Anyone who has been following Apple’s stock price has noticed a large decline since hitting its peak of $705.07 on September 21, 2012. To put this in perspective, as of this writing, Apple’s price earnings ratio is 11.79.
Looking at the P/E ratio of its Gang of Four rivals, Amazon’s is 3,187.5; Facebook’s is 163.47; and Google’s is 23.17. Surprise! Surprise! Even Microsoft’s P/E ratio is 14.54.
What is going on? Well there are many views why the most valuable company in the world that is awash in cash is being grossly undervalued by the stock market since September.
iPhone 5 disappoints
Many with older iPhone’s waited a long time for the iPhone 5 to come out. The marketplace was led to believe that iPhone 5 would be a major improvement over previous models because of Apple’s established convention for naming and releasing new models. My buddy, Erik Sherman of CBS MoneyWatch correctly observed, “Since the iPhone 3, Apple has worked on an alternating release schedule for the devices. One year would bring a major single number release and the next year saw an ‘S’ incremental improvement.
Last year, many people expected the iPhone 5 but Apple released the 4S.” Erik goes on to say, “However, the iPhone 5 seems more like another incremental release.” To some, the iPhone 5 offers even “less” than previous models because of the Maps fiasco, new incompatible doc connector, relocation of the headphone jack to the bottom, and other issues.
From under-promise and over-deliver to over hype and under-deliver
When Steve Jobs was running Apple, he did a really good job of managing expectations. He learned over the years to under-promise and over-deliver. When you do that, the stock price will jump. The new regime seems to have lost that skill.
In fact, as Dan Crow aptly observes in the Guardian, “The iPhone 5 is better, but it's really not that much better, and iOS 6 has had some decidedly mixedreviews. But you wouldn't know that listening to the hype from Bob Mansfield, Tim Cook, Phil Schiller et al. The problem with over-hyping is that people notice, and over time it erodes their faith.”
More evolution than revolution
Since introducing the iPod, Apple under Steve Jobs was a very innovative company. From what is visible to the marketplace, the innovation seems to have slowed down quite a bit. Instead of introducing “revolutionary” products about which Steve was fond of saying, “This changes everything,” Apple has been introducing evolutionary products that represent only incremental improvements. In additional to the iPhone 5, many are characterizing the iPad 4 as only an evolutionary improvement.
Is this incremental strategy good or bad for Apple? The stock price provides the marketplace view. The late great Peter Druker, sometimes called the father of business consulting, shared a similar view. He is quoted as saying, “the business enterprise has two, and only two, basic functions – marketing and innovation Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.”
Fueling underlying fears
One of the biggest questions after Steve Jobs’ passing is would Apple continue with its thirst for leading-edge perfection. A friend of mine, who is a former executive at Apple, put it this way – “Tim Cook is a talented executive, but many are wondering if he’ll be able to see around corners the way Steve could. The incremental improvements of the iPhone 5 and the iPad 4 seem to fuel these concerns, and that is probably one of the reasons the financial markets are rattled."
Increasing competition
Apple’s apparent slowdown in its pace of innovation has happened at a time when its rivals have gotten bolder. Amazon has introduced less expensive “loss leader” Kindle Fire tablets. Even though it was found to infringe on Apple patents, Samsung has a successful smartphone in the Galaxy S III. And the recent performance of Nokia’s Lumia smartphone surprised many that had written off Nokia as a “has been” company with nowhere to go.
Marketing the last part of the equation
While many would consider it to be less important than the other issues, the area where Apple has perhaps lost the most from Steve Job’s passing is marketing. I am not talking about Apple ads. They are still effective. What I am talking about is the power of the Steve Jobs brand, the fact that virtually nobody is a better public speaker than Steve was, and nobody at Apple has anywhere near the charisma that Steve had. Whether he was creating a reality distortion field or employing his iconic phrases, nobody could mesmerize an audience the way Steve could.
In a CNN Money post, Phillip Elmer De-Witt talks about what made Steve Jobs speeches different from others. He says, "It helps that he generally delivers the goods in terms of new products with real impact. But he also works hard to deliver them with some drama and flair. Insiders say he prepares his product introductions as if they were Broadway shows. The format is deceptively simple: a setup, a twist, and a big reveal."
Even those that are not fans of Apple and Jobs recognize his extraordinary ability to charismatically create a "reality distortion field" that mesmerizes audiences. With all due respect to Tim Cook and other Apple executives, compared with Steve Jobs, they are charismatically challenged.
Proving the financial markets wrong
Because of all of these factors, Apple’s stock price has taken a hit. If you look at the numbers alone, Apple is still on top – by far. It is the future that everyone is worried about. Being a loyal Mac and iPhone user, I hope that Apple can introduce some “revolutionary” products soon so that the fears about post-Jobs Apple can be put to rest.
We are looking for iTV, the iWatch, and yes, an iPhone and iPad that are significantly better than previous models. Lastly, we are hoping someone with undeniable charisma can emerge as Apple’s spokesperson.
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