May

11

 I keep wondering if AAPL will be the first $1T-market-cap company. It's hard to accept that number if you're an old fart with a set of mental reference points that do not encompass market caps that begin with "T".

Right now AAPL has ttm net income of about $20B, and sells for 16x that number. So at the same multiple, $1T in market cap would require roughly $65B in net income. Is it possible they could get there in the next 3-4 years? They may break $100B in revs in calendar 2012. They also have $65B in cash on the balance sheet right now. By 2015 that will be…$150B? $200B?

The first $100B market cap was a big deal, too, though I don't remember which company it was.

Tyler McClellan writes: 

The reason apple will never get close to a 1 trillion market cap is very intuitive.

At that level they would be the largest net lender to the U.S. economy other than Japan or China. What are the prospects of a company that lends all its profits to the U.S. at zero percent interest rates. 

In fact, I will go further and say that the cash on the balance sheet at Apple is exactly equal to the amount of savings that society wants to do and apple refuses to accommodate.

For all of you who think you understand economic theory very well. What company supplies net capital to the economy at ever increasing rates even as its own prospects continue to improve vis-a-vis the economy?

Apple is a great lender to you and me, who have no need and no want for these lent funds, in exactly the opposite proportion to the amount you and I want to save in apple given its huge scope of opportunities.

Apple positively refuses to allow people to save. They force people to dis-save.

And for those of you who think the impetus to competition makes up for this (i.e., inducement effect of high market cap). Microsoft makes more net cash flow than all of the venture capital in the united states.

Apple itself makes nearly as much in free cash flow as the entirety of venture spending (that's in all categories at all stages).

Jeff Rollert writes:

Aren't market caps just measures of human preferences? If so, then they are good measures for where you are, not where you will be, as much of this behavior mapping is coincident.

A trillion seems to trite these days. 

Alston Mabry writes:

I think size matters.  Here are some more stats for AAPL:

last two quarters' YOY rev growth: 70%, 82%
last two quarters' YOY earnings growth: 74%, 91%
annualized growth rate of net income since 2005: ~60%

PE based on most recent 4 quarters: 16.3
PE after backing out $65B in balance sheet cash from mkt cap: 13.2

Now, imagine you saw those growth rates for revs and earnings, and that PE ratio, in a company with a $1B market cap, a company that had relatively limited market penetration for most of its products. "Is that something you might be interested in?"

So why aren't we more interested? Because people think AAPL is too big already. But maybe we have entered a new era of an expanding global economy in which there will be many companies with trillion-dollar market caps. As a popular and much-quoted writer and self-styled philosopher called it: the "JK Rowling Effect".

At one point in January 2000, the top ten (or twenty…I can't remember) stocks in the Nasdaq 100 had a total market cap of $1.6T and aggregate net income of about $19B, for a PE of 83. AAPL's current ttm net income is $19.5B, it's market cap $320B.

Frame of reference…point of view…big round numbas….

Alston Mabry asks: 

So you're assuming that rates will still be zero in, say, 2016? Could be. But what if the whole curve is pushed up two or three hundred basis points by then?

Tyler McClellan writes: 

Their actions as representative will force the rates to be low.

If the worlds most rapidly growing large enterprise refuses to borrow funds at 70% internal growth rates and is more than happy to lend them at 0% interest rates, then what possible companies demand to invest more than their willingness to supply savings?

It's a big fake that no one is supposed to talk about, our best companies don't want any money no matter how fast they grow, and in fact the faster they grow the less money they want. But wait, that's great, you say, because it means they create value out of nothing, and that what economics is. And isn't it true that companies can have value only if the sum of their discounted cash flows are positive, so doesn't that mean were wealthier if all of our companies have really high net cash flows.

And of course the answer to the above is categorically no, but I don't suspect what I've written to make a bit of difference, so back to my little day solving equations. 

Rocky Humbert writes: 

Tyler: I'm not sure it's appropriate to generalize from AAPL to the entire economy. AAPL is sitting at the top of the technology food chain, and they are benefiting from the investments being made underneath them. It's surprising, but Apple is NOT investing in R&D in a meaningful way… and this demonstrates that they are much more of a marketing company (like Proctor&Gamble) than a technology company. Hence they will eventually need to either buy back stock or pay a dividend….

R&D as a Percent of Revenues:
AAPL: 2.7%
P&G: 2.5%

INTC: 15%
MSFT: 13.9%
GOOG: 13.0%
IBM: 6%
(Source: Bloomberg, FA IS page, trailing 12 months)


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