Apple Got $20 Billion Cheaper Today But How Justified Is That?
by
on September 29, 2008,
This morning analysts from both Morgan Stanley and RBC downgraded their recommendations on Apple stock which resulted in tremendous fall of Apple’s stock by almost 18% or $22.98 to reach $105.26 at closing. This made the market valuation of Apple almost $20 billion lower.
Analysts claim that their surveys show that people intend to buy less Macs - both laptops and desktops with 40% of people planning to cut their general spend on electronics in the next 3 months. The only market segment where laptop sales are not supposed to be damaged by the financial crisis and slowing demand is in low-end machines under $1,000 where Apple simply has nothing to offer to consumers.
It is quite logical that Apple is in a bad situation with its mostly high-end laptops. Sure, MacBook Air is appealing to consumers (I myself am the one waiting eagerly for when I have at least some moral right to replace my current almost new Sony Vaio with the Air) but probably less appealing when consumers face a recession. After all, when you don’t have that much to spend, you will probably buy less luxury products (Air, MacBook Pro, iPhone and iPod Touch could be the examples) choosing something less expensive but offering adequate functionality for less money. So while Apple is well known for its ability to generate immense buzz around its new products and stimulating sales with this buzz, when people need to prioritize their expenses they will probably choose practicality over the brand image.
Right now it looks like the only solution for Apple could be introducing some products that could be competitive against cheaper Windows-based laptops - something sold well under $1,000. But this low-end segment usually works by compensating low price with high sales volumes and even if Apple introduces some laptops to be sold in this segment (which will be revolutionary for the brand), it will still need to ensure large sales in the situation where consumers are generally reluctant to buy.
But anyway today’s situation Apple found itself does not look like having a particularly strong foundation to me. The irony is that one of the analysts (Morgan Stanley’s Kathryn Huberty) is told to have quite a questionable record for predicting Apple’s sales and revenue and thus the panic based on words of two analysts now seems to have a questionable basis itself. But in the market where investors resemble a group of hysterical girls selling stock for any reason that seems to be a valid one it is understandable - yet too bad for Apple and other companies that are already affected and will be affected in the coming days.
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Svetlana Gladkova
Opensource 
Michael Fidler 
markets are impersonal, meter sticks that change length on a whim, just a tool to try to establish something so people can make comparisons … buy or fly as we like … me, what markets think, is overrated … buy i don’t play in them
@Gregory: True but still uncomfortable to know markets going just crazy with traders simply behaving like they are all panicking and are simply unwilling to critically assess everything they are told.
it is very justified. We are seeing economic turmoil I have never seen. First tech casualty is consumer electronics. More pain to come here. Sorry.
/me waiting for Credit Card and Automobile Stocks hitting the bottom…
Financial markets go down for a reason–> information spreads by means of media–> speculations start taking place–>accordingly, actions are taken–> information about this additional action spreads–> more action is taken. It is a vicious circle. Any luxury or high-end product will suffer in times like this. It’s a basic psychology coupled with Maslow’s theory.
@Fu_ People will probably not buy Porsches or Lamborginis but it does not mean Ford will go bankrupt as well - same as with MacBook Air that will probably be hit while people still buy normal laptops that do the job but are less trendy.
Now, I can see that you might think the market is wrong. That’s cool. I sure wouldn’t bet my money on it being wrong right now, though, and as a premier brand of “expensive toys” Apple has a lot more downside risk than, say, RIM or Dell (and both of those are gonna get hammered in this economy too).
Svetlana: it’s not just this analyst that’s driving Apple’s market price. You think everyone really listens to only one person? Please. The economy is about to get hit with the storm of the century. Everyone I talk with is afraid. That fear turns into hoarding behavior. Anything non essential gets put off. Sorry, but it is NOT essential for you to have a new iPhone or a new MacBookPro (at least it’s not essential for most people). Apple’s sales will drop, and drop big. That’s what the market is predicting.
Svetlana Sometimes it’s a Stock Market and sometimes it’s a Market of Stocks. Currently It’s a Stock Market. If a company came out with the best earnings report today it might not make a difference At the very least it would not enjoy the gains it might have on a calmer day. A lot of what happened today was technical, but if you believe in the company and their fundamentals are sound, these are the ones that usually bounce back quickly!
@Robert: I would not say that it is 100% justified given the fact that Apple shares are damaged the worst when the damages should be more or less equal given the overall crisis. And while I agree with the analysts that Apple is not the healthiest company with mostly high-end laptops, I think relying on the predictions of an analyst who is known to make mistakes for Apple is not exactly right. It’s just uncomfortable to watch a real hysteria when hardly anything is reasonable at all.
@Michael Fidler: That’s exactly what I am talking about! It’s just that today everything is falling - for a reason or not and telling that such a huge fall is 100% justified for Apple may not be precisely true with everyone panicking. On a better day it could have been scrutinized and resulted in some decrease of price but not this huge - that’s what I meant initially.
Guess the new Macs are going to be more expensive then.
Sorry, I thought you just posted the question, not an entire post. I just read it. As someone who only invest in tech stocks for the last twenty or so years, Never listen to analyst. With that said, the PC biz runs on razor thin margins, but I was just at the Mac store helping a buddy with a purchase, and I couldn’t believe the prices. Their cheap and getting cheaper. At the same time the quality is amazing. I’m actually considering getting one. I’m so sick of Vista, I’m having a problem this second, Sorry!
Svetlana, the hysteria and the vicious circle might bring the entire market down to the point where a big economic crisis, possibly an international one, may ensue. After Great Depression, science and tech and consequently the development of the world went as never before. It might become a case here as well, who knows..But we have to be patient and be prepared to withstand the downturn.
@Hayk: True, it is natural market behavior but I really doubt hysteria will help solve the crisis, honestly.
Svetlana: but I remember when Apple was at the price of $6 in 2001 or so, actually it was $12, but that was before it split 2:1 (compared to today’s $100 or so). The reason Apple got hammered worse is because of its exposure to an economic downturn and also because it was VERY expensive and got run up very quickly and very high.
this was two, two, only two analysts, and one of them historically full of …..
Robert: That’s exactly what I told in the post - MacBook Air is not exactly necessary when you can buy a laptop for half the price to simply do the job. What I am talking about is that hysteria is not exactly a good reason to valuate companies - especially when one of them gets hit so much worse than the others when the crisis is general. But it may be that I am tired of the hysteria simply because I happen to live with one (my husband) constantly screaming we are all doomed
LOL Gregory, this is exactly why I question how reasonable the fall is - but it is not a popular point of view here, I’m afraid so you’ll have to defend yourself now as well
@Christopher: Yes, this is the most popular expectation that Apple will actually introduce some lower end laptops to stay competitive in that segment. But this segment will require large-volume sales to compensate for lower price but I am not sure Apple can manage such sales with the existing distribution model.
i was just sorry I could not finish my post because I really was having a problem with Vista or FF. It wouldn’t let me type any more. lol
Robert: Very true, Apple may very well now experience the results of growing this expensive this quickly. But again, it is not the only company and it looks like Google is still valued somewhat higher than it reasonably should, for example - but we don’t see it hit nearly as much.
heyyyy, maybe markets are not reasonable!!??!! ya think? lol
Michael Fidler: No need to be sorry, it’s very common to reply to a post title here - I often do so myself by mistake
True, Apple machines have that kind of magic that Windows-based machines lack but they really need to offer actually competitive prices (I saw people suggesting $500-$600 was reasonable for a laptop today) to be able to win. Hope something to that effect happens in two weeks as promised - this could help with stock if the market listens as it is listening now.
Hayk: My point is that withstanding the downturn must be easier without panicking but acting at least more or less reasonably. In this case only companies deserving it could be hurt instead of the entire market (possibly international).
Gregory: They sure are not and that’s the primary reason for the situation, I guess. But then the question is how could a bailout help given the unreasonable behavior of traders now?
Silpol: One thing I know for sure is that I would never want to be a trader these days myself as this crowd on the wall street must be at the very least terrifying.
@Svetlana your point is solid and valid, only humans tend to act less rationally, even those with iron guts, in face of Force Majeure — and what we are going through is Grand Force Majeure, i.e. humankind haven’t seen yet such a deep economic disaster. If you ever got stuck in thick crowd getting panicking on the street…
Michael, I am usually more than willing to blame Vista for all the bad things that happen on my computer but unfortunately in this case it looks like symbols limitation on FF
But if we imagine for a moment FF stock was traded on NASDAQ, it should have dropped by at least 10% because of it 