The day the market lost faith in Apple

  • Posted: 11 January 2011 09:34 PM

    For those of you who don’t daily read Horace Dediu’s Asymco blog, his latest post is a must read. Just a little taste:

    In a recent but recurring lament I asked why Apple shareholders are not being rewarded for the company?s growth. I pointed out that there is no fundamental reason why the company should receive such a low P/E multiple (about 18 ex-cash trailing and 10x forward while maintaining 70% earnings growth for over a year).

    There were many objections in the comments.

    In this article I argue that none of these objections hold water. My argument hinges on the fact that there is a precise date when Apple ceased being seen as an exceptionally valuable company and that date precedes any of the causes being suggested.

    The day of disillusionment was almost exactly two years ago: January 14th, 2008.

    The full article is located here.

    One caveat. This piece is like an action packed movie with a disappointing ending. Despite that, the ride is well worth the price of admission.

         
  • Avatar

    Posted: 11 January 2011 10:02 PM #1

    I remember that day very well.  In fact that year I went to SF for the MacWorld and saw the first Air in person.

    The stock sold off instantly after record earnings.

         
  • Avatar

    Posted: 11 January 2011 10:05 PM #2

    Sadly, real life in not like a Hollywood movie where the ending always satisfies. It’s more like a French movie where you leave the theater feeling all confused.

    [ Edited: 11 January 2011 10:07 PM by asymco ]

    Signature

    Read more at: Asymco Blog

         
  • Avatar

    Posted: 11 January 2011 10:05 PM #3

    I foresee the Summer of AAPL ending in a very positive way before we settle into a somewhat more peaceful, less growth-stock-like autumn.  The raging torrent of iPhones and iPads being available worldwide on all networks will be too much to ignore, and investors will once again be swept up in Apple Fever.

    We’ll see how my hypothesis holds over the next couple quarters.  The key is Apple staying competitive by moving its iOS device line to dual-core wherever possible, particularly in iPad and iPhone.

    Signature

    The Summer of AAPL is here.  Enjoy it (responsibly) while it lasts.
    AFB Night Owl Teamâ„¢
    Thanks, Steve.

         
  • Posted: 11 January 2011 10:08 PM #4

    asymco - 12 January 2011 02:05 AM

    Sadly, real life in not like Hollywood where the ending always satisfies. It’s more like a French movie where you leave feeling all confused.

    You have a way with words Horace. I particularly liked your tweet from the other night:

    Microsoft makes software to sell.
    Apple makes software as a means to sell hardware.
    Google makes software as a means to sell its user.

    Did you take up Charles Arthur’s offer to be quoted in the Guardian?

    Signature

    .

         
  • Avatar

    Posted: 11 January 2011 10:32 PM #5

    I might be reading it wrong, but the byline is today (Jan 12, 2011), but the article says this: “The day of disillusionment was almost exactly two years ago: January 14th, 2008.”. That was about 3 years ago.  Like I said I’m probably missing something.

    Signature

    Use your powers for good.

         
  • Posted: 11 January 2011 11:01 PM #6

    asymco - 12 January 2011 02:05 AM

    Sadly, real life in not like a Hollywood movie where the ending always satisfies. It’s more like a French movie where you leave the theater feeling all confused.

    Well, I always leave French movies confused because those French people have a different word for EVERYTHING!*

    Seriously, I hope I didn’t offend. I was trying to temper expectations while making it clear that the journey was worthwhile even if you weren’t able to spoon feed us the answer at the end. I guess we’ll just have to come up with our own epiphanies.

    *With a tip of the hat to Steve Martin.

         
  • Avatar

    Posted: 11 January 2011 11:19 PM #7

    FalKirk - 12 January 2011 01:34 AM

    For those of you who don’t daily read Horace Dediu’s Asymco blog, his latest post is a must read. Just a little taste:

    In a recent but recurring lament I asked why Apple shareholders are not being rewarded for the company?s growth. I pointed out that there is no fundamental reason why the company should receive such a low P/E multiple (about 18 ex-cash trailing and 10x forward while maintaining 70% earnings growth for over a year).

    There were many objections in the comments.

    In this article I argue that none of these objections hold water. My argument hinges on the fact that there is a precise date when Apple ceased being seen as an exceptionally valuable company and that date precedes any of the causes being suggested.

    The day of disillusionment was almost exactly two years ago: January 14th, 2008.

    The full article is located here.

    One caveat. This piece is like an action packed movie with a disappointing ending. Despite that, the ride is well worth the price of admission.

    I can tell you why: markets hate companies that don’t disclose everything. Apple doesn’t explain its internal accounting well which leaves everybody to guess and when we guess, we’re really conservative. As far as I’m concerned AAPL deserves to lowest multiple in the industry for this reason alone.

    Signature

    Black Swan Counter: 9 (Banks need money, Jobs needs a break, Geithner has no plan, Cuomo’s grandstanding, .Gov needs a hobby, GS works for money, flash crash, is that bubbling crude?).

    For those who look, a flash allows one to see farther.

         
  • Avatar

    Posted: 11 January 2011 11:31 PM #8

    FalKirk - 12 January 2011 03:01 AM
    asymco - 12 January 2011 02:05 AM

    Sadly, real life in not like a Hollywood movie where the ending always satisfies. It’s more like a French movie where you leave the theater feeling all confused.

    Well, I always leave French movies confused because those French people have a different word for EVERYTHING!*

    Seriously, I hope I didn’t offend. I was trying to temper expectations while making it clear that the journey was worthwhile even if you weren’t able to spoon feed us the answer at the end. I guess we’ll just have to come up with our own epiphanies.

    *With a tip of the hat to Steve Martin.

    Watch it buddy, I am French. tongue laugh (I don’t like em either) LOL

    Signature

    Adversity does not just build character, it reveals it.

         
  • Posted: 11 January 2011 11:40 PM #9

    You can view the Jan 2008 keynote by Steve in iTunes.

    The podcast is dated Jan 16th, 2008. So not sure about the day?

    Steve does look a little thin, if you know to look for that. But I would not have noticed.

    iPhone units at 4M in first 200 days seems light, so perhaps disappointment with that.

    Vista is mentioned in comparison to Leopard.

         
  • Posted: 11 January 2011 11:50 PM #10

    I should draw up a list of how Apple is more french than the french but that’s for another day.  Great article Horace.  Tommo was screaming about the paltry multiple long before the trench you identified so it’s been an ongoing topic as long as I’ve been here.  The discussions must fill hundreds of pages in the archives. (if there is one).  I’m lost on the lack of accounting clarity you reference Eric and have never seen that brought up anywhere.  Is it anything particular or is it just how they bury their unit sales?
    Here’s my top ten list done in about a minute and a half but everyone can feel free to add to it.  Was Curly saying that there really is just one thing that matters…, or possibly it’s never one thing.  Ahhhh, age.  :(

    Top Ten Reason?s Wall Street Hates Apple  


    10.) Inability to penetrate the ?Enterprise?.
    9.)  Apple Store traffic slows to a crawl without having a continual supply of new hit products.
    8.)  The Law of Large Numbers
    7.)  Innovation will slow by necessity
    6.)  Apple doesn?t play ball with Washington
    5.)  Growing cash hoard guarantees a steadily declining return on invested capital
    4.)  Everybody knows the products are over priced toys
    3.)  Can?t possibly ward off the onslaught of 4 entire industries
    2.)  Steve?s the whole ball game
    1.)  Apple doesn?t play ball with bankers

    Signature

    I don’t mind being wrong…,I just hate being wrong so FAST!

         
  • Avatar

    Posted: 12 January 2011 12:16 AM #11

    Bill, when AAPL hit 202.96 in Dec of 2007 it had a P/E over 50. That was suppose to be the earnings call to financial security. We were all greedy and lost a fortune. Hind sight is 20/20 and there really was nowhere for it to go but down. the overall market was already showing signs weakness.

    Signature

    Adversity does not just build character, it reveals it.

         
  • Posted: 12 January 2011 12:31 AM #12

    mbeauch - 12 January 2011 04:16 AM

    Bill, when AAPL hit 202.96 in Dec of 2007 it had a P/E over 50. That was suppose to be the earnings call to financial security. We were all greedy and lost a fortune. Hind sight is 20/20 and there really was nowhere for it to go but down. the overall market was already showing signs weakness.

    I was here but not trading as is the case today.  The PE was trailing and the projections would have brought it down considerably iirc. (Which I may not) I’ve been down this road a few times so I do understand well what it feels like.  I don’t know if I’ve ever talked about selling my business but it felt similar. I was preparing the documents to put out to the financial market but was dragging my feet waiting for at least one quarter of the coming year when the numbers were going to really start popping much like Apple today.  About two weeks before we were going to release it my broker told me that the capital market had just evaporated and nobody was doing anything.  This was a full six months before the market itself tanked but my opportunity was gone.  Oh well…

    Signature

    I don’t mind being wrong…,I just hate being wrong so FAST!

         
  • Avatar

    Posted: 12 January 2011 12:31 AM #13

    mbeauch - 12 January 2011 04:16 AM

    Bill, when AAPL hit 202.96 in Dec of 2007 it had a P/E over 50. That was suppose to be the earnings call to financial security. We were all greedy and lost a fortune. Hind sight is 20/20 and there really was nowhere for it to go but down. the overall market was already showing signs weakness.

    Funny, I remember incredibly poor Q2 guidance sinking AAPL like a rock. Thanks for reminding me, now I won’t be able to sleep tonight grin

         
  • Posted: 12 January 2011 12:35 AM #14

    ChasMac77 - 12 January 2011 04:31 AM
    mbeauch - 12 January 2011 04:16 AM

    Bill, when AAPL hit 202.96 in Dec of 2007 it had a P/E over 50. That was suppose to be the earnings call to financial security. We were all greedy and lost a fortune. Hind sight is 20/20 and there really was nowhere for it to go but down. the overall market was already showing signs weakness.

    Funny, I remember incredibly poor Q2 guidance sinking AAPL like a rock. Thanks for reminding me, now I won’t be able to sleep tonight grin

    Chas.  After watching it all these years do you really think guidance has a dang thing to do with it?  I couldn’t even add it to the list above.

    Signature

    I don’t mind being wrong…,I just hate being wrong so FAST!

         
  • Posted: 12 January 2011 12:53 AM #15

    mbeauch - 12 January 2011 03:31 AM

    Watch it buddy, I am French. tongue laugh (I don’t like em either) LOL

    You’re French? Are you writing from France or just of French heritage?

    The internet is so amazing. I’m talking to all these great people like they live in the next town from me and it turns out that some of them are from around the globe. Think of the wealth of experience and knowledge that is shared here, at Asymco at Apple 2.0 and throughout the web. Before the internet, the chances of me getting to share ideas with someone like you or Horace Dediu were nil. I wouldn’t want to live in any other age.