After being outmaneuvered in the 1990s by Bill Gates (Trades, Portfolio) and the crew at Microsoft (MSFT, Financial), Apple (AAPL, Financial) has done what no other American company has by reaching the $1 trillion market capitalization mark.
That’s higher than the gross domestic product of more than 175 countries, including Saudi Arabia, Belgium and Singapore, putting it 17th worldwide. Of course, unless you (or rather your sovereign country) can afford to pay $1 trillion for the whole company, the question is, how long until the stock price doubles?
Apple has an incredible amount of cash, $285 billion. That could buy back 1.3 billion shares at the current price, adding to the billion shares it bought back between 2008 and 2018. That would bring the share count down to approximately 3.7 billion, pushing the stock up to $270 without any financial growth at all. Share buybacks could go on for another decade or more and even accelerate if Apple can continue to produce over $50 billion in free cash flow annually; and, considering the high switching costs and usage rates for iPhone users, it’s a virtual certainty.
Apple has an innovation problem, though. Tim Cook is not Steve Jobs. New product launches have not lived up to the Apple standard. Siri is a mess. And with the company’s market cap where it is, the necessity for higher earnings becomes more paramount than ever. Smartphones, like computers 20 years ago, have steadily improved with each iteration. At some point, however, the next generation will not be purchased at the same blistering pace and, over time, successive product launches will dwindle as more consumers hold onto the older versions longer. In the last 12 months, Apple sold over 216 million phones, a long way from the 1.4 million in iPhone sales in 2007.
It’s hard to predict whether Apple can sell or even grow that number in the next decade, but right now one thing is blatantly obvious - consumers are addicted to their devices. Even if the company just keeps profits coming in at the current rate, it will have close to $1 trillion in the bank by 2028. The truth is Apple doesn’t need to double its market value for its stock price to double. On the other hand, the growth rate doesn’t have to be that impressive for the company to increase earnings above $100 billion a year, at which point the market cap could easily settle between $1.5 and $2 trillion.
It’s hard to even fathom that kind of production from a single organization, which is why I’m certainly dubious of predicting any future market value at this point. Regarding the price, Apple would need to accelerate the buyback for the price to double. I’m not sure that’s the best course of action. It would be better for the marketplace if Apple brought to market another game changer.
Any Ideas?
Disclosure: I am not long or short AAPL.
