Apple Stock Tanks: Biggest Drop in Seven Years

[Unspeaked]

AAPL touched $85 today, though it closed at $91.

Very interesting.

I still say it approaches the $50s before all is said and done (as I've been predicting for weeks now)...

 

[California]

This is crazy. Apple is one of the only solid companies.

That Jim Kramer doesn't know what he is talking about. He's always been weird about Apple. Glad I never listened to him.

He is like the collective fearful consciousness of every stock investor, rolled into one big bundle of ulcers. I simply don't trust his judgement and don't understand why anyone listens to him.

He says he does his homework but he's just a doped up gambler, the stats are gambling odds to him instead of wisdom and understanding about a company like Apple.

 

[Unspeaked]

This is crazy. Apple is one of the only solid companies.

That Jim Kramer doesn't know what he is talking about. He's always been weird about Apple. Glad I never listened to him.

He is like the collective fearful consciousness of every stock investor, rolled into one big bundle of ulcers. I simply don't trust his judgement and don't understand why anyone listens to him.

He says he does his homework but he's just a doped up gambler, the stats are gambling odds to him instead of wisdom and understanding about a company like Apple.

We could start a whole other thread on Cramer......

 

[AppliedMicro]

when apple switches the interest from making computers to iPhone and iPod.

But they don't do this.
Their market share in the PC sector is steadily growing.
As are unit sales.
While iPod sales aren't going to grow forever. They are already the biggest number in the portable music player market, right? And substantial portion of that market will slowly fade away anyway as functionality of these devices will be merged into phones. (That's why they had no choice than to make a phone).

 

[rickag]

I had a read through AAPL's balance sheet and saw nothing that said they had 20B CASH in the bank.

They have 9B in cash and equivalents (money market funds I assume) and 11B in short term investments (bonds I assume). In fact, equity (thats assets - liabilities) is only 19B.

OK, money market funds are in trouble, so too are bonds...so is that 20B really 20B, is it liquid? Its not a bad thing to have the cash sure, but its also not a reason to invest in a company whose entire product line is aimed at discretionary consumer spending...

That "cash in the bank" is about 22 dollars per share, make your price target a little above that and see what happens. Think its not possible? Forget rational markets, there are plenty of forced sellers out there who need cash NOW and don't really care about AAPL and its "cash in the bank".

30 dollars, thats my target.

Ok, I misspoke, saying cash. But they do have $ 9.373 billion in Cash and cash equivalents + $11.401 billion in short term investments = $20.774 billion, which is where the 20 billion mentioned in news articles comes from.

I think you totally missed where I said,"Not saying a bottom of $40 isn't possible".

The last time Apple's cash approached these numbers it was ~$4 billion with about $4 billion in outstanding stock. The company was on the ropes, there was the real possibility of the company might be bought, presumably for the $4 billion in cash.

I waited until $18 through $19/share to buy in 3 sets of purchases totaling 400 shares, after my advisor @ Merrill Lynch convinced me not to invest $30,000 @ ~ $14/share. How could I lose? Too many Apple fans to let the company die, if Apple was bought to obtain the cash, the price would go up, stupid Merrill Lynch. If I hadn't listened to the nut job @ Merrill, we wouldn't be having this discussion, I'd be retired in the Caribbean.

I don't care about the "plenty of forced sellers out there who need cash NOW and don't really care about AAPL and its "cash in the bank" you mention, @ $40/share APPL would be a gold mine.(re: I do care for their plight, but not in relation to APPL)

Now, Apple is setting sales records, profit records, diversified their product lines and is rapidly becoming global force as opposed to hemoraghing cash in the dark days. Yes, if Apple gets anywhere near $40/share I'd would do exactly what I said. $90/share is a steal right now, just not enough to liquidate my assests to buy APPL.

Just for grins I looked up what cash, cash equivalents and short term investment were for Apple.
Cash
US Treasury & agency securities 1.143 billion
US Corporate Securities 5.425 billion
Foreign Securities 2.511 billion

Short term investments
US Treasury & Agency Securities 5.858 billion
US Corporate Securities 4.161 billion
Foreign Securities 1.382 billion

In actual cash, as in folding money, Apple has $294 million.

 

[Shaun.P]

Why does Apple not announce a stock buy back plan?

It has cash there sitting doing nothing. If Apple were to buy back some of its shares, it would increase confidence in Apple, and the share price would go up.

No?

 

[merrymoon]

Well it depends how short you are in. I have been debating the same move you have taken, but it could be a couple months before it goes back up. Remember that the stock price tanks after new announcements and earnings reports. Just the way it is.

If you really need to turn it around you are going to have to trade it during the middle of the day, when its up to ~95 ish.

Wait, that makes no sense to me - why would apple's stock tank after an announcement? (When you say announcement, I'm thinking like the notebook event on the 14th)... It seems to me that those always get people excited, which would logically cause the stock to go up, rather than the other way around.

See, I am imagining that right after the oct. 14th event will probably be a great time to sell - but feel free to prove me wrong.

 

[AppliedMicro]

Wait, that makes no sense to me - why would apple's stock tank after an announcement?

Cause people will be underwhelmed by the announcement itself.

It seems to me that those always get people excited, which would logically cause the stock to go up, rather than the other way around.

Exactly. But the question is when does it go up? Mind you... we know already that something will be announced next week. We even have rumors and ideas about it. All these expectations are quickly factored in in the stock price, if they haven't been already. The upward movement mostly happens when we know something is coming round the corner, as anticipation builds up. But before the actual announcement is done. The movement on the 14th and beyond depends on whether Apple's announcements and new products are "bigger & better" than expected or not. Mostly they aren't, disappointing some people and raising concerns in others. Well... I haven't followed Apples stock price everytime big rumors or event came up. But I have noticed this pattern at least a few times.

The rumor mill hyperbole is (almost) always a tad bigger than what Apple comes out with.

 

[vixapphire]

sorry off-topic..

Can you explain to a European how that is exactly possible? Especially the second time round there must have been some indication that this guy has no idea of what's going on (and I mean that in the widest possible sense).

How can people look past these things? Especially with someone who has so much power in government as the president?

And in the situation now. How is it possible that people will vote for a potential vice-president who hasn't even got a passport until recently and "knows what foreign politics is" only by reading books?

regarding the "second time around", consider the long-faced buffoon that was presented as the alternative by the opposition at the time, and appreciate that in America, elections are nearly always "lesser of two evils" affairs. It is uncommonly rare that the winner is someone people are "excited" about voting "for", rather than the guy that is the lesser one voted "against".

Explains a lot, doesn't it? And seriously, are thing any different in your European country, or is the bureaucracy just so entrenched that it makes no difference who's elected anyway? (We're on our way to that here in the states, too; just haven't arrived there yet).

 

[vixapphire]

This is one of the reasons that the stock is so volatile. The Apple management team, including Jobs, are not fit to run a company with a $200B market cap. And they know it. The market knows it too. That's why they got sold down to the present level, even with these fundamentals.

Sitting on $22B in unutilized assets is inexcusable.

It sends a pretty loud message that they don't have any more ideas. "We're saving it for a rainy day" is what you hear on the earnings call. Please. Up R&D or cut me a dividend check. You obviously can't defend the stock's price.

They invest all the company's talent to build iTunes to distribute music, which is very LOW margin.

No roadmaps, no enterprise outreach that is credible. No public succession plan. Nothing. That's why Apple has fallen so much more than the market. They behave like a cult, not a Fortune 100 company.

And it's all for the twice a year, standing room only:
Steve Jobs Dog & Pony Extravaganza

"Surprise, it's another iPod! It Oh-to-matically updates <some dumb new feature>, and it's the best mp3 player in the world, blah, blah, blah."

This has now gotten to the point of breach of duty. This company has lost half its market value in less than a year without any change in profitability. That is quite an accomplishment.

Apple's culture of secrecy may have served it very well to get it to this size but it is a fundamental limit to it being a secure investment or the mega large cap company that it flirted with earlier this year.

At the very least, they could roadmap their existing product lines, and reap some enterprise credibility and only let the Dear Leader do his peacock dance when they come out with something that's actually new.

Sorry, I'm just tired of watching them standing at the plate watching the pitches go by.

The MobileMe/iPhone 3G mess exposed deep problems in Apple, a company that can't deliver on its promises because information flow is so constricted. No one is empowered to tell Steve no, even when what he demands is impossible. It used to be cute, and it makes great mythology, but the RDF is taking its toll.

watch what they're doing with itunes and itv. i'm not a big user of either, but i'm no dum dum; apple is in the early-middle stages of developing itself into a (or "the", as it may appear sometimes) distribution platform/company. low margins are fine when volume is explosive. for music for a long time, apple itunes has been the post-brick 'n mortar / physical-goods model "only game in town"; they'll spend some of that saved up cash on the next wave of innovation in that area in order to step back out way in front of their competitors. as for itv (or apple tv, or whatever it's called - i forget), it's a great idea that when announced i thought was stupid.

Wait a few years and watch how they spend their development cash turning itv into something that really closes escrow, and they'll likely start eating broadcasters' lunch too.

personally, i've been waiting for the imac that comes with at least a 30" monitor, wireless keyboard and mouse, and (for god's sake, faster please) a bnc connector built in to connect to the cable box, to plunk down in the living room in place of the television (and stereo, and dvd player...). that's the "killer app" form factor i'm surprised they haven't yet brought to market, given the apparent "lifestyle/entertainment hub" company strategy.

in the 90's, chrysler was consistently winning the game at best auto designs; they had 7bn cash on hand with which they were financing their development boom. along came kirkorian, a big shareholder, pulled a kevorkian and demanded they pay it out in dividends, and the next thing you know, chrysler was out of steam and bought up by mercedes. careful what you wish for!

 

[vixapphire]

AAPL touched $85 today, though it closed at $91.

Very interesting.

I still say it approaches the $50s before all is said and done (as I've been predicting for weeks now)...

remember when apple was at $16 in the early 00's? i do. i was broke at the time!

 

[trule]

Just for grins I looked up what cash, cash equivalents and short term investment were for Apple.
Cash
US Treasury & agency securities 1.143 billion
US Corporate Securities 5.425 billion
Foreign Securities 2.511 billion

Short term investments
US Treasury & Agency Securities 5.858 billion
US Corporate Securities 4.161 billion
Foreign Securities 1.382 billion

In actual cash, as in folding money, Apple has $294 million.

Good job! So of that 20B we keep hearing about...a good 14B is securities - how much is Bonds, how much is Stocks? Does not matter too much, but at least we can see that 20B cash is not really 20B cash at all


I would say, my target of around 30 (or was it 20) per share is too high, at least for me

 

[rickag]

AAPL touched $85 today, though it closed at $91.

Very interesting.

I still say it approaches the $50s before all is said and done (as I've been predicting for weeks now)...

My broker's number is on speed dial.

 

[FastEddy]

Dow verses the Nikki verses Footsy

DOW in almost lock step with the Japan stocks this week, London markets appear to be leaders, but not by much. Oil way down

I say hold this hand and call for more cards. But don't raise into a fat pot.

 

[AppliedMicro]

Well... the downward movements seems to encounter some resistance around 90$.

 

[Unspeaked]

Well... the downward movements seems to encounter some resistance around 90$.

It almost bumped up against triple digits again.

Still, the trading range for the past week has been nearly 15 points. Even for a stock that's considered volatile like Apple, a 15%+ swing is pretty crazy, especially as a daily occurrence...

 

[Mebsat]

watch what they're doing with itunes and itv. i'm not a big user of either, but i'm no dum dum; apple is in the early-middle stages of developing itself into a (or "the", as it may appear sometimes) distribution platform/company. low margins are fine when volume is explosive. for music for a long time, apple itunes has been the post-brick 'n mortar / physical-goods model "only game in town"; they'll spend some of that saved up cash on the next wave of innovation in that area in order to step back out way in front of their competitors. as for itv (or apple tv, or whatever it's called - i forget), it's a great idea that when announced i thought was stupid.

Wait a few years and watch how they spend their development cash turning itv into something that really closes escrow, and they'll likely start eating broadcasters' lunch too.

personally, i've been waiting for the imac that comes with at least a 30" monitor, wireless keyboard and mouse, and (for god's sake, faster please) a bnc connector built in to connect to the cable box, to plunk down in the living room in place of the television (and stereo, and dvd player...). that's the "killer app" form factor i'm surprised they haven't yet brought to market, given the apparent "lifestyle/entertainment hub" company strategy.

I thought the same thing for a while, but unless Apple starts a record company and offers all the talent the same distribution deal as the iPhone app store, then nothing changes. Apple wants to sell hardware. If iTunes was a standalone company, it would have folded by now. It's a loss leader.

Remember that Jobs is on the board at Disney. He's not gonna drive his Mercedes down to LA, pack it with C4, and park it in front of the Capitol Records building.

Jobs wants to force the record industry into the present and get them beyond physical media, so Apple can sell the storage devices. It's not his calling to be a record executive. Besides, he would just sign a bunch of Bob Dylan wannabees and make them rich--it would be insufferable, ridiculous, and atonal.

With AppleTV, again it's about the rights. Apple is not a player in content. They are a distributor. They have no leverage. Comcast, Amazon, Netflix, Blockbuster, AT&T, DirecTV, etc. are all in the game. Even if Apple comes up with the best solution, there are huge problems with bandwidth caps for Apple to scale the distribution. There are too many gatekeepers. If you don't own the content, it's low, low margins.

Apple needs to focus on hardware; better hardware and OSX.

I still think iTunes will just be a low margin distraction in the larger picture. Maybe a necessary, justifiable one. But after they blew the iPhone 3G launch and the MobileMe disaster, I just feel like Apple's admins could be working less on sorting Albums and more on running their data centers.

in the 90's, chrysler was consistently winning the game at best auto designs; they had 7bn cash on hand with which they were financing their development boom. along came kirkorian, a big shareholder, pulled a kevorkian and demanded they pay it out in dividends, and the next thing you know, chrysler was out of steam and bought up by mercedes. careful what you wish for!

I want them to use their assets, invest in their core business. If they're really building a secret water jet factory, fine.

By the way, Chrysler was in fine shape when the "merger of equals" happened with Daimler. Daimler extracted $5B out of Chrysler Financial, for many years Dodge was paying for Mercedes' losses. Did Kerkorian come back even after they were DCX?

 

[FastEddy]

" ... a good 14B is securities - how much is Bonds, how much is Stocks? ..."

Apple, like many high tech companies, have some pretty sharp cookies in the Controller / Accounting / Finance / Logistics office(s). Strictly rumor: I would bet a $50 dollar bill to a donut that Apple "plays" several financial possibilities including stock funds, bond funds, strategic materials, etc., with a comparatively small "float" of the liquid assets, the cash and equity instruments. (This is what Dr. Wooldridge, inventor of the "cash float", taught all large companies to do with their cash.... This is now SOP.)

" ... Remember that Jobs is on the board at Disney. ..." ... Same, same with Disney = happens all the time.

A really sharp team of financial whiz bangs can pay for themselves many time over and show a handsome addition to a large company's bottom line by simply passing money through various world bank accounts = timing being paramount, of course. Example: US$ Dollar denominated, Mexican National Bank CDs pay a nice premium.

 

[AppliedMicro]

If iTunes was a standalone company, it would have folded by now. It's a loss leader.

Are there any figures to back this up?

I don't argue with your statement or say that you're wrong, cause I don't know anything substantial about current iTunes profitability and margins. Still, I'm wondering wondering if this could be a popular misconception...

 

[Mebsat]

Are there any figures to back this up?

I don't argue with your statement or say that you're wrong, cause I don't know anything substantial about current iTunes profitability and margins. Still, I'm wondering wondering if this could be a popular misconception...

On the quarterly earnings call, some analyst will always ask and Anderson will always respond that iTunes exists to drive hardware sales. Jobs has stated as much as well. Apple recently threatened to kill iTunes due to changes in royalty payments. If you are interested in Apple, I encourage you to listen to the earnings calls, they really help put things in perspective.

From this quarter's 10-Q:

Sales of $819M (for the quarter) on iTunes Store sales, iPod services, and Apple-branded and third-party iPod accessories.
[Apple does not break out further detail.]

From the 10-Q footnotes:

The Company relies on third-party digital content, which may not be available to the Company on commercially reasonable terms or at all.
The Company contracts with third parties to offer their digital content through the Company’s iTunes Store. The Company pays substantial fees to obtain the rights to this content. The Company’s licensing arrangements with these third parties are short-term and do not guarantee the continuation or renewal of these arrangements on reasonable terms, if at all. Some third-party content providers currently or in the future may offer competing products and services, and could take action to make it more difficult or impossible for the Company to license their content in the future. Other content owners, providers or distributors may seek to limit the Company’s access to, or increase the total cost of, such content. If the Company is unable to continue to offer a wide variety of content at reasonable prices with acceptable usage rules, or continue to expand its geographic reach, the Company’s financial condition and operating results may be materially adversely affected.

 

[trule]

" ... a good 14B is securities - how much is Bonds, how much is Stocks? ..."

Apple, like many high tech companies, have some pretty sharp cookies in the Controller / Accounting / Finance / Logistics office(s). Strictly rumor: I would bet a $50 dollar bill to a donut that Apple "plays" several financial possibilities including stock funds, bond funds, strategic materials, etc., with a comparatively small "float" of the liquid assets, the cash and equity instruments. (This is what Dr. Wooldridge, inventor of the "cash float", taught all large companies to do with their cash.... This is now SOP.)

" ... Remember that Jobs is on the board at Disney. ..." ... Same, same with Disney = happens all the time.

A really sharp team of financial whiz bangs can pay for themselves many time over and show a handsome addition to a large company's bottom line by simply passing money through various world bank accounts = timing being paramount, of course. Example: US$ Dollar denominated, Mexican National Bank CDs pay a nice premium.

I have no doubt thats what they do, which is why I have no doubt that the 20B in cash is no longer 20B in cash. As for Mexico...please see Iceland for what can go wrong with that "play".

As Wall Street has shown, the financial whiz bangs are not so smart after all...and many of then are out of a job...kinda like the tech wreck of 2000, oh we were all so smart back then

 

[FastEddy]

" ... As for Mexico...please see Iceland for what can go wrong with that "play". ..."

Or the UK, or Germany, or ... any country with high taxes. The former soviet block countries are all doing well = flat tax.

 

[AppliedMicro]

On the quarterly earnings call, some analyst will always ask and Anderson will always respond that iTunes exists to drive hardware sales.

Yes, I know. But I'd still suspect corporate smoke and mirrors on that one.

Sales of $819M (for the quarter) on iTunes Store sales, iPod services, and Apple-branded and third-party iPod accessories.
[Apple does not break out further detail.]

And that's about half of iPod hardware sales. And they do provide some more interesting information:

"Net sales of other music related products and services increased $211 million or 35% during the third quarter of 2008 and increased $613 million or 32% during the first nine months of 2008 compared to the same periods in 2007, due primarily to increased net sales from the iTunes Store. The increase in sales from the iTunes Store stemmed particularly from significant growth in both the U.S. and Europe.

The Company believes this success is the result of heightened consumer interest in downloading third-party digital content, as well as the expansion of third-party audio and video content available for sale and rent via the iTunes Store. The Company continues to expand its available iTunes content offerings around the world. "

I don't believe the iTunes store is highly profitable, especially compared to some other things Apple offers. But I think it's a better business than Apple wants us to believe. I certainly don't think it's a "loss leader".

 

[redmeister]

Why does Apple not announce a stock buy back plan?

It has cash there sitting doing nothing. If Apple were to buy back some of its shares, it would increase confidence in Apple, and the share price would go up.

No?

always wondered that myself. maybe they like having cash on hand for bad economic times (ie: now), for r&d, and acquisitions. who knows what's goin on over there.

 

[Mebsat]

Yes, I know. But I'd still suspect corporate smoke and mirrors on that one.

I hope you are right but we both can entertain our own versions because Apple will not tell...

I don't believe the iTunes store is highly profitable, especially compared to some other things Apple offers. But I think it's a better business than Apple wants us to believe. I certainly don't think it's a "loss leader".

To clarify, I didn't mean "loss leader" in the Wal-Mart sense of a company losing money on an item just to get people in the door. If a company had all the costs of running iTunes and didn't sell iPods or use the same data center, bandwidth, etc. for other company purposes, it would fold. They are still reselling someone else's product. I think that even at marginal profit, iTunes is great for Apple. But if it takes them off their game, something needs to change.

The $22 billion question is what is the return on assets of the company? If you leave that much money on the sideline you are basically admitting "We can't achieve our profit margin by adding to any of our existing business and we don't know what to do." If you resell content for a low margin, tying up your resources, and cannot deliver the high-margin goods that you own and make, there is a misallocation.

You raise an interesting point when you say Apple doesn't want to let on how good a business iTunes might be. Why would they want to do that?