Apple makes so much money that investors are leery of whether it can continue growing. In stark contrast, Amazon has made so little that, paradoxically, it continues to hold out the prospect of limitless growth. The magic of Steve Jobs’s recent years of Apple presentations was that you could rely on Apple to introduce perfectly, gloriously finished products. Bezos has done the opposite: whether it’s cloud computing services or the Kindle, Bezos keeps giving investors works in progress. Mark Gimein
It’s always amazing to see how worked up people get when it comes to Apple. The latest wrangle: despite good quarterly results, Apple’s stock plunged, shaving billions upon billions of USD from its (previously) record marked cap. Newsflash: the stock market is (and always was) highly volatile, hard to understand and predict. Probably the next best thing to a ‘perfect market’, it’s highly susceptible to changes in demand and supply and, as such, to the smallest changes in sentiment and perception by the traders. Just as we, the consumers, are very irrational in our choices, the stock market reacts less to hard numbers and facts and more to future trends that may not even materialize. The market got over-enthusiastic six months ago and now it switched to being over-pessimistic about Apple.
If I would venture to explain this rapid fall, the article above starts to tackle some of the possible causes. Indeed, Apple has very high profits and it’s hard to keep up such strong growth. But there are other threats that – I think – the market is reacting to. Apple faces a lot of competition on several fronts: from Google first of all and to a lesser degree Facebook and Amazon for software and services, from Samsung – and Microsoft + Nokia on a distant second – for hardware, from Amazon for media delivery. The cloud & data services are especially weak, as shown by the problems Apple Maps faced. On the other hand Amazon has always had low margins, but there are also few threats on the horizon, because it’s hard for newcomers to match Amazon’s efficiency and low prices. And, of course, there are other ways to judge the healthiness of a company than the PE ratio – for example inventory turnover and cash-flow, where Amazon excels.
This forced our hand immediately. Selling DVDs at 50% off would mean selling those titles at a loss. We had planned to match their 30% discount, and now we were being out-priced by the market leader on our first day of operation, and just before the heart of the holiday sales season to boot (it was November, 1998).
We convened a quick emergency huddle, but it didn't take long to come to a decision. We'd match the 50% off. We had to. Our leading opponent had challenged us to a game of who can hold your breath longer. We were confident in our lung capacity. They only sold DVDs whereas we had the security of a giant books and music business buttressing our revenues. Eugene Wei
This second article is very insightful, showing some of the long-term strategies that made Amazon so successful and hard to beat at its own game. It also underlines another reason why Apple is looking vulnerable to investors: the weak diversification of the product line. Looking at the most recent set of results, you would think Apple is just another smartphone manufacturer, with over half of the revenue coming from the iPhone alone. Revenue from the iPad is growing slowly, much slower than iPhone revenues; the ‘traditional’ Apple products, the Mac and iPod, are almost footnotes, making up less then 15% combined. This only exacerbates the threats from competitors, especially smartphone manufacturers; if one of them manages to break the iPhone’s love affair with the US consumer, Apple’s profits will be in trouble.
In any case, I wouldn’t worry too much about Apple. The company will continue to sell products and make hefty profits regardless of its stock price and nobody know this better than Apple itself – it’s not like wild swings like this haven’t happened before. If this downwards trend has anything to tell us, it’s that a price of 700$ per share was unsustainable in the long term – even for Apple.