Many analysts will use Market Cap to tout a company’s influence in the market when it is really something of a fallacy. The number is an imaginary one as those shares are not owned by the company, but are publicly traded between companies and individuals. The Market Cap of a company can be used to show Net Worth, and as a form of Public Equity, but then you have to compare that to any debt the company has before you get close to any real value. To get there you have to take another number into account; Enterprise Value.
Enterprise Value represents the value of a company including debt and preferred stocks. Preferred Stocks are usually only offered before a company goes public and are senior to common stock (publicly traded stock) they are seen as a form of debit to the original investor and have a fixed dividend rate that can affect a company’s credit rating if not properly paid. This is why they are often left out of Market Cap calculations (which do not take any debt into account). Apple’s current Enterprise Value is estimated at $614BN slightly below their Market Cap of $627BN (as of this writing). There is also another factor to bring into when you start making claims of most valuable “ever”. To get there you have to adjust for inflation. As many want to compare Apple’s achievement to Microsoft at their height in 1999 we have to take their original Market Cap of $618 Billion and adjust that dollar value to present day. This makes it around $850 Billion in present day Market Value. Likewise IBM at their height would eclipse even this and end up at almost $1 Trillion in value. So you cannot claim that Apple is the most valuable in history, they are simply the most valuable in 2012. It is also noteworthy that many analysts feel that Apple might hit market constraints and begin to fall like Microsoft did.
As we have mentioned before Apple’s rise has been mostly based on their ability to market. They have had one of the best marketing teams in the world and with Steve Jobs at the lead they were able to present their spin on existing technology as innovation. This started off with the iPod and moved through the iPhone and iPad. The problem now is that these markets are saturated and the consumer is looking for real innovation. The iPhone 4 and 4s were not as successful as the iPhone 3G simply because they lacked many new items and technologies that Apple’s competitors had (and their announcements saw stock prices drop). Apple has only recently offered LTE in their iPads and will not have it in the iPhone until later this year. Still they will spin it off as a brilliant and innovative product. This has put the iPhone technologically behind many of their competitors for many years. As the public becomes more technically savvy this will start to eat into sales.
Apple faces another problem though; their ongoing legal battles with everything that is Android. As these cases start to go against Apple it will become increasingly difficult for them to maintain their claims on innovation and with many trials being forced into the public domain we are likely to see this impact sales If Apple has to publicly state that they were wrong in their claims that Samsung copied them it will have a huge impact on the public perception of Apple as an innovator. Apple also faces an uphill battle now that Motorola (backed by Google) is filing another complaint against Apple with the ITC for infringement of their intellectual property. It cannot be said enough that any ban on imports of Apple products will cause their share price to drop. Apple is riding on the top of a bubble right now; it is one they have created themselves after being rescued by Microsoft all those years ago and just like any Bubble it will burst sooner or later.
On the other side of the scale we have Facebook. When Facebook announced their plans for IPO is was a little like an Apple announcement. People thought they were going to get something special. The craze over the announcement even ended up with a last minute bump up in value. Unfortunately for many investors there were complications with the IPO, a slight scandal about inside investors (not actual insider trading though) and with a few other issues to mar their public launch the once highly anticipated IPO became something of a debacle.
Facebook has fallen from an IPO of around $38 (rising to around $45) per share to an embarrassing $19.49 at the time of this writing. The matter is further complicated by the fact that many investors in Facebook are now dumping stock since the lock-out period is over for inside investors. Most recently Facebook Director Peter Thiel has dumped around 20 million shares for a nice profit. Others that are turning over their inside investor shares are companies like Accel Partners who pushed out around 58 Million shares last week. This dumping of Facebook stock will continue to hurt investor confidence as will the continued lack of confidence in Mark Zuckerberg as the CEO. Still there is no way to remove him as he still owns the majority of Facebook. The removal would also be premature and could hurt the company even more. Instead Zuckerberg would benefit from bringing in some more seasoned executive staff to help get the company back on track. It could be a sign to investors that Facebook is working to correct many of their issues.
Facebook inside investors will be able to release another block of shares in November which will put even more shares in the public hands. It is very possible that Facebook’s value will dip even further than it is right now when those hit the market. One of the big issues with Facebook is that it is an intangible company much like many of the .coms in the late 90s. These are companies that do not actually manufacture anything and therefore have little profit to show except through advertising or direct payments (like for the distribution of games etc). This fact was one of the reasons that many felt that Facebook needed to produce a phone. It would give them a tangible product that showed revenue and value. Unfortunately for those that wanted a Facephone, the company is not in a position to risk this just yet. A failure here would hurt them significantly and not just in lost R&D and marketing money. It is likely that a flat or failed consumer product would lower their stock value even more. The Facephone would have to be a stunning success on par with Apple’s original iPhone and iPad to boost Facebook at this point. Zuckerberg was smart in saying that they were not going to build a phone yet. There are too many factors to making a viable product for them to risk this now.
Facebook has quite a bit that they need to do to regain investor confidence most of which revolves around advertising. By the same token they have to walk a few fine line to make sure they do not alienate their users by forcing too much advertising on them. Many are not happy with the current number and frequency of ads stuffing more into a user’s News Feed is not going to help.
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