Apple Inc. (AAPL)’s Fall Equals Netflix’s Market Value

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Apple Inc. late Tuesday shocked investors by missing profit and revenue forecasts for the March quarter, fanning rumors that people are finally done with the iPhones. The expectations for Apple’s Q1 were already pretty low, and the actual result came out worse.

Apple Inc (NASDAQ:AAPL) iPhone 7

Over $40bn wiped off in hours

Apple posted adjusted quarterly earnings of $1.90 a share well below the $2 per share expected by the analysts. It’s not just a matter of missing forecasts as the profits dropped 18% from the same period a year ago. Revenue too missed estimates, dropping by 12% to $50.6bn – the biggest drop since Q3 of 2001, says a report from USA Today.

In a note to clients, Abhey Lamba – an analyst at brokerage Mizuho Securities – said the top-line came in below expectations driven by a slowdown in the iPhone units. Though the iPhone maker shipped around 51m smartphones, beating the estimates, the average selling price of $625 was well below the $659, expected by the analysts, Lamba says. Meanwhile, the drop in the sales of Apple’s tablet continued, says Lamba, with units down by 19% from last year.

“There’s no question that Apple’s best days are behind it,” said Toni Sacconaghi, an analyst at the Bernstein brokerage firm. “The company grew at astronomical rates, and it’s now so big that its ability to grow at those rates doesn’t exist anymore.” However, CEO – Tim Cook – believes the future of his firm is “very bright.”

Who actually lost the money?

Such numbers came as a big blow to Apple’ stock, which in after-hours trading dropped 8% to $96.67.  Apple lost around $43bn in market value based on after-hours trading.  More than $40bn in Apple’s market value just vanished after-hours, it may not sound big for Apple Inc. , but actually it’s a very big amount. This amount of $40bn is approximately the same as the entire market value of Netflix.

So, who actually lost the money? Well, it wasn’t really money. It is actually the value of an asset. The one, who experienced the loss, would be one who owned even the most plain-vanilla S&P 500 index fund.

The S&P 500 is a market-cap weighted index, which means that the bigger the size of a firm, the more the value of its representation in the index. Apple – the world’s biggest publicly trading firm by market value – is likely the largest position for even the most passive investors.

Growing problems for Apple and investors

The biggest and latest problem for increasingly nervous tech investors is the collapse in Apple’s stocks and the profits. Last week, both Alphabet and Microsoft missed the earnings and revenue forecasts for the Q1. But, since Apple is the most valuable stock in the S&P 500, its problem are also the problems of the investors. The iPhone maker was valued at $579bn prior to the after-hours selloff, bigger than any other stock in the S&P 500.

The challenge faced by many other firms will now be faced by the iPhone maker as well. The great size and the sheer influence of a firm create a practically impossible barrier to growth, and matching the same growth and success – again and again – is also a difficult ask. Microsoft, Cisco and Exxon Mobil are prime examples of the big firms that have struggled to maintain growth, the report says.

For Apple Inc. though, there is still one plus point – Money. The iPhone maker ended the quarter with investments and cash of $232bn, up 7.4% from the end of 2015. Despite the grim number, it boosted the quarterly dividend by 10% to 57 cents a share.

On Tuesday, in regular trading, Apple closed down 0.69% at $104.35. Year to date, the stock is down almost 3% while in the last one-year, it is down almost 20%.

All trading carries risk. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.

Aman is MBA (Finance) with an experience on both marketing and Finance side. He has work as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, playing PC games and cricket.


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