10 years ago in March of 2000 they said CSCO would be the first company in history to touch down on a trillion dollar market cap, well everyone knows what happened as it never came to be, fast forward to 2011 and many are anticipating a trillion dollar market cap from apple. Why Apple Will Be The First Company to Reach a Trillion Dollar Market Cap Published: Thursday, 30 Dec 2010 | 10:44 AM ET Text Size By: James Altucher Various members of the NetNet crew are in and out this vacation and snow-filled week, so we've asked a few friends to fill in. The following is from hedge fund manager and financial columnist James Altucher ... Apple [AAPL 329.81 7.25 (+2.25%) ] is the dream company we always wished for when we were children. The messiah of companies that we never thought would come to Earth in our lifetimes. When I was a kid the only thing I wanted in life was an Apple II+. When I finally got one, (my dad took one from his work and gave it to me for about six months) I did everything a young boy does with his computer. I programmed (in BASIC) the computer to type my name over and over again. I then went to the local computer store and shoplifted Ultima III. My friends and I then copied each others games so we had a whole set of games to play with. I then skipped school incessantly in order to play games all day, my friends and I calling each other throughout the day (we all skipped school every day) in order to share the latest secrets we found while hacking our way through Castle Wolfenstein. Fifteen years later Apple was on the verge of bankruptcy. The company I worked for (HBO) and Philip Morris, the cigarette company, were the only two companies in the city that I knew of that used primarily Macintoshes (except for the legal department, which used all PCs and every document was redlined, outlined, greenlit, in WordPerfect 7.1.1). Gil Amelio, the CEO of the company for about 3 seconds came to visit HBO. We were all so impressed with him. The CEO of Apple! How much cooler could you get? At the time they were about this close from bankruptcy or being, at the very least, hopelessly inconsequential. Five years before that was the Apple Newton. The head of Carnegie Mellonâs Art school said to me, âthis will change the world.â And five years before that, I wrote my first term paper on this amazing little device, the Mac 512k. I also saw Steve Jobs when he visited Cornellâs Computer Science Department to get them to buy some NEXT machines. They were beautiful. Maybe still the most beautiful desktop machines Iâve ever seen. Black cubes, super powerful. They were magic to program and experiment with. I wrote a chess program on them. Everyone surrounded Steve Jobs just to see what he looked like. I was jealous. He was young, rich, and had so much charisma you couldnât even see past the light that shined out of him. Now, Iâm writing this on my last Windows-based laptop ever. I know what's going to happen. Already in my house thereâs one Macbook Air. There are two IPod Touches, one iPhone, two iPads, and four or five iPods. Iâve got 10 authorized computers already for iTunes across two accounts. I download apps at least once per day, much more if you add in songs, TV shows and movies from the iTunes store. Within two weeks, before I leave on a trip for India, I will buy a Macbook Air 13â to travel with, and I know I will never go back to the HP laptops Iâve been using for almost the past 10 years. Now lets look at the basic numbers. * This year iPad sales will probably end up being somewhere between 10 million and 12 million (they were 7.5 million at the end of last quarter.) Apple has about 40 percent gross margin on iPad sales * iPad has about 30 percent gross margin on app sales and 10 percent margin on song sales. They are selling up to 30 million apps a day. * Assume iPad is going to sell 50 million iPads next year (Iâve seen estimates ranging from 43 million to 65 million). Thatâs at least four times as many iPads. Lets say they only grow two times per year for the two years after that (new models, more availability worldwide, etc). Thatâs 200 million iPads in 2013, or 15 to 20 times what they did in 2010. Two-hundred million iPads with a 30 percent margin (currently margins on iPads are about 36 percent, but I assume they will go down) is about $30 billion in gross profits. * Assume 100 million app sales a day. Each app, on average, is about 30 cents They get 30 percent margins on an app, or about 9 cents per app. Thatâs $9 million in gross profits per day or about $3.5 billion per year in gross profits on app sales in 2013. Already we are at $35 billion in gross profits and thatâs without counting iPhone sales, iPod sales, song sales (also about 10 cent margin per song), video sales, and of course, Mac sales. * You canât even really make a calculation on everything else. The last few quarters: profits, Mac sales, iPod Touch sales, iPhone sales, all reached all time highs. Mac (which analysts originally thought might be cannibalized by the iPad) sales achieved double-digit growth in every worldwide market. * Next year the iPhone will be available on Verizon so will blow past all estimates * One can go on and on with the metrics of how Apple blows it away but lets just say that in 2013, iPad and app sales represent about 40 percent of Appleâs gross profits. Total gross profits could be about $80 billion (today is $25 billion). Cash flow could be about 75 percent of that (like it is today), or about $60 billion. Slap a 20 times multiple on that and you have a market cap of $1.2 trillion. Thatâs a shareprice of about $1200 by 2013. We can try and model everything: Mac sales, iPod Touch sales, song sales, margins, etc. But even back of the envelope using current growth of the iPad and the app store, we can easily make a rationale for a trillion dollar market cap. The fact that iPad sales, rather than cannibalizing the Mac, has actually increased Mac sales further increases the argument. The day my dad had to take away my Apple II+, I cried. I have a 30 year relationship with Apple. I love it. I donât think I have a real relationship with any other company on the planet. Thatâs why its going to be a trillion dollar market cap.
By the way here is the article about Cisco from 2000. Notice the second sentence where they mention that "you'd be hard pressed to find anyone to disagree." Notice the hype and mentality of the behavior people on wallstreet have when markets are only going in one direction, just like they are today!!!! Friday, March 17, 2000 Firm's market cap climbing to $1 trillion Silicon Valley / San Jose Business Journal - by Dennis Taylor Business Journal Staff Writer One trillion dollars. That's how much at least one analyst believes Cisco Systems Inc. will be worth in a few years--and you'd be hard pressed to find anyone to disagree. The San Jose-based networking behemoth's stock closed March 14 at $131.75 a share, slightly down from its March 10 one-year high of $141.88 (The entire Nasdaq slid 4 percent on March 14.) Thirty-seven investment banks recommend either a "buy" or a "strong buy." None recommend a "sell" or even a "hold." On any given day the volume of Cisco shares traded is the equivalent of every man, woman and child living in California--having hit 33 million as recently as March 9. George Kelly, an analyst with Morgan Stanley Dean Witter in New York who took Cisco public a decade ago, is one of the Cisco bulls. Cisco's stock is trading at roughly 120 times Mr. Kelly's earnings' estimate of $1.13 per share. The multiple, or price-to-earnings ratio, is a number that places a value on a stock. It is a ratio of the price of the stock to the profit of a company expressed per shares outstanding. "A low P/E usually signals investors are uncomfortable," Mr. Kelly said. As a reference, in 2000 Cisco's multiple of 120 compares to Microsoft Corp.'s multiple of 55 and Intel Corp.'s multiple of 42. Yet their values are below Cisco. "One of the reasons investors value Cisco so highly right now is that, unlike Microsoft, Cisco doesn't have the uncertainty of a Justice Department settlement--it's a much cleaner situation," Mr. Kelly said. "Second, Cisco has had a tremendous track record of continuous upside surprises. And Cisco is viewed as opening several new markets, the biggest of which is optical, which is expected to be an explosive market." Perfect returns Paul Weinstein, an analyst with Credit Suisse First Boston, believes a $1 trillion market capitalization (stock price multiplied by shares outstanding) is within reach in a few years. He said Cisco's stock has increased 1,000 times, a perfect 100 percent annual return since it launched its IPO in 1990. "We humbly submit that over the next two to three years, Cisco could be the first trillion dollar market cap company--and don't think they wouldn't love it," Mr. Weinstein wrote in his "strong buy" recommendation. As of March 14, Microsoft's market cap stood about $510 billion, compared with Cisco's $465 billion, which is threefold the annual revenue of the state of California. Michael Neiberg, lead analyst in the communications equipment sector for Chase Hambrecht & Quist in New York, said Cisco is turning a lot of investors long-term. "If you had picked a price point to sell [high] at anytime in the past 10 years, you would have been wrong," he said. "They have such an impressive track record of growing ... that the financial community isn't thinking in terms of a multiple of what they're earning this year, but what they will be earning three or four years down the line." An opposing view There are market watchers that are dubious, however, about the high valuation assigned to a large-cap company like Cisco. Jeremy Siegel, a finance professor at the Wharton School, wrote this week in The Wall Street Journal that the high valuation assigned to large-cap technology stocks--Cisco is at the top of his list--are unsustainable. "History has shown that whenever companies, no matter how great, get priced above 50 to 60 times earnings, buyer beware," Mr. Siegel wrote. His statistical research concludes when companies reach big-cap status--ranked in the top 50 by market capitalization--their ability to generate long-term double-digit growth slows dramatically. Young bucks in a different field Looking at multiples of high-flying valley gazelles that compete with Cisco is almost meaningless.
Talk about surviourship bias! When I was a kid the only thing i wanted was a Commodore 64. And where are Commodore now?
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ten year ago the fed was not doing any qauntitave easing and didn't care about the markets. greenspan even said the market was over exuberance..meaning assets were inflated prices. now the fed Ben wants inflation.....and scare of deflation....fear is what he should be afraid of...fed is using quantitiave easing because it's afraid of the boogie man called deflation.. deflation wasn't the cause of the depression in the 1930s' it was just symptom of economic collapse from drought and tarrriffs and unemploymenof 20%..prices don't go higher if people can't afford it..or cannot afford to pay more.
LOL. That was my first computer. I wrote a "Myst" type game on it without the graphics, of course. As I think back I think the graphics on the Commodore consisted of small blocks. My how things have changed since the 80's.
The Ben Bernank doesn't want deflation because it lowers the value of all the houses on the balance sheets of the FED Member Banks. We can't have that now can we? That would completely destroy the "mark to whatever you want" accounting the banks are currently using. A house with a FMV of $250,000 you say? Nah, if BAC is holding it then it's marked at $400,000, or whatever they need to keep their balance sheet healthy. What a racket.
the hell with the PRIVATE BANKS.....BANK OF AMERICA OR CITIGROUP. these banks need to take the loss of making bad loans...banks are in the business of makin loans and they f#cked up in their business..they got robbed by the bad loans sold by wall street(goldman sachs and partners) it's their problem..lose money like real company. and not corporate welfare. banks are pay 1.5% interest on savings/checking acounts and charging 5-10% interest to consumers okay===that is their main business. as for mortgages it's their problem if they lose money on making bad loans. or get ripped off in investing in worthless bonds...not the gov't problem.