Apple once again speculated to be the first trillion dollar company. So why now?

Apple once again speculated to be the first trillion dollar company — here's why

A few weeks ago Scott Galloway, the Clinical Professor of Marketing at NYU, gave an incredibly fascinating presentation at the DLD conference in New York. I just happened to notice the YouTube video of his presentation today. He spoke for about 23 minutes in an action packed presentation on the winners and losers of the digital age. I highly recommend watching the entire thing, and we've embedded the video below.

The final part of his presentation is particularly relevant to Apple shareholders and fans. Galloway explains why he thinks Apple can (and will) become the world's first trillion dollar company as measured by market capitalization. Fast forward to the 19:53 mark of the video where Galloway says "bonus round" if you want to skip everything else and just watch the Apple part.

In a nutshell, Galloway thinks Apple is going to transition into a luxury goods company much like Burberry, Michael Kors and Estee Lauder are today. He describes the luxury segment as "the best neighbourhood in the world" because you want to be in a business where people buy based on emotion rather than logic. Irrational wants and needs translate into large profit margins.

The luxury brands Galloway speaks of in his presentation all trade with an EV/EBIDTA multiple higher than 10. For those unfamiliar with this, EV is enterprise value, calculated by market capitalization plus debt minus cash. EBITDA is earnings before interest, amortization,depreciation and amortization. It's a standard financial metric that analysts look at. Galloway's point is that luxury brands trade at a higher value than Apple does today, and Apple realizes this.

His evidence? Apple hired Angela Ahrendts away from her CEO post at luxury brand Burberry. Galloway says the idea that she's going to run stores at Apple is a huge head fake. Based on his experience on boards trying to recruit CEOs he suggests the board probably pitched her by saying something like, "Apple is about to become the next great iconic luxury brand. The market is going to recognize us for this, give us a greater multiple on EBITDA that reflects how strong our brand is and we are going to be the first trillion dollar market cap company. We want you to lead that."

Galloway also points out that last year Apple hired the CEO of another luxury brand company, Paul Deneve of Yves St Laurent. You have to admit the guy makes a pretty strong argument on how Apple plan to boost its market value, and it makes more sense than Carl Icahn's suggestion that Apple leverage the heck out of its balance sheet with gobs of debt.

So, do you see Apple hitting a trillion dollars?

Disclosure: I own Apple shares.

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Chris Umiastowski

Chris was a sell side financial analyst covering the tech sector for over 10 years. He left the industry to enjoy a change in lifestyle as an entrepreneur, consultant, and technology writer.

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Reader comments

Apple once again speculated to be the first trillion dollar company — here's why


Apple will hit a trillion dollars.
The recent stock split announcement will further this as the price per share is now lower, thereby making it more attractive (affordable) to a broader range of potential investors. This will likely increase the sure prices and the company value will be increased here as well.
Just my 2¢. :)

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"you want to be in a business where people buy based on emotion rather than logic..."

I see this as just another take on the "only stupid people buy Apple products" diss the iHaters are constantly trying to promote. Can't you have a high end brand that is also a logical choice?

The high end brand is NEVER the logical choice. It is the emotional choice. Re-read the second sentence.

I agree with the guy above me. How does it "make sense" to buy and Apple device when you can have an Android device with the same or better specs at a cheaper price while having access to an equally large app and media catalog? It doesn't. Apple is a solid brand and I respect that. It's far from the best choice.

iMore App via Nexus 5.

I've owned several different phones and as much as I travel, right now the iPhone fits what I need. Its not about specs for everyone, sometimes piece of mind is what matters. I can go into any Apple store regardless of what city I'm in if something goes wrong with my device, without sitting on the internet trying to find a reputable repair spot. I didn't even choose the iPhone, it just happened to be the available option in my emergency situation but you know works for me. And that should be all that matters. Its the reason people buy high end appliances, clothes or shoes and anything else you can think of. You could definitely get low end for a lot cheaper but how long will it last and what will be the resale value? Just my opinion

If you're considering resale value, you're forgetting something. Base-model iPhone 5s costs $649. Even more if you're on contract. Say you spend your two years with it and sell it for a good $300. You're losing $349 on this purchase. Now consider the Nexus 5 or the Moto X. They each cost $349, and are two of the best. In two years, these phones will definitely not be worth $300, but they'll be worth more than $0, meaning you'll lose less than $349.

Obviously I made up the resale value of the iPhone, as everything depends on when you sell, but do you honestly believe that the iPhone has better resale value?

If you bought the phone off contract for $649, there's no need to spend 2 years with it. But if you did purchase on contract for $199 (base model) and sold it for $300 2 years later, you've actually made enough to upgrade plus you still have money left over.

And to answer your the current time, yes I think the iPhone has a better resale value. That could change but today this is how "I" feel. Again, its about piece of mind when I travel. I actually thought about purchasing a Moto X, its a great device. I also thought about how long I would get updates to the OS after having the device for a period of time and where I would take it if something went wrong and away on business. I can't and won't be without a device, so the choice was simple. This is how I feel at the present time. Things change at anytime. I have no loyalty to any one platform, I just want what works for me...I could care less what works for someone else and how they feel about what I use.

Interesting take - but luxury items almost by definition are confined to a small (though highly profitable) niche in the context of the overall market. You can obviously succeed focusing on a niche, but can you get to an unprecedented level (trillion dollar company) without casting a wider net than that?

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Electronics don't follow clothes though. Anyone can get Old Navy and for a few more bucks you can get Gap. Apple already flooded the market because they had a product that was in high demand before the other competitors. It was expensive but it was virtually the only option. Now all they have to do is focus more on branding than actual device necessity.

iMore App via Nexus 5.

We have 2 directly conflicting modes of business thought right now. I think he's partly right, but the head fake is focused on Wall Street.. here's why..

- Wall Street thinks of them as another computer/mobile company and that market share is the ONLY thing that matters.. Profits are not nearly as important in a market-share world.

- Apple believes in staying in the High-End market, dabble in Medium (5c/MacbookAir/Mac Mini) range, and avoid at all cost the low end market. This gives them high profit and ability to provide high quality products..

My guess is they want their cake and eat it too.. They want to be 'high-end' competitive, and stay away from low-end market / race to bottom game. AT the same time they want to put an end to the stock market's perception that market share is the only way for Apple to succeed.

The trick here is the head fake not on people, but on Wall Street. If they can maintain only high-end product offerings w/o getting into the 'market-share' battles.. AND make Wall Street think of them as a luxury, then it's a win-win.. high stock price, stay in satus quo high margin/high end items ....

They are not looking to raise prices on products per-say .. Yes, they will charge what the market will bear, just like any business.. but they want to get Wall Street back on-track. Perception is reality I guess is the saying on Wall Street, and for them(Apple) it's about Wall Streets brand perception..

We've had luxury cars, houses, etc for years.. the concept of a Luxury technology.. thats a foreign concept..

Thats my 2cents anyway...

Agreed. It's like those $2000 dollar BlackBerry devices. When it's luxury, no one cares whether it functions well, just that it looks good. Fortunately Apple functions as well.

iMore App via Nexus 5.

The post makes sense and as a shareholder I'm hoping they become the first trillion dollar company. I hope the share price keeps going and never stops. Apple becoming a high end luxury brand though I'm kind of scared about happening. When I think high end brands I think rolex, Ferrari, Lamborghini and other brands that only a small segment of the population can afford. I'm not a part of that segment and being an Apple user I wouldn't want to see a time when I was unable to buy Apple devices. I'm lucky that my job both allows me and requires me to use a Mac. I just don't want to see a time when the majority of people can't afford Apple products.

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I doubt it will go that far. There are different tiers to luxury. Think Bugatti Veyron vs Chevrolet Corvette. Both fast and very sexy but one still shows more than the other. I'm still going to look at Corvette like 'damn' but it's no Veyron. Same with Apple devices. They shouldn't start selling $1000 base model iPads to prove luxury when a $499 tablet is at the top of the market regardless of which brand it is.

iMore App via Nexus 5.

Perhaps they are hiring CEOs from luxury brands, because those companies focus on the customer experience, which is an area that Apple has traditionally excelled in and should continue to improve.