Apple can't win when it comes to Wall St. Today's Street is more about high-stakes betting on fast growth than investing in the long term, and Apple's piled up enough assets to take care of their own financial well-being for years to come. Apple has a responsibility to long-term investors that, conveniently enough, matches up nicely with their own corporate DNA.
Profits aren't necessarily driving share prices and big money deals right now. But potential sure is. So what? Play the long game, Apple, and share price will take care of itself.
Show Me The Money? No, Show Me The Potential
Apple has exhibited staggering growth over the past decade or so, blowing out its own revenue records quarter after quarter while amassing close to $200 billion in total assets according to March 2013 filings (see chart below). That's more than twice the value of Google's assets, in case you're keeping score. Both iPad and iPhone sales continued to show year-over-year growth last quarter, and both broke company sales records during the previous quarter, which included the 2012 holiday shopping season. As Brian Proffitt noted, tablets are hot right now and they're particularly hot for Apple; Q2 iPad sales were up 65% from the same quarter last year.
But shares of AAPL are still off more than 35% since peaking at 705 last September. Meanwhile, Tumblr - a company with revenues somewhere between minimal and "underreported" - just sold for $1.1B. Instagram can tell a similar story. Why? Instagram and Tumblr had both racked up tens of millions of users churning hundreds of millions of page impressions with hardly an ad in sight. That spells potential - boundless untapped monetization potential - in their suitors' eyes.
Shares of Tesla have spiked nearly 400% over the past year and the electric car maker literally just posted its first-ever profitable quarter. To compare, Apple posted a $9.5 billion profit in Q1 2013; Tesla reported profits of $15 million for the same quarter. And yet Apple's share prices tumble while Tesla's climb a hockey stick growth curve. Why? Tesla's just now showing the kind of traction that could really disrupt a big industry. Again, potential. Poor old Apple has already torn up the music and wireless businesses. Unless they make a serious push to tear another dinosaur of an industry apart, there's no high growth opportunity in AAPL stock.
Keep Calm And Carry On... Towards Disruption
So what's a shareholder-accountable Tim Cook to do? Keep his poker face steady and solider on towards Apple's next game changer while continuing to grow iPad and iPhone revenues in the meantime. Cook's already done the right things in giving Jony Ive the keys to the kingdom, readying iOS and OS X updates for WWDC, issuing dividends and stock buy-backs and managing expectations ahead of a slow summer for products.
Cook even teased major disruptions during an interview at D:11 earlier in the week, naming television and wearable technology as two big markets Apple is keenly interested in exploring further. Of course Apple's been talking TV for a while now, which is part of the investor frustration Cook also acknowledged Tuesday night. And then there's the $10 billion Apple plans to spend on capital expenditures this year: $1B is earmarked for retail stores, leaving $9B for "a variety of areas," including manufacturing equipment and data centers.
In other words, any suggestion that Apple is adrift without a plan for the future is utterly unfounded. Apple may not be telling the public what it's next move is, but it's clearly got a big thing or two in the works.
Whether an Apple led by Tim Cook and Sir Jonathan Ive can remake a company like Steve Jobs' Apple did remains to be seen. But with nearly $200 billion to work with, there's literally no need for Cook and company to rush or investors to panic. Yes, Apple should take a moonshot soon; iPad isn't (yet) the volume product iPhone is, and iPhone's epic success might not last forever in wake of the Samsung-led Android charge. Iteration will only serve the company for so long.
Apple execs will tell you that innovation is key to Apple's corporate culture. It's in their DNA. Perhaps Apple would do well to take a page from their arch-rival's playbook when it comes to public risk taking. Whatever you think of Google's Glass and self-driving car projects, nobody's accusing Larry Page and company of resting on their laurels. Google's got a million and one projects coming and going and dropping out of the sky at developer conferences. Apple and Google are very different companies with very different philosophies around developing and shipping products, but Google has gained mindshare - and driven up their share price - at least partly due to their brash, cutting-edge experiments in the future of human-computer interaction.
Funny as it sounds, maybe Apple should look to Google as a source of inspiration. No, I don't expect Tim Cook to skydive into WWDC next month. But Google found its cash cow in optimizing ads against search and now it can afford to experiment with basically whatever it sees fit. iPod and iOS devices have given Apple unimaginable financial resources of its own, and Tim Cook's bunch should ignore the naysayers, keep refining iOS and swing for the fences when they're good and ready.
Though someting tells me they've already got those fences in sight.