Opinion

Felix Salmon

Did the market know about Apple’s announcement?

By Felix Salmon
March 19, 2012

On Tuesday March 6, Apple shares opened at $523.66. On Thursday March 15 — eight trading days later — they opened at $599.61. Which means that over the course of those eight trading days, the market capitalization of Apple increased by more than 70 billion dollars.

Let’s put that in perspective: the market capitalization of Molson Coors is $8 billion. The market capitalization of Staples is $11 billion. The market capitalization of Yahoo is $18 billion. The market capitalization of eBay is $48 billion. The market capitalization of Nike is $51 billion. The market capitalization of Goldman Sachs is $63 billion.

Apple isn’t just worth more than those companies.  (In fact, it is worth more than double all those companies combined.) The point I’m making here is that if you take the amount that Apple was worth on Thursday morning, and subtract the amount that Apple was worth eight days earlier, the difference is more than the total value of any of those companies, up to and including Goldman Sachs.

To a first approximation, there was no news about Apple that emerged over the course of those eight days. The only real thing we learned was that the new iPad had sold out, which, well,  would have been more surprising if it hadn’t.

Now, however, there’s news — real, market-moving news, about what Apple’s going to do with its $100 billion or so in cash. As Chris Tolles drily puts it, that news is evidently “so huge that it propagated backwards in time”.

aapl.tiff Apple stock closed on Friday at $585.57 per share, after a run-up all but unprecedented in the history of mega-caps. Back in November, when I was remarking on how cheap Apple seemed, the stock was $363 per share; since then it has added $208 billion in market cap. That’s more than the valuation of Google. So one way of looking at the crazy price action of the past couple of weeks is to chalk it up to the astonishing power of momentum.

Alternatively, you could just say that the stock market has been slow to price in what has been clearly evident since February 23, when Apple CEO Tim Cook said at the company’s annual meeting that Apple has more money than it needs, and that he and the board were nearing a decision about what to do with it.

But still, it is a little bit suspicious that Apple’s big announcement is coming immediately after one of the largest and fastest rises in market capitalization that the stock market has seen since the dot-com bust. Or even during the bubble, for that matter. Look at Apple in the famous context of Amazon. On December 16, 1998, when the stock was trading at $242, Henry Blodget put a price target of $400 on the company. On January 6, 1999, Amazon hit $400. Amazon had grown its market capitalization by $13 billion in 14 trading days, which means that its market cap was increasing at a rate of just under $1 billion per trading day. If you look at those eight days of Apple trading, by contrast, the company’s market cap was increasing at a rate of $8.9 billion per day.

Given how unusual it is for a company to see its capitalization rise so astonishingly quickly, it’s reasonable to raise an eyebrow at the timing here. On Monday, Apple will make its announcement, and the stock will rise, or it will fall. But if it falls, that won’t necessarily mean that the market is disappointed in what Apple is announcing. It might just mean that the announcement got more than fully priced in, over the course of the past couple of weeks.

Comments
13 comments so far | RSS Comments RSS

Comparing AAPL today to AMZN of late 1998 is not a valid comparison. AMZN had no profits then, while AAPL is a mature cash cow.

It took me a few days to realize what the iPad3 really is – a portable TV. The most time-use my iPad2 gets is Netflix and watching sports, all over my house. The resolution isn’t what I would get on one of my tv’s. However, make the screen better, camera better, and you get a much better experience.

AAPL is in a position to push iptv hard. I’d watch the stocks of time-warner and comcast, as a move away from a traditional cable model would hurt those company’s profitable businesses. However, you’d need more high-speed internet access which they’re poised to deliver.

My thought about the TV nature of the new iPad didn’t happen right away, it took a few days to realize. Multiply by the million AAPL investors, and you get a slower ramp than just a bump on the intro of the new iPad.

Posted by winstongator | Report as abusive
 

Oh, and the 4G LTE means that you don’t need time-warner or comcast if the iPad is your TV. Since you’ve already got an account with Verizon or AT&T for phone & data, it’s a small move to add $30 for a data plan.

How much did VZ spend rolling FiOS to break into the home TV market? It will turn out that its 4G rollout (not cheap by any stretch) will be a much more effective entry.

Posted by winstongator | Report as abusive
 

Your suspicion makes sense, especially considering that the Apple board met, if I’m not mistaken, on March 7th. Any chance that they discussed the dividend issue then?

Posted by lgg | Report as abusive
 

Mr. Salmon, one doubts there is even one person who will read your column who will be so foolish as to assert that there isn’t a ton of trading on inside information on Wall Street. So, what else is new? – this:

You may have selected the one example where the pre-announcement price movement isn’t inconsistent at all with the longer-term trend.

On your chart, nothing in the most recent price action is out-of-line with the trend going back 4-5 months. The issue has been in a steep climb for at least that long. Even if there was “inside information” in a technical sense recently floating around, that information was certainly not material to market participants – who long ago commenced to “get there first”.

Sometimes the market actually understands things better and sooner than the insiders do – even about their own companies. As you put it, “the announcement” was being priced in long before the Apple board ever considered making such an announcement.

(As an aside, IMO the $100-billion of cash in the bank – and the prospect of more to come – explains the price action much better than any dividend announcement does. Dividends or not, Apple Inc. is just a tremendous moneymaking machine, and that is no surprise. The surprise will come when that ends.)

Posted by MrRFox | Report as abusive
 

Talk of an Apple dividend has been going on for months now, with hints dropped here and there by Cook. Was anybody surprised by this announcement? Either the fact or the amount?

Markets are inherently forward-looking. By the time something is announced, the price action is already past.

Posted by TFF | Report as abusive
 

If you follow the price of Apple’s stock, you would notice that it usually goes up in anticipation of the release of a new product, and then drops once the product comes out. They had record pre-orders for the new ipad, and that probably had more of an impact on the share price than any rumors of a dividend or share re-purchase.

Posted by KenG_CA | Report as abusive
 

If it was so obvious that Apple was on the way up,did any one of you throw all they have at it?

Posted by Biscayne | Report as abusive
 

winstongator, I hope you’r enot expecting to watch a lot of TV streamed over that LTE connection. It’s $30 for the first 2 GB. That might last 2 or 3 movies, at most, at the resolution of the new ipad. After that, it will be cheaper to go to the theatre.

Posted by KenG_CA | Report as abusive
 

For heaven’s sake Felix, didn’t they teach you percentages at school? That rise, expressed as a percentage, is nothing like as big as you write. I realise you are attempting to be sensationalist, but sensationalism isn’t why I read your column – I come because you had a history of factual writing and sensible analysis. Sad to see this eroding.

The launch of the iPad 3 wasn’t the only thing in the ether recently – there is a persistent rumour that Apple are working on an actual TV, not just the current set top box equivalent. Clearly markets are looking at the size of the current TV market and working out that if Apple does to that what it did to the mobile phone, music and tablet markets sales would increase exponentially and it would not be sector bound into being a mature market player.

There is also the info out there that the new MacBook Pros are going to be as thin as the MacBook Air which so recently experienced a sales explosion.

Posted by FifthDecade | Report as abusive
 

Today’s data plans are 2GB/mo. People pay a lot of money for home high-speed internet and cable access. VZ will look at the iPad as a way to break into that without running fiber to people’s homes. As the 4G network expands, and 5G networks come on-line there will be more and more data going over cell networks. A huge amount will be video. This is a potential long-term market trend, not what I’m planning on doing tomorrow.

AAPL’s current market share, if it is accurate, implies a lot of future profit, much of which will come from new products.

Posted by winstongator | Report as abusive
 

I’m with TFF on this one. The old adage “buy on the rumor, sell on the news” seems to apply in this case.

Posted by Strych09 | Report as abusive
 

winstongator, VZ and ATT both believe that wireless can replace wireline, but that’s wishful thinking on their part, because they can charge more for it. However, wireless is a shared medium, unlike fiber and DSL, which is switched and can support far more concurrent users. I am seeing 19 Mbps on my LTE connection right now, but that’s because hardly anybody in my neighborhood is using it at the same time. If everyone around here was depending on LTE for all of their internet activity, the speed that each individual user would see would drop to low DSL rates (1 Mbps, if they’re lucky).

Posted by KenG_CA | Report as abusive
 

KenG_CA has a valid point, about actual ability to realize the full potential of wireless.

Regardless, I was just ruminating on Apple’s decision. Both parts: The dividend ($40bil? $45bil?) and the share buyback ($10 or $15bil? I’ve seen different breakouts). I couldn’t find any recent history of Apple stock repurchases. Given the company’s inclination to hold on to cash after the bad times in 1995, I suppose that’s consistent. There are various reasons to do a share buyback. Poor stock price performance clearly isn’t one of them for Apple! Is there any significance to this decision, the share buyback now?

Posted by EllieK | Report as abusive
 

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