Exxon Overtakes Apple for Most Valued Company (Again)

| Analysis

OH NOES AAPL SI TEH DOOMZ!Apple has once ceded the title of world's most valuable corporation to Exxon Mobil. The two companies traded places on Monday after shares both company moved lower, but with Apple losing more than Exxon. $4 billion currently separates the two companies.

$AAPL closed at $420.05, down $10.42 (-2.42 percent), on strong volume of 20.8 million shares trading hands. That represents a 52-week closing low for the stock. Apple's market cap is $394.5 billion .

$XOM ended the day at $88.95, down $0.480 (-0.54 percent), on moderately light volume of 10.9 million shares trading hands. Exxon Mobil has a market cap of $398.5 billion.

The news made headlines, of course, as it fuels the fire of those predicting Apple's doom. After all, Apple is only worth $394.5 billion. Clearly Apple sucks!

As we've pointed out in the past, there's little meaning to the title of world's most valuable corporation other than bragging rights. Apple and Exxon have traded places many times in recent years, and when the two companies are close, that can happen throughout the day in session after session. This is very likely to be the case in the near future.

Apple is at the bottom end of a slide that began in late September, as Wall Street has pared 40 percent of $AAPL's value from it's all-time closing high of $702.10 set on September 19th. Since then, a miasma of fear, doubt, and uncertainty (FUD) has settled over the company that the most profitable quarter in history for a a tech company can not overcome.

Indeed, on Monday, not even a fresh rumor that Apple will release a smartwatch in 2013 could keep the stock from sliding.

Writing for Time magazine on Monday, Ben Bajarin suggested that Steve Jobs's famous reality distortion field (RDF) has shifted from inside Apple to outside Apple, especially with Wall Street and the mainstream media (we linked to it earlier as a Cool Stuff Found entry).

That about sums it up, but it's important to remember that there has always been a lot of stupid things written and said about Apple. It was just as true on $AAPL's way up as it has been in the last five months and as it was back-in-the-day when everyone knew Apple was on death's door.

The reality is that most people simply don't "get" Apple.

The only real difference today is that Apple has $137 billion in the bank and it's now the world's second most valuable company. Never mind that a little volatility either way will result in yet-another-change-in-places.

*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.

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12 Comments Leave Your Own

Bosco (Brad Hutchings)

After all, Apple is only worth $394.5 billion. Clearly Apple sucks!

Not the issue, Bryan. The big complaint about AAPL is all that cash in the bank that isn’t doing anything.

Perry Clease

Of course that cash is doing something, it just isn’t what you want it to be doing. Apple has long term plans that don’t share with the short sighted.

Bosco (Brad Hutchings)

Child, please. Apple has been sitting on enough cash for long enough to have completely replaced Samsung as its main supplier if that’s what it wanted to do. Instead, Apple has ended up with ramp-up delays for their latest flagship products. This is exactly why investors want dividends. The money is doing nothing in the bank, and Apple has not developed any track record on the M&A front as it has ramped up its cash reserves. M&A experience with Motorola is the only thing Google has to keep its investors at bay, and it has about 1/3 the cash as Apple.

The complaint from Wall Street is that this cash could actually be doing something rather than sit idly while fanboys and management promise there are plans to do something spectacular. Even if Cook broke out the checkbook tomorrow, there would be serious doubts about Apple’s ability to make a large acquisition actually work. They have zero experience.

ibuck

The trouble is, Bosco, aside from your insults, is that Apple is not who you want them to be. And that’s a good thing.  Like a lot of these so-called “analysts” and “tech writers”, you’re trying to pound a square peg through a round hole. Despite it not fitting, you keep pounding. Ever hear Bill Clinton define insanity?

b9bot

I agree ibuck. Apple shouldn’t have to do anything with that money until they are ready to do so. Apple has grown ups that have been in the business a long time and know how to run the company. They don’t need anyone to tell them how or when to do anything. And what should they spend that money on, dividends for the spoiled brat anal-ists that will just keep selling off the stock anyways? It seems record profits aren’t good enough, any product Apple introduces isn’t good enough, having extra cash in the bank isn’t good enough. So I think Apple as a company has the right to spend its earnings on what it thinks will be helpful to the company, not the spoiled brat anal-ists who will just knock Apple down anyways for whatever stupid reason they feel like that day.

Constable Odo

I’d sure like a simple explanation of how Apple stock became one of the most worthless stocks on Wall Street while being one of the most profitable companies around in a paragraph or less.  The odds are now in favor of even Microsoft having more of a chance of survival than Apple.  Since I don’t know the future, maybe MS does have a better chance. 

Everyone refuses to buy Apple stock because Google is much better run company.  It’s a darn shame that Apple doesn’t want to do anything to cripple Google in retaliation for taking away its smartphone business.  I’d like to see an Apple search engine that could at least challenge Google’s core business.  It’s like Apple is fighting back with one hand tied behind its back or has maybe just given up completely of turning Apple into a powerful company that has investors’ respect.

Every profitable company’s stock is making huge gains with the stock market at all time highs, except for Apple.  I don’t know what’s going on with that company.  It seems they just can’t be bothered trying anymore.  It seems as if putting effort into its core hardware business is just too much of a chore.  By now, I thought Apple would be a seasoned, well-oiled device-designing machine but I guess I was fatally wrong.  It’s a darn shame Apple had to collapse only a year or so after Steve’s death.  It’s really sad and ugly.

Bryan Chaffin

Remember that the money belongs to Apple’s shareholders. It is Apple’s to do with as it pleases only so long as shareholders are also pleased. So far, of course, there is zero chance of an actual shareholder rebellion, but this is an issue.

Tim Cook himself acknowledged that Apple had more money than it needed for operations. Barring a completely out of character M&A move (as referenced by Bosco), Apple needs to return more of its cash to shareholders.

The reality is that Apple will return more money either in the form of another stock buyback or a bigger dividend or both. Some folks just want it to happen faster than it has. Note that this is made more complex by the reality that most of that money is overseas and subject to a huge tax hit if it’s repatriated.

Bosco (Brad Hutchings)

Constable Odo: I’d sure like a simple explanation of how Apple stock became one of the most worthless stocks on Wall Street while being one of the most profitable companies around in a paragraph or less.

I have offered it many times. When Apple fans celebrate Apple’s record profits, they omit discussion of how much cash is tied up to attain those profits. The profits, though astounding in absolute terms, are not terribly astounding with the amount of cash tied up as context.

Wall Street is saying that if Apple paid taxes to repatriate the offshore money, then gave what remains of it back to shareholders, it would be better for shareholders than Apple planning to do something with it. That is how little confidence they have in Apple making productive use of that money.

Bosco (Brad Hutchings)

Bryan, you don’t need a shareholder rebellion when there is still lots of room to protest with the share price. And there is, especially if you discount the cash on hand to reflect its repatriated value. That’s the analysis of the guy who pegged at AAPL at $230-ish back in December.

Stock buyback, other than to support future compensation, is an admission of giving up. Dividends are the right way to draw down the cash reserves if there is no M&A to be done.

But this whole thing exposes a fundamental problem with the Apple approach. Everyone here likes to ridicule Samsung for having 200 models of cell phone on the market at any given time. Look what happens with Apple’s simplified product line-up. They make their sales and have nothing else to do. There’s no reason to scale up engineering because all the bases are covered as well as they’re gonna be covered. Meanwhile, over in the Googleplex, Larry Page is trying to figure out how to scale his extremely intelligent work force to 1M workers. And he still gets grief for having 1/3 the cash on hand plus an actual acquisition.

Bryan Chaffin

Brad, if I understand, your thesis is that Apple would be a better company if it would simply do what everyone else does, despite the fact that what everyone else does makes less money.

Please correct me if I am wrong, but I cannot get behind that reasoning.

Concern over Apple’s cash hoard is not rooted in Apple changing its business model. It is instead a desire to see Apple return those profits to shareholders faster than it is. Your solution would tackle the problem by having Apple make less money.

Concern over the Apple’s cash hoard is also not behind Apple’s stock price decline. That’s based on a combination of factors that are all centered around most folks not understanding what Apple does. If and when confidence is restored in Apple’s ability to deliver innovative projects—I’ve no doubt about that—investors will again be bullish.

But I repeat: Apple opening up its OSes, making a gillion products for the sake of unprofitable market share, or otherwise becoming another me-too company is simply not what Apple is or should do.

Bosco (Brad Hutchings)

Bryan, that’s not exactly my thesis. My thesis* is that Apple right now is a very big engine doing the work that a much smaller engine could be doing. That’s almost at the level of definitional with the untapped cash reserves. It is looking very likely that the cash reserves aren’t tapped because the company doesn’t have ideas commensurate with available cash. That is exactly what is dragging down the stock price. If anyone believes otherwise, they should be out assaulting old ladies and stealing their bingo money to buy AAPL right now.

Let me try another metaphor. Apple’s fortress sits atop a mountain. Their fortress could/should cover the whole mountain. But the problem is that they don’t know how to manage a whole mountain. They’re kinda maxed out keeping the top of the mountain in good working order. It’s a problem of know-how, not of money. Were some Robin Hood to come in and take Apple’s excess cash (the cash not needed to keep that fortress on the top of the mountain) and give it to people with ideas, the mountain could be covered with amazing fortresses, only 1 run by Apple, and most if not all smaller than Apple’s. This is, after all, an allocation of capital problem.

There are traditional models that don’t seem to peter out like the Apple model at some particular scale. Samsung seems to have grown this way, and looks to continue growing that way. Open source models often do the same. Their sausage factory isn’t anything you want to see, but the sausage tastes pretty good. Apple wants their sausage factory to be beautiful too. I’m not saying that Apple has to adopt a messier model. It is an alternative that doesn’t seem to have a hard ceiling. While Cookie is promising that Apple has amazing things in the pipeline, Larry Page is out setting scalability goals that will cover that whole mountain, adjacent valleys, and maybe even an ocean. He is working on things that make 1M innovators manageable. That’s his number 1 goal. And he is persevering through back in the real world challenges to scalability like the Motorola acquisition.

Bottom line: investors see that Apple has a huge pile of cash tied up, and no real vision or ambition to use its inherent scale to get a return. These investors would much rather give other castle builders a shot.

(*) My thesis is putting polite words and complete sentences to the reactions of pretty sophisticated investors I know who can’t get over the waste of scarce capital. One sentiment I’ve heard is that if, for some reason, AAPL were actually an Enron-like scandal, at least this would make some sense.

skipaq

The business world is littered with corporate mergers and buyouts that have ruined what was once a thriving company. Really haven’t checked or given much thought to the net results thus far of the Motorola purchase. But Apple is a different company than most. They have a culture and philosophy that is unlike anyone they compete against. This results in a very careful approach to buying any other business and they tend to be small strategic buys.

Buy a telco, a manufacturer, a network or major software company. All of these suggestions have been made; but they aren’t the way Apple typically does things. They didn’t buy a retail operation; but after miserable attempts to work with big box retailers they went out and built their own. How did that work out? Everyone said it was doomed to fail. There are many similar examples. There are some notable failures.

Making a major purchase may give the stock a lift; but that is no reason for doing so. Such a move can easily lead to major trouble. Apple’s stock buy back program is essentially share number neutral. It’s dividend is good but should be expanded. I am a long time investor and that is what I would prefer.

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