The value of a company is whatever people are willing to pay for it. And for public companies like Apple, that value equates to an open market stock price times however many shares there are in existence. Street lingo for this is market capitalization, or simply “market cap”.
Apple is the world’s most valuable company. Period. Not just among technology companies, but among all companies in the world. Apple is worth a staggering $624 billion as I write this paragraph. It’s stock price is hovering around $673 and since there are 937 million shares outstanding, multiplying those two numbers together gives us that immense market cap.
To hit a $1 trillion market cap, the stock price needs to climb to $1067, which is 59% higher than today’s price. Of course, one trillion dollars is an arbitrary number. But lots of public companies are worth over $100 billion, and the next zero to be added gets you to a trillion. So it’s psychologically important. Will Apple be the first company to achieve it?
I’ve said before that I think they will. Back in February, when I said, "I’m in the camp that believes Apple will become the world’s first trillion dollar company", the stock price was about to reach a new high of $500. We’re already up 35% since that date. And while the stock price gyrates, and Wall Street gets upset with Apple’s latest financial guidance (yet again), the growth continues.
Apple’s creation of iOS has single handedly transformed the company from a Mac + iPod business into a mobile computing business. In the last year (Street folks call this “trailing twelve months”), Apple generated revenue of $149 billion. iPhone and iPad sales account for the majority of this.
China is one factor fueling Apple’s growth. On the company’s Q2 conference call, held back in April, Tim Cook talked about how sales in China had grown threefold year over year. China had gone from nowhere to 20% of total company revenues in one year.
As much as the iPhone has driven huge sales, I am honestly more excited about the iPad. Compared to a laptop computer, the iPad is infinitely more portable, always on, delivers much better battery life, and costs a lot less. Consuming content on it is much more comfortable. Parents worry less about their kids getting their grimy hands on it, or spilling a bit of apple juice onto its surface. In education, it offers to dramatically reduce the cost of textbooks. In short, the iPad, for many people, is superior to a laptop in many use cases.
Despite Android dominating the smartphone market in China, the iPad has over 72% share of the Chinese tablet market. But this is still a tiny market, with Apple selling less than 3 million iPads last quarter in a country with well over a billion people.
The tablet market, including iPad, is also small on a global basis when you compare it to the PC market. Apple sold only 17 million iPads last quarter (Q3 fiscal 2012). Annualize this and you get 68 million. The PC market is closer to 500 million units. Industry analysts expect units sold in the tablet market to exceed the PC market by 2015. I’m not sure if the date will turn out to be accurate or not, but I have no hesitation in adopting the view that tablets will outsell PCs at some point in the next few years.
This is the revolution that matters, and Apple owns it. Look back to the Mac vs. PC battle of decades past. Apple always held onto about 6% of the market. But today, in mobile, they’re set to hold onto a much larger chunk. Who knows what the percentage share will settle at, but I think we can all agree that it will be a lot more than 6%.
Right now, Apple has held onto its pricing power, to boot. How has it done this? Part of it is sexy hardware and great software, as usual. But the real reason comes down to ecosystem. iPad, iPhone, iPod, Mac, iTunes, iOS apps and iCloud all play well together, by design. Apple has a strangle hold on its users, even though we (as users) probably think of it as more of a cuddle, less of a choke.
So how high can Apple’s stock go? That really depends upon the time frame, I suppose. But if Apple can actually own 30-60% of the mobile computing market while hanging onto its fat profit margins, then we’re going to look back at the one trillion dollar market cap goal and laugh. For investors ... laughing all the way to the bank.