Apple is what investors call a high-quality company that constantly reports wonderful financial numbers. For 18 years, it has exceeded Wall Street’s expectations. The Apple brand is as loved and admired as any company in modern history. And one could make the case, as some do, that Apple deserves a higher valuation than the $800-a-share market price that most people buy shares at.
Yet how can the folks who own Apple stock, who bid the stock up more than 100 percent in two years, stay so calm, considering everything from its shifting business plan to troubles at the Apple TV brand to concerns about manufacturing quality and customer service to rampant insider selling to worries about last year’s stock split and to questions about whether Apple had messed up by abruptly yanking its signature headphone “earbuds” from its product lineup? All of those worries have fanned out in a bit of a Bear Trap effect, which has extended the slide in Apple shares by as much as 12 percent in the past week, since the company reported first-quarter results Thursday night.
Look, I have the highest admiration for Apple. It makes beautiful products that consumers love. It has become one of the biggest companies in the world. It has a market capitalization greater than the market value of second-place Alphabet. It has become an icon of American capitalism. It has the largest cash pile of any company ever.
Yet it is the worst company to obsess about, in some ways. It doesn’t own a television show and can’t seem to make big product bets in electronics or wearables. It can’t even make a profitable version of its own headphone. Even though its stock trades at a valuation 17 times its earnings forecast for 2018, there are questions about its margin structure and it, too, has a much bigger cash pile than any company has ever had, even in its heyday of 1980s and 1990s stock splits.
So Apple has undeniable challenges as it looks ahead and faces increasingly tough headwinds from changes in technology, products and public sentiment. People seem to disagree about whether its product business can rebound. When it does, there are questions about how fast it will come back and in what form. One can even come up with a spec script for the next movie from Apple and see how accurate it really is.
The rest of the technological world doesn’t necessarily share the love and admiration Apple does. The company has some truly compelling gadgets, such as the Apple Watch and AirPod wireless headphones, but in many ways it is a piece of a bigger technology giant, which is dominated by Google and Amazon. It is sometimes difficult to separate how much Apple is part of the tech titans’ fabric, as opposed to how much Apple is standing on its own. And as with any large company, there are fierce battles over market share, competitive strategies and profits, among the many other things that have a way of weighing on business models.
If all that were enough, the company could be whatever you want it to be. In fact, to think otherwise can be downright dangerous, especially in a market where euphoria can unhinge investors. If I were in Apple’s shoes right now, I would probably start thinking about how to make the next one of those important and explosive deals. (Full disclosure: I own some Apple stock. When most investors think about Apple stock, I don’t seem to be on their radar screens.)
Apple also is wrestling with public relations problems. Although it mostly has escaped serious criticism, the company’s flawed reputation is the biggest reason there is so much negative buzz. Everyone seems to know someone who has a truly painful experience with Apple products. Even Steve Jobs, Apple’s founder and legendary co-founder, wondered if this kind of self-reinforcing feedback loop could be fatal to the company’s long-term strategy.
A company such as Apple can endure seemingly minute short-term indignities. But if it operates its business at the fundamental level of a company that has the potential to be as disruptive as Apple, it can be wounded and vulnerable for the long haul. It is important that the bet of Apple’s investors on that argument is valid and that Apple knows how to fix the problems that affect its company. That said, for most people, the question of whether Apple will evolve or remain on course is not just about a value proposition. It’s about whether they want Apple to be an important company in the future.