ability to dominate the US market. You can listen to the full interview in the podcast, below. – Claire Badenhorst
A history of Apple
In June 2015, Apple Inc was added to the Biznews portfolio at a share price of just under $125. The price promptly dropped below $100 and stayed there for months. “That nervous start is long forgotten,” says Alec Hogg. This is because Apple’s share price jumped up by 10% to $425 a share on Friday – an enterprise value surge of a staggering $180bn in a single day.
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According to James Kerin of Investopedia, releasing an innovative, revenue-driving good or service is one of the few ways that a company can dramatically influence the valuation of its stock. Estimating the impact that a product will have on a company’s earnings (and stock) is close to impossible. When analysts get it wrong, the results can be devastating.
“Wall Street rated that the iPhone 5 would sell between six million and 10 million units on its first weekend being offered,” Kerin writes. “Instead, the iPhone 5 sold a little over five million units. On 21 September 2012, the official release date of the iPhone 5, Apple (AAPL) opened at $702,56. As of market close on 9 November, Apple traded at $547,06 – a 22% drop in value.”
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However, Steve Jobs’ overriding strategy was never to chase sales, but to build an ecosystem. “He believed that value would come, in time, because of a customer’s seamless journey between Apple devices,” Hogg explains. “With each new device sold, that ecosystem grows, adding to overall value. What really matters is how much customers use the entire ecosystem, and that’s why Apple’s shares jumped 10% on Friday.”
“They’ve done incredibly well,” Shapiro agrees. “Apple, Facebook, Amazon, and Microsoft have all done well and it just shows you how powerful these organisations are and how this lockdown has helped them. In Apple’s case, one of the surprises was the demand for their phones in China which has always been a difficult area for them,” Shapiro says. “But it was across their whole range of products that they surprised on the upside.”
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Innovation is the game
Apple is known for its commitment to innovation. In fact, its research and design budget in 2019 was $16,2bn. “Starting with the iPod, Apple has found ways to create markets that didn’t previously exist and completely revolutionise ones that did,” writes Kerin. “The iPhone is arguably the most revolutionary tech product ever created. It’s a mobile phone, a widescreen iPod with touch controls, and a breakthrough internet communications device with desktop-class email, web-browsing, searching, and maps.”
While other companies are cutting costs, Apple is at the head of the innovation game.
“It’s not often that you see $180bn added to the market cap of a company in one day,” says Hogg. “To put that into perspective, South Africa’s GDP (all the money spent in this country in a year) is $350bn. This is half of SA’s GDP value on one day.”
“I think it was a surprise for Apple. No one expected the demand for their products to be so high,” Shapiro adds. “It didn’t only extend to the iPhone, but also to the iPad and many other products they develop, as well as their apps.”
“It’s an incredible business. I’m staggered not only at how this business has changed but how it has changed our lives.”
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