Yes, this is the question. At every new product launch, the Apple stock rises almost automatically in anticipation to the future earnings. In this respect, Apple exhibits something quite close to the perfect market hypothesis – data about future earnings should be incorporated into the stock price at the time of the announcement.
The question is thus not how much will the apple stock rise in the incoming weeks, but how much. In fact, if you make it right, you could do a fortune. Most of the equity analysts are battling and scratching their heads for this question – what will be the impact of the Ipad mini launch into the stock price?
Let us try to do a small calculation here:
Between the launch announcement of the first Ipad (January 27, 2010) and the first sales hitting the stores (typically first two weeks of sales, starting with April 3rd, 2010) the Apple shares rose from $208 to $259 (24.5%). At 4 million units as the first Ipad was to be sold, the impact of each IPad into the 904 million shares was at the time $15 billion (assuming a 1/3rd impact of Ipad from the total results).
The Ipad 2 story is somehow different, in a sense that the market has anticipated the launch of the second Ipad in March and the Apple share price has increased in advance with approximately 30 USD.Following the same logic of calculation, Apple had an IPad 2 impact in its share growth of around 10 billion USD. Again, Ipad 3rd generation had again a stock impact of $15 billion USD. Calculations are shown below:
| Apple Share Price Impact | Ipad 1 | Ipad 2 | Ipad 3rd generation | ||
| 1 | Market capitalization | 210,000 | 340,000 | 559,000 | Million USD |
| 2 | Average price per share | 239 | 330 | 600 | USD |
| 3 | No. of shares outstanding (1/2) | 879 | 1,030 | 932 | Million shares |
| 4 | Rise in Share price | 51 | 30 | 50 | USD |
| 5 | Ipad impact in the results | 1/3rd | 1/3rd | 1/3rd | |
| 6 | Total stock impact of the Ipad | 14,937 | 10,303 | 15,541 | Million USD |
If we look at the Ipad mini, how can we extrapolate that? Since we do not have any available forecasts of sales, we can assume 50% of the Ipad sales and the same impact of 1/3rd into the share price. Reverse engineering the Apple share price, we get to the following outcome:
Apple Share Price Impact Ipad Mini reverse calculation
1 Market capitalization 571,670 Million USD
2 Average price per share 610 USD
3 No. of shares outstanding (1/2) 937 Million shares
4 Rise in Share price 8 USD
5 Ipad impact in the results 1/6th
6 Total stock impact of the Ipad 7,770 Million USD
So an impact of 8 USD per Apple share, which is quite modest. After all, at almost $ 600 billio market capitalisation and at a dimnished impact of the Ipad mini, it is logical. On the other hand, all these outcomes are dependent on the assumptions of sales – what if the Ipad mini sales will be not 4 million units, but double? What if the market has already incorporated the IPad mini launch? Try to figure it out…
Apple is telling us a compelling growth story. And growth stocks will often continue to outperform as management innovates. Be careful, though. Growth stocks fall hard when they miss expectations. If you do buy growth companies, make sure to diversify your portfolio with plenty of value stocks.
With Apple’s earning miss and lower than expected outlook announcement, do you think the shine has dulled on the Apple growth story, or do you think this is just a hiccup?
My personal opinion is they’ll be back on track, but as lofty as the stock price got, it’s still a bit hard to buy even on this dip.
Eek… I’m none too sure on the future of Apple. I personally think their big growth phase is over with. They are going to need to pull something out of the bag in the next 6-12 months which wows the market. They may well do it but with the competition hotting up all of the time I am not so sure that I’d want to be going in on the stock at this time, especially on the back of the iPad Mini…