After holding down the title for 13 minutes yesterday, as the stock market closed Wednesday Apple officially became the most valuable company in the world.
When it hit $337.17 billion in worth at the close, it passed long-time leader Exxon Mobil at 330.77 billion. Over a span of two years, Apple’s market cap has passed the likes of Microsoft, IBM, Wal-Mart, and Cisco. Its rise has been improbable and tells a great deal about how highly regarded the company is with investors. Apple’s revenue is currently about $100 billion. Exxon’s sales are $383 billion. Walmart’s are $415 billion.
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There are several reasons for Apple’s stock stellar growth. The first is that its sales and profits continue to grow at double- and sometime triple-digit rates. This is absolutely unprecedented for such a large company. Furthermore, Apple has been able to introduce new products and gain wide adoption for them in a way that is unmatched by any other company in the world.
24/7 Wall St. examined in detail why Apple has been able to reach a market value that should — if most analysts are correct — move above $400 billion this year. These are the 10 reasons Apple is the most valuable company in the world.
1. Constantly improving products
Apple has been able to introduce generation after generation of the same product by making incremental improvements to early versions. The Mac was introduced in the 1980s and recent sales hit all-time highs. Macs now come in a wide array of sizes, processors, and software features. Another notable case of Apple’s ability to “recreate “ products is probably the iPod, which was first launched in 2001. There have been over a dozen major versions of that product over the last decade. But the true signature example of Apple’s ability to recreate a product is the iPhone, which is about to be re-introduced, again, with the iPhone 5. While the basic features have remained largely unchanged, each successive version is more popular than the last.
2. New products
Apple continues to add to a product arsenal that included only the Mac for 20 years, and the iPod for the next ten. The iPhone has been in the market for three years, and the iPad for one. No company in the world has been able to stage product introductions at a rapidly increasing speed as Apple. And it shows in the company’s revenue growth from $19 billion in 2006 to $100 billion in the trailing four quarters. Each product builds on the sales of the previous one.
3. High margins
Apple’s gross margins are over 41 percent and have risen consistently over the last several quarters. These margins are unprecedented in the hardware industry and make the company more valuable to investors who are concerned with the cost of goods. Apple, because of its size and huge cash balances, can choose the best suppliers and pressure them for the lowest component costs.
4. Best spokesman
Steve Jobs has become a cult figure among Apple’s customers and investors. He is currently one of the most recognized CEOs — if not one of the most recognized persons — in the world. He may also be the greatest executives of the last several decades. Jobs is viewed as the person who invents each Apple product, designs it, and plans its marketing. The fact that he cannot possibly do all those things seems to be beside the point. No other company can claim to have a spokesman nearly as valuable as Jobs.
Apple has had good fortune. It survived the onslaught of the Windows-powered PC, although just barely. It launched the iPod into a market which Sony had dominated with many of its Walkman products. Sony was slow to move to digitally based products. Apple then launched the iPhone into what seemed like a saturated cell-phone market at the time. But it was just as Nokia’s design problems grew, Motorola’s RAZR sales fell, and RIM marketed the BlackBerry solely to the business market.
Apple has unprecedented strong relationships with wireless carriers and resellers. It was able to get AT&T to pay over $400 per handset to get an exclusive iPhone distribution relationship. AT&T then had a tremendous financial incentive to make the product a success. Apple followed this model with several carriers in Europe, and then with wireless carriers in Japan and China. The same is true with online retailers. Apple’s products are an ideal way to attract people to e-commerce sites, and, of course, to make sales. Apple’s products are on the home pages of bestbuy.com and get premium placement in the electronics sections of large retailers like Wal-Mart. Why? Because they sell.
7. The apps store
Many analysts who follow Apple believe that its array of apps for its products, particularly the iPhone and iPad, create an unprecedented level of loyalty in the smartphone and PC markets. People who own these can completely customize the hardware to their liking. It is possible that with Apple’s 400,000 apps, iPhones could be individualized so that no one would be like any other. The most powerful software and Internet companies in the world have built and aggressively market Apple apps as a critical way to get customers or to keep current ones. Not a single game company, major web site, social medium, or provider of major PC software is without one or more apps to be used on Apple product.
8. Music and movies
iTunes is the largest distributor of media in the world. Apple’s TV product has extended distribution of the content of Apple’s media products into the home living room. The new iCloud product allows people to tap their media libraries from any iTunes-enabled device in the world. Spotify, Pandora, Microsoft, and Google have all entered the online multimedia industry. iTunes has two thirds of the market to stream video to online devices and as much as 75 percent of the song and album market.
The Apple “1984” TV commercial for the Mac is still one of the most revered advertising campaigns of all time. So is the Apple “Think Different” campaign from the late 1990s, which featured icons like Albert Einstein and Thomas Edison. Apple’s recent promotion of the addition of The Beatles to iTunes was seen all around the world. The company’s “Mac vs. PC” was one of the most discussed marketing programs of the last two or three years. Apple has the ability to make people believe it is everywhere. And, partially as a result, it now nearly is.
10. Product design
Are Apple products better-designed than their competitors? The market seems to think so. The original one-dial feature on the iPod made its single touch music product devoid of confusing buttons and dials. The Mac was light and sleek when most other PCs were bulky. The iPhone had a touchscreen keyboard rather than one with tiny alphabetical teeth. The iPad is thinner than almost any laptop. The cameras, video features, and multi-tasking features are considered superior to those of competing products.
Copyright © 2012 24/7 Wall St. Republished with permission.