In the past year Apple vaulted to the top of the global technology sector and became one of the world's most valuable corporations, with a market capitalization of more than $310-billion (U.S.).
But investors who want a piece of the iconic California company shouldn't conclude that they have missed the boat. Buoyed by bullish analysts and an adoring public, Apple's share price probably still has a way to go before it peaks - even if the company's leader, Steve Jobs, is forced to step down permanently because of health issues.
After the markets closed on Tuesday, Apple exceeded analysts' expectations, reporting that sales jumped 71 per cent in the first quarter and profit surged 78 per cent from a year earlier. Driven by three distinct product categories - iPhones, iPads and Mac computers - Apple's financial performance remains on track this year to best its 52-per-growth rate during 2010. The company said it is forecasting sales of $22-billion in the current quarter, ahead of consensus estimates on the Street of $20.8-billion.
Despite rising more than 60 per cent over the last 12 months, Apple shares trade today at only about 16 times estimated earnings for the year, which is less than the average multiple for the technology sector. The company's return on equity has been steadily increasing even as its cash holdings have swelled to $60-billion.
The company's frantic pace of growth appears likely to continue this year. Almost half of the company's sales last quarter came from iPhone devices and related services, including the App Store. Next month, Apple effectively doubles the potential market of the iPhone in the United States, its biggest market, when Verizon Wireless becomes the second U.S. carrier to sell the smart phone.
Buying habits in the consumer electronics sector are notoriously fickle and dozens of challengers are lining up to try to grab market share from Apple. But Apple has strengthened its hand by tying its products together into an electronic ecosystem that includes not only beautifully designed hardware, but related software and, increasingly, content from major partners.
Apple is now selling music, TV programming, films, books, magazines, newspapers and third-party apps through its expanding delivery platform comprised of the iTunes store, the App Store and the iBookstore.
Sales from the iTunes store rose about 23 per cent last quarter to $1.4-billion (the figure also includes iPod accessories). In comparison, sales for desktop computers increased just 2 per cent to $1.7-billion.
Expanding Its Web
In this expanding ecosystem Apple is using the popularity of its products to exert control over content providers, in much the same way it set terms for the struggling music industry a decade ago. The most recent example involves magazine and newspaper publishers, most of whom Apple will not allow to sell subscriptions on the iPad. Instead, customers have to buy individual issues at prices close to those on the newsstand.
Apple is well-known for its exclusive practices, and some of its latest moves may give rival tablet makers an opportunity to grab content and market share. But it is more likely that the concessions Apple forces from its new content partners will prove lucrative in the long-term to Apple.
The biggest worry for Apple is the health of chief executive officer Mr. Jobs, who alerted staff on Monday that he would be taking a third medical leave of absence, once again handing the reins to his chief operating officer Tim Cook.
Michael Abramsky, an analyst with RBC Dominion Securities Inc., who rates Apple shares "outperform," has described Mr. Jobs as both Apple's biggest asset and biggest risk.
"It will be difficult to assess how the absence of Steve's drive, innovation and leadership - and his high level of involvement - may or not have a negative impact in the longer term on Apple innovation and talent retention. After hand-wringing, Street and media reaction are likely to assume the stance for now that Apple can carry on," he wrote in a research note Tuesday.
Shares of Apple tumbled 6 per cent early Tuesday after news about Mr. Jobs. The stock recouped the losses by the end of the day, rising more than 1 per cent in after hours trading, to $344.66, following the quarterly results.Report Typo/Error
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