Hey guys, it’s Greg with Apple Explained, and today we’re going to explore in detail,
exactly how Apple managed to become America’s first trillion-dollar company.
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So you may have already heard that Apple’s valuation crossed one trillion dollars on
Thursday August 2nd, but you may not know exactly what that means.
So before we get into the story of how Apple grew to become a one trillion dollar company,
let’s first get an understanding how a company’s value is calculated.
So you can calculate any companies value by multiplying how many shares of that company
exist by how much each share is worth.
And whatever number you get is called the company valuation, or value.
Now this number constantly changes depending on whether the company’s share price goes
up or down, or if they initiate a stock buyback, so although Apple has broke the one trillion
dollar mark, they may fall back under that number as their value moves up and down.
Okay so now that we understand how Apple’s value is calculated, let’s explore their
incredible journey from a one hundred million dollar company to a one trillion dollar company.
It all started on December 12th, 1980.
That’s when Apple went public and first listed on the stock market.
They were able to sell 4.6 million shares at twenty-two dollars a piece.
Which meant at that time, Apple was worth 101.2 million dollars.
Now you may be wondering why so many people bought Apple stock at that time considering
the company had just been founded four years earlier.
Well in those four years Apple had accomplished quite a bit.
They had already released the Apple I, Apple II, and Apple III, with revenue increasing
by 533% every year.
That meant by 1980 Apple was generating $118 million in revenue annually.
And that kind of growth was definitely something investors wanted a piece of.
So there was actually a very high level of anticipation of Apple becoming listed on the
stock market, and when it finally happened, investors jumped at the opportunity.
But despite this financial head start, Apple was worth just 1/10,000 of what it is today.
Now things continued to go well for Apple although there weren’t any huge spikes in
stock value through the early 80’s.
Now something big happened in 1985 that kind’ve had a destabilizing effect on Apple’s market
value.
Steve Jobs was forced out of the company by then Apple CEO John Sculley.
Now this was a very intense situation since Sculley was actually brought on to Apple by
Steve Jobs himself.
Sculley had previously served as Pepsi’s CEO, and Jobs thought he had the business
expertise to take Apple to the next level, as he had done at Pepsi.
Sculley initially declined the offer, but Jobs was persistent.
Eventually winning Sculley over by asking, “Do you want to sell sugar water for the
rest of your life, or do you want to come with me and change the world?”
But things didn’t turn out the way Jobs had hoped.
John Sculley and Apple’s board of directors felt Jobs leadership was detrimental to the
company, since the Macintosh group he was heading turned out to be a financial failure.
Jobs later turned in his letter of resignation and left Apple, heartbroken and devastated.
Now Jobs departure from Apple was highly publicized and Apple’s stock dipped slightly before
bouncing back in ’86 and spiking in 1987.
Now Apple underwent a reorganization during this time and their business model shifted
from lower profit-margin computers aimed at consumers to high profit-margin computers
aimed at the pro market.
And although Apple raised the prices of their newer Macintosh computers, it didn’t effect
their total sales since pro users were eager to take advantage of the most powerful technology
available at the time.
But this business model wasn’t sustainable as PC makers released their own desktop computers
that offered nearly the same functionality of the Macintosh, but at much lower price
points.
This led to a 20% drop in Apple’s share price at the end of 1989, as it was their
first holiday season that saw declining sales.
Clearly Apple knew something had to change, so their business model shifted yet again
in the early 90’s, this time back to Jobs original vision of selling low-cost, low-margin
consumer products and aiming for high sale volumes.
This initially went well for the company as they released lower cost computers like the
Macintosh LC that sold well due to the high demand for lower cost computers from the company.
But Apple took things too far.
They introduced several new models of products like the Quadra, Centris, and Performa lines,
in order to offset the declining sales of their higher-priced machines.
But the problem was these “new” products weren’t really new at all, but similar products
aimed at different markets.
And this only caused product fragmentation and confusion for customers, who didn’t
understand the difference between models.
Apple also experimented with other unsuccessful consumer products during the 90’s including
digital cameras, portable CD players, and speakers.
But the most resource-intensive product that had the biggest effect of Apple’s share
price was the Newton MessagePad.
Sculley bet a portion of the company on the Newton, but it failed to deliver on its promises,
and this string of disappointments led to Sculley’s eventual departure from the company,
replaced by Michael Spindler.
But Apple couldn’t seem to recover from the damage that had been done, no matter who
was CEO.
The company’s sales peaked at $11.1 billion in 1995 and as their sales fell, so did their
share price.
Spindler was replaced as CEO by Gil Amelio in 1996, and this began Apple’s downward
spiral that everyone assumed would lead to the end of the company.
But in 1997 Apple made a surprising move.
They bought the computer company called NeXT.
But it wasn’t really for ownership of the company’s hardware or software or patents,
but rather for Steve Jobs himself.
Since NeXT was the company Jobs founded after leaving Apple in 1985.
Apple offered Jobs a role as interim CEO, essentially giving him power to reorganize
Apple and get them back to being profitable again.
Now I should mention that very few people actually believe Steve Jobs could save Apple.
When he returned to the company, they were just ninety days from bankruptcy and Jobs
himself admitted things were a lot worse than he thought.
But with a little financial help from Microsoft and the release of the wildly successful iMac
in 1998, Jobs was able to transform Apple from a company bleeding money, to a company
making money.
And the turnaround was reflected in the company’s share price, which grew month after month
until reaching a peak in early 2000.
But Apple didn’t stop there, they kept their share price afloat through the early 2000’s
with the release of the iPod in 2001 and iTunes Music Store in 2003.
At this point, Apple’s valuation didn’t just remain steady, it started to climb.
And in early 2006, Apple announced the first Intel-based iMac and MacBook Pro models.
Now this was a big deal since they were able to transition their computers from Power-PC
to Intel way ahead of schedule, and investors felt Apple became a much more competitive
company with products based on the new Intel architecture.
So their share price rose even further at the beginning of 2006, and this marked a very
important milestone for Apple.
Because on Friday the 13th of January, the company’s market value surpassed Dell for
the first time.
And it was Dells CEO in 1997 who said Jobs should shut down Apple and return the money
back to the shareholders.
So Steve Jobs was set on making Apple a more valuable company than Dell, and when it finally
happened, he sent a brief email to Apple employees to commemorate the occasion.
It read, “Team, It turned out that Michael Dell wasn't perfect at predicting the future.
Based on today's stock market close, Apple is worth more than Dell.
Stocks go up and down, and things may be different tomorrow, but I thought it was worth a moment
of reflection today.
Steve.”
And while that was a big accomplishment for Apple, 2007 was the year when Apple began
their ascendancy to the $1 trillion dollar valuation they’re at today, and it all happened
with the introduction of the iPhone.
The iPhone was probably the most revolutionary product Apple has ever made, and it’s definitely
their most profitable.
Even though iPhone sales in the early years of 2007 and 2008 don’t compare to the numbers
today, it still provided Apple with a major source of revenue.
But more importantly, it solidified Apple’s reputation in the tech industry as a pioneer
of revolutionary technology that was unmatched by any other company.
And that meant Apple shares were a hot commodity among investors, who believed Apple had a
bright future ahead.
Now things picked up even more at the beginning of 2010 with the release of the iPad.
And although the product wasn’t perceived to be as revolutionary as the iPhone, Steve
Jobs called it the most important product he’d ever made.
And customers seemed to agree since 300,000 iPads were sold in its first day of release.
The iPad went on to become one of Apple’s best selling products ever and investors were
quick to buy up as much Apple stock as possible, causing their share price to rise even higher.
But something major was about to happen that very few people expected.
A year later, in 2011, Steve Jobs resigned as Apple’s CEO, appointing Tim Cook in his
place.
This created a stir in the tech and investment communities, causing people to wonder whether
or not Apple could continue to innovate without its iconic visionary leader.
Despite this uncertainty, Apple’s share price continued to rise during this period,
until the end of 2012, when the iPhone and iPad began to lose their shine.
The company experienced a sharp drop in their share price, likely because the iPhone 5s
was losing out to its competitors which featured larger displays.
But Apple met the competition head-on in 2014 with the introduction of the iPhone 6 and
the iPhone 6 Plus.
And they were a huge hit, especially in China.
There was clearly pent-up demand for an iPhone with a larger display, and thanks to that
demand, iPhone sales rose to $155 billion and share prices rose with it.
So Apple’s valuation remained strong until 2016 when quarterly profit fell by 27% due
to a slowdown in iPhone sales.
And Apple’s share price reflected these disappointing earnings by dipping to a two-and-a-half-year
low.
But just like in 2014 with the iPhone 6 and 6 Plus, another iPhone was introduced and
saved the day.
The iPhone X.
It lifted the average selling price of an iPhone to a new record and also the share
price.
And after Apple reported excellent third quarter earnings this year that exceeded expectations,
their share price rose once again.
And when considering that good news along with the excitement surrounding the new products
to be introduced in September, Apple’s market value ended up crossing the one trillion dollar
mark.
But excitement for new products can always backfire if they turn out to be a disappointment,
so investors will be looking to see what else Apple has to propel their valuation past the
one trillion dollar mark.
And who knows, maybe Apple will have one more thing in store for us.
So that is how Apple became a $1 trillion company, and if you want to vote for the next
video topic, don’t forget to subscribe.
Thanks for watching, and I’ll see you next time.