Apple, iPhone, Irrational Exuberance, Etc.

from the invest-with-confidence dept

Thu, Jun 28th 2007 12:06pm — Carlo Longino

You might have heard that Apple's released a mobile phone tomorrow. Since this "iPhone" device was announced back in January, a nice $34 billion or so has been added to Apple's market cap by investors. Breaking Views compares that to Nokia's market cap, which stands at $108 billion -- despite the fact that it will sell 55 times more handsets than Apple at the end of the year. The piece argues that the $34 billion increase in Apple's market cap reflects investors' perceived value of Apple's phone business, and using Apple's reported margins of 13% -- which happen to be identical to Nokia's -- the phone business is valued at 100 times projected 2008 operating profits. Nokia trades at a much lower 10 times multiple, leading the site to conclude that either it's badly undervalued, or Apple is massively overvalued. Perhaps that's true, though the runup in Apple's share price reflects the ridiculous level of hype and expectations for the iPhone, and it's something that could change quite quickly should the device not prove to be an overwhelming success. Furthermore, it just reinforces the reality that stock prices are disconnected from a company's underlying business, and often have far more to do with investors' perception of a company than financial reality. Also, watch for Apple stock to tumble a few points Friday, as investors dump their shares so they can finance their own iPhone purchases.

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29 Comments

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Anonymous Coward, 28 Jun 2007 @ 12:26pm

Sounds like
a short order is in order...
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James, 28 Jun 2007 @ 12:29pm

This really isn't news...
...Apple's stock has been unhinged from its underlying intrinsic value for some time. I keep waiting for the price to fall but it keeps going up due to the fact that people keep buying it, whether its worth what they are paying or not. (ie the more people buy it, the "more" people buy it)

As for the iPhone I'm taking a wait and see approach. Innovative? Maybe in one way or another, but they are entering a market where there are much better established players and I'm a bit skeptical of the ability to perform here.
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discojohnson, 28 Jun 2007 @ 12:38pm

innovative?
well, because they ported osx to a phone and put a touch screen on it it's innovative, i suppose. it will succeed (as well as smartphones can) because apple knows eye candy and people are already getting more and more in tune with holding bricks (read: blackberry, smartphones, etc) to their heads thanks to others in the industry. apple struck while the market was just getting up to a rolling boil for a product like theirs. however, carrier lock-in will be why it won't rocket, which is why at&t tried so hard to get, and won, exclusivity with apple on this one.
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bmojo, 28 Jun 2007 @ 12:38pm

supply shortage?
Anyone anticipating a supply shortage similar to the release of the PS3? I remember seeing PS3's selling for thousands of dollars on ebay a few days after the release... Then again this the iPhone release has been a long time coming, i imagine they have their inventory in order.
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Anonymous Coward, 28 Jun 2007 @ 12:41pm

"You might have heard that Apple's released a mobile phone tomorrow."

thats not mixing up past or future tenses or anything like that at all. =P
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Gurney, 28 Jun 2007 @ 12:55pm

Re: supply shortage?
Phones are linked to a 3 year service commitment, so that probably won't happen.
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wsj, 28 Jun 2007 @ 12:55pm

Nice recap of the a well written WSJ article.
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Tom, 28 Jun 2007 @ 1:01pm

Iphone
These phones are not for bussiness applications they are for fun! I have already told all my clients do not buy them if you want to put your email on it. They will not work with exchange so we won't support them. They will grow up to be real phones some day!
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Anonymous Coward, 28 Jun 2007 @ 1:06pm

Then again last time I checked Apple makes computers and this thing called an ipod, not just cell phones. Besides iphone was introduced at their keynote, so dont think this is all of the iphones doing.

Gurney: And why will the 3 year service agreement by cingular have anything to do with Apples stock price?
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Anonymous Coward, 28 Jun 2007 @ 1:12pm

Re:
It doesn't have anything to do with stock prices. The ps3 had supply shortages from people re-selling them online. You can't do that with the iPhone because you have to be a 3-year contract which you can't sell online. or at least, I don't think you can.

How did you think it had to do with stock prices anyway? He didn't even respond to a comment that had to do with stock prices...
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Anonymous Coward, 28 Jun 2007 @ 1:15pm

Actually you can sell iPhones online.

You activate them at home via iTunes. That opens up the secondary market.
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Witty Nickname, 28 Jun 2007 @ 1:17pm

Why pay $500??
http://sneakmove.com/images/diy_iphone.pdf
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aiken, 28 Jun 2007 @ 1:31pm

You might have heard...
...that Apple has will been be in other lines of business than just the phone?

The initial assumption here -- that the stock price appreciation can be linked 1:1 with the phone release -- is fallacious to the point of idiocy. Then the extrapolation -- that the increase is solely due to increased profits from sales of the phone -- is shortsighted and naive.

Investors are betting that Apple will be able to leverage the iPhone into larger *corporate wide* profits. Hello? You know all those people queuing up at Apple stores? Think some of them might buy something other than just a phone?

And once people have the phone, might not some of them, oh I don't know, buy music on iTunes? Be more likely to buy a Mac? Buy phone acccessories?

There are good arguments to be made that Apple's stock is overvalued. There are good arguments to be made that Nokia's stock is undervalued. Unfortunately, this article is sadly lacking in basic logic, let alone any kind of good argument.
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Snapper Cridge, 28 Jun 2007 @ 1:50pm

Re: Iphone
I will buy one. Put my email on it and continue to run my business as planned. Could that be because I have no intention (or does anyone else with half a brain) or desire to use Exchange for email. Our business runs from the brain of a mac flawlessly. This phone will be no different. BTW - I would like to know the comparisons of what PDA your business uses vs the iPhone. The capabilities of this phone far surpass my BlackBerry.
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Norman619, 28 Jun 2007 @ 2:05pm

Re: Re: Iphone
LOL!!! Is that why most REAL businesses run either Windows, Unix, Linux, or a mix of them? Very few (I've never actually seen one in my 15 years in the IT indsutry) use Apple. Very few have an apple machine in the building being used for business. Why the hell would they? Most of the hard core and worth while business apps are written for Windows and Unix/Linux.
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Norman619, 28 Jun 2007 @ 2:13pm

Re: You might have heard...
"And once people have the phone, might not some of them, oh I don't know, buy music on iTunes? Be more likely to buy a Mac? "

LOL!!!! Oh man you had me on the floor laughing after reading that. Are you THAT far gone? Who the hell buys a computer based on their phone purchase? The only people who will buy a Mac are those who want one. They will not buy a Mac just because they are in line to by the iPhone.
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Anonymous Coward, 28 Jun 2007 @ 2:18pm

Re: Re: supply shortage?
Phones are linked to a 3 year service commitment, so that probably won't happen.

There are phones all over ebay. Though it may not be immediate, I'm sure iphones will make their way onto ebay in no time.
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aiken, 28 Jun 2007 @ 3:22pm

Re: Re: You might have heard...
Well, you might as well stay on the floor then. As long as you stay out of the stock market you should be fine.

There's this phenomenon called "brand loyalty." Basically, the principle goes that it's easier to sell someone the second time than the first. Sure, not a lot of people will buy a Mac while waiting in line for an iPhone (duh). But I'll bet that a lot of people passionate enough to wait in line for an iPhone will end up buying a Mac in the near future.

In fact, I'll bet real money, if you will. Here's my proposition: over the course of the next year, the percentage of current PC users who switch to a Mac after buying an iPhone will be higher than the percentage of current PC users who do not buy an iPhone but still switch to a Mac. I think that's a fair test of your "no correlation between phone and computer purchases" hypothesis. Up for a wager? You will be betting against the entire history of branding, of course, but you seem pretty sure of your position.

Modern companies, and especially marketing-driven companies like Apple, are all about the cheesy sounding but quite real phenomenon of brand synergy. If you don't think that Apple's looking to the iPhone to drive across-the-board earnings, you really should just stay on the floor where it's safe.
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I would tend to agree, 28 Jun 2007 @ 3:40pm

Re: Re: Re: You might have heard...
The iPod did a pretty goo djob of re-envigorating Apple and driving sales accross product lines. I would anticipate that the iPhone may have a similar (probably on a smaller scale though) effect.
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william, 28 Jun 2007 @ 3:43pm

Iphone is super cool
They will find a way to make it work with email when CEO's start showing up with them. Iphone has got everything all in one nice package. This is the sort of thing I have been waiting for and expecting for a long time.
That said I'll wait till they have been out for a year before I get one so all the bugs are worked out and the price might come down a bit.

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Ramon G., 28 Jun 2007 @ 3:48pm

Nokia isn't going to take PC marketshare, Apple mi
Apple's increased market cap is not just about the expected revenue from the iPhone. The iPhone is, like the iPod, a consumer device that will expose PC users to the Apple user interface. A fraction of these people will become iTunes music and movie downloaders, and potentially Apple PC customers. The first iPods back in 2001 were only bought by the staunchest of Apple devotees. Nearly 6 years later pricing has dropped and all sorts of people own them. In that same time period, Apple's share of laptop sales has doubled. The iPhone also has a demographic wind in their sales: baby-boomers' kids are starting to finish college and enter the work force. Apple is positioning itself to get a bigger slice of their disposable income.
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I would tend to agree, 28 Jun 2007 @ 3:59pm

Re: Re: Re: Re: You might have heard...
Forgive the type-os in my previous post. Unfortunately my fingers work a lot faster than my brain. That should have read something like this…
The iPod did a pretty good job of re-invigorating Apple and driving sales across product lines. I would anticipate that the iPhone may have a similar (probably on a smaller scale though) effect.
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krum, 28 Jun 2007 @ 4:23pm

Re: Re:
The contracts with most service providers are transferable as long as the receiving party passes the credit check so I would assume that you could sell a contract on eBay as well. I noticed on AT&T's website it's a two year contract, not a three year.
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Larsiny, 28 Jun 2007 @ 4:25pm

aiken your my hero.
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Snapper, 29 Jun 2007 @ 1:37am

Re: Re: Re: Iphone
"REAL businesses"? While my business maybe small and not generate millions of dollars in profit per year (although I enjoy a very nice income), I wouldn't make a blanket assumption that it's not a real business.

My "REAL business" uses a macs throughout. I just could not continue to pay someone to fix all the crap that infested my Windows PCs on a weekly (and daily) basis. Seems I switched to using a Macs oh about 4 years ago and I have had one crash (do to an issue with Microsoft Office locking it up), no virus issues, no hack attempts, and never had to shut my Mac down because of a system overload.

The macs we use have the same specs as my PCs did and they work with all of the programs I use. I'm not sure what your definition of hardcore is, but I would say using Adobe: Photoshop, Illustrator, Dreamweaver, & Fireworks simultaneously for 8 hours day is pretty "hardcore". Try doing that on a Windows PC...two words come to mind... Yeah followed by RIGHT!

BTW-Being an IT pro of 15 years, I would have though you knew that Mac OSx is based on Unix. And if you haven't seen a business running Macs for their business in all of your 15 year glory, I would suggest you get out a bit more often. While Windows still dominates the industry (at least for now) as well as most of the businesses in my home town. However, the population in this town is just under 20,000 and there at least a dozen business using Macs here.
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Norm, 29 Jun 2007 @ 4:01am

My Samsung Is Better
I have an IC-730. It has a 4 GB SD card, Verizon High Speed EVDO, WiFi, BlueTooth, Windows Media, separate standalone video player, Microsoft Streets & Trips (works with a bluetooth GPS receiver), Word, Excel, games, Internet Explorer (with flash player), and a lot more. Plenty of mp3's on it, stereo output w/speakers (two). More stuff than I can even remember right now.

I have Verizon's network, with excellent coverage, speed good enough for a slingbox (& player), and WiFi if I can't get on Verizon.

I've had this for nearly two years now.

Oh yeah, it will do Exchange.
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Norm, 29 Jun 2007 @ 4:29am

More - My Samsung Is Better
Forgot a few things:

I has a slide-out illuminated keyboard, same resolution as the iPhone, it has been going for $299 with a TWO year Verizon contract, it shares my shirt pocket with my glasses (but mostly I use my leather belt holster), it will tether to my laptop as a modem, giving my laptop EVDO-speed connections.

I guess that's enough.
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Norm, 29 Jun 2007 @ 4:43am

More Yet My Samsung Is Better
Just one more: It comes with two (2) batteries, standard and extended in the box.
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sammy colbert, 17 Oct 2007 @ 9:11pm

3 months and still loving my iPhone. I think on balance Apple pretty much met expectations, and that's saying a lot.
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