Apple had record sales and awesome growth. Here’s why its stock is being hammered anyway.

Posted on Author by Ben Thompson

Neil Irwin:

Apple has shown less public interest in plowing money into projects far outside of their core expertise than some tech giants, in particular Google with its efforts to create driverless cars.1 So Apple’s stock price is essentially a minute-by-minute referendum on the ability of the company to find some big new thing that will drive profits over the coming years. At its current price of around $400 a share, investors are betting that the answer is “no,” that while Apple will still make plenty of money from making iPhones, Macs, and other products to come, there will be no explosive growth out of the company based on the new new thing…

Innovation is a curious thing. While of course it takes armies of engineers and programmers to make a product like the iPhone work, it was paired with the singular vision of a Steve Jobs to corral the work of those engineers into a product that transformed how people live their lives. The market’s pessimism about Apple’s future profitability is a bet that true, world-changing innovations like the ones that have the company wildly profitable in the last decade don’t come around every couple of years, and are more rooted in the brain of one exceptional individual rather than in the organization he created and led.

This is a great articulation of what I was driving at in Apple the Black Swan:

Apple’s string of success is effectively impossible. Yet it happened. They are a black swan.

Look at Taleb’s criteria:

  • It is an outlier — check
  • It carries an extreme impact — check
  • It is explained after the fact — in the case of Apple, the explanation is Steve Jobs. He was a genius, and now he is gone

And so, AAPL continues its downward descent; it was great to ride it on the upside, but now that Apple is a normal company, the probability of another hit are so remote, it’s best to assume it simply won’t happen.

This is the disconnect many of us in the blogosphere have with Wall Street. We actually believe that design matters, that taste is objective, and that culture can be developed. And, by definition, none of these can be measured or quantified — or modeled.

Throw aside all the talk of saturation, addressable markets, margins, etc. The fundamental question dividing bulls and bears is remarkably subjective:

Did Steve Jobs build an innovative company, or a company around his innovations?

  1. “Driverless cars as stock price driver.” Interesting. Plausible. ↩