Sunday, October 21, 2012, marks a month since iPhone 5 hit store shelves in the US and eight other major markets.
It was Friday, September 21, 2012, when the iPhone 5 was made available to the general public in nine counties, and it was on the same day that investors voted with their wallet – Apple shares clocked a steep $705.07 on that day.
That pushed the Cupertino-based tech giant’s market cap to a record $661 billion (Dh2.42 trillion) – and it was already enjoying its day under the sun as the world’s most valuable firm.
While iPhone 5 sales have gone from strength to strength – pre-orders topped two million in the first 24 hours while first weekend sales topped 5 million (Apple has not released any new numbers since) – it’s market cap, sadly, hasn’t been on the same trajectory.
Apple Inc.’s shares tanked to a three-month low of $609.62 per unit this Friday (October 19, 2012), losing almost $100 apiece in the 30 days since iPhone 5 was launched, and making Apple’s shareholders collectively poorer by about $90 billion (Dh330 bn).
Apple’s market cap as of October 19 stood at $571.67bn (Dh2.1 trillion).
But hasn’t the entire stock market gone down in the past 30 days? Yes indeed it has – and whoever though of that before we ourselves pointed it out can pat their backs just about now for being market savvy.
But hang on a moment before taking off on your horses – the market decline of 5.5 per cent (Nasdaq) in the last month has been much tamer than the 13.5 per cent plunge that Apple shares have witnessed.
We’re in no way suggesting here that Apple is a bad investment. Far from it – even after the recent drumming, it’s shares are up more than 50 per cent year-to-date, while Nasdaq is up only 15.36 per cent YTD.
Moreover, investors who were savvy enough to exit on the day iPhone 5 was launched would have, numerically, made more than 70 per cent on their investments had they bought the share at the beginning of 2012.
So, has iPhone 5 – which is arguably the best smartphone ever invented – actually brought bad luck to the company? Not really, since this was exactly what we predicted would happen, and we made this prediction not on the day the iPhone was launched, but a good month before it was launched.
Below is a brief recap of the five reasons we thought why Apple shares were then getting ready to see a slump.
1. Buy the rumour, sell the news: Every time a rumour about an impending product launch pushes up a share price, chances are that the actual event – the launch of the product –will bring the prices down even if the news matches the forecast.
2. Look at history: Past holders of the ‘world’s most valuable company’ all share a chequered history –General Electric ($477 billion in March 2001; $220 billion in August 2012) and Microsoft ($618.9 billion in December 1999; $258.21 billion in August 2012). Exxon Mobil, the last cup holder, is down about a fifth to $403 billion in August 2012 since peaking at $513 billion in September 2007.
3. Competition will catch up: An unlikely source of Apple’s stark rise, we believe, is the sheer incompetence of its competitors, some of whom have been resting on past laurels for years. If you’re an Apple shareholder, hope that the incompetence among its competition continues. Logic and the law of averages say otherwise.
4. It’s a fad, it’s a fad, it’s a fad: Just look at Facebook’s share price for rationalisation. Smartphones and tablets are indeed the must-have digital accessories today, just like the humble digital watch once was. If Apple can’t redefine itself with every new wave and keep product innovation paramount, it will end up with the likes of IBM and General Motors.
5. It’s overpriced: Or so it seems. Instead of buying the whole of Apple (if you had the means and the inclination, that is), you could instead buy 100 per cent ownership of the following: 10 penthouse units in the iconic Burj Khalifa, every share of all companies listed on the Abu Dhabi Exchange, every share of all companies listed on the Dubai Financial Market, Facebook, Boeing, Du Pont, Estée Lauder, Kellogg, Heinz, Gap, Macy’s, Campbell Soup, and Tiffany & Co. All of them. Together. And still have about $200 billion to spare.