What you need to know about Apple's tanking share-price and tumbling market cap

What you need to know about Apple's tanking share-price and tumbling market cap

Summary: Apple's share price has been falling since it unveiled its latest financial results, and it is no longer the world's most valuable public company. But its business hasn't changed, and it will recover… Just don't ask me when.

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TOPICS: Apple
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Apple's latest financial results looked good, but the effect they had on the share price was very bad indeed, and almost instantly knocked about $50 billion off the company's market value. And while Apple results quite often lead to big swings in after-hours trading, the share price continued to fall the next day, even when the grown-ups were at their desks.

Graph showing Apple's share price
Photo credit: ZDNet screen grab from Yahoo Finance's interactive chart

At the time of writing, Apple's share price has plunged by more than 12 percent from $514.18 to $439.52, and a couple of hours ago, they hit $437.63. This is around 40 percent down from last September's all time high of $705.07, when the company's market value was $658 billion. It's now around $413 billion, which represents a loss of $250 billion -- somewhat more than one whole Microsoft ($234.65 billion).

Apple has lost its position as the world's most valuable corporation to Exxon, which is currently worth $417 billion. That may still be the case by the time you read this, or it may not. Share prices can go up as well as down.

It's obvious that the fundamentals of Apple's various businesses have not changed this week, but three things have changed: sentiment, momentum and guidance.

Wall Street didn't hate Apple's numbers, it's just that they were a bit lower than some expected. Worse, Apple's "future guidance" was also below analysts' expectations. Put the two together and it can be enough to knock 10 percent off the share price. It happened in January 2008 (shares down 11.4 percent), for example.

The problem is that Apple has done these two things three times in a row. After the July 2012 results, the stock fell by 0.2 percent, before surging on, and after the October 2012 results, it fell by 5.1 percent. The latest fall of more than 12 percent simply continues the pattern. (Hindsight is wonderful.)

What is perhaps more surprising is that the share price hasn't recovered. I put this down to a change in sentiment, and a loss of momentum. Apple's share price factors in a rapid growth in sales at extraordinary profit margins. The success of Android in general, and Samsung in particular, makes that seem somewhat less likely today. Sentiment is down.

There are still plenty of analysts who think Apple shares will go higher, including Apple-will-make-a-TV fan Gene Munster. He's lowered his target share price from a recent high of $910, but it's still $767. Today, Goldman Sachs lopped $100 off its 12-month price target, but it's still $660. That would represent a $247 profit.

However, speaking on CNBC yesterday, DoubleLine boss Jeffrey Gundlach predicted that Apple shares will continue to slide, and will hit $425 this year. "I really think it's ultimately going through that number," Gundlach said. "I think this is really a broken company that's incredibly over-owned."

By "over-owned", he means that too many investors are holding too many Apple shares. If you spread your investments over a lot of companies, then you will make some gains and some losses (swings and roundabouts), but you probably won't meet with disaster. However, Apple shares gained so much momentum -- the price kept going up and up -- that buying Apple looked like a sure-fire way for fund managers to make money.

The value of your fund would go up along with the price of Apple shares, ahead of the market average. Your investors would love you. You would earn huge bonuses. Rolexes all round.

This strategy worked perfectly until it didn't.

When the wheels come off a bandwagon, fund managers may sell shares to lock in their winnings. If they bought Apple before the end of 2009, they’ve more than doubled their money. If they bought before the end of 2011, when the share price was $420, they are still in profit. If they piled in when it was fashionable last year, at $600 to $700 a share, they're in a hole. Just hope your pension fund isn't in the hole with them.

If lots of investors sell shares, the price goes down, of course. This is fine. Fund managers with cash in hand may then try to spot the bottom, so they can buy back shares that will soon soar up to $634.55 (the analysts' consensus target) or even $1,000 (the Apple fanboy dream).

According to Yahoo Finance, 48 analyst companies say Apple is a Buy or Strong buy, and only one is saying Sell. That may change, but at the moment, analysts are predicting that Apple's shares will recover most of their price, or maybe even more.

Either way, Apple has not suddenly gone off a financial cliff. Or at least, not yet.

Disclaimer: Please note that I do not deal in shares, I do not own any Apple shares, and I am not going to buy any Apple shares. Also, I am totally unqualified to give financial advice, so I don't. Any predictions I may accidentally have made in the past have been staggeringly wrong. No sensible person would trust me with their lunch money. 

Topic: Apple

Jack Schofield

About Jack Schofield

Jack Schofield spent the 1970s editing photography magazines before becoming editor of an early UK computer magazine, Practical Computing. In 1983, he started writing a weekly computer column for the Guardian, and joined the staff to launch the newspaper's weekly computer supplement in 1985. This section launched the Guardian’s first website and, in 2001, its first real blog. When the printed section was dropped after 25 years and a couple of reincarnations, he felt it was a time for a change....

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39 comments
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  • I smell fish.

    http://blogs.barrons.com/techtraderdaily/2013/01/25/aapl-flash-dump-closes-stock-at-439-88-says-zerohedge/

    p.s. I'm still wondering about Microsoft and their OEMs about price fixing.
    Arm A. Geddon
    • A recent price-fixing case.

      http://www.reuters.com/article/2012/07/09/us-sharp-court-dell-idUSBRE86808X20120709
      Arm A. Geddon
      • No matter how you look at it...

        there's some type of collusion going on. From earlier:

        Microsoft CFO Peter Klein I quote,

        "Klein added that Microsoft was "working closely" with OEMs to ensure they bring the "right set of touch devices at the right price point depending on the unique needs of the individual", however those efforts may not be playing out as smoothly as hoped."
        Arm A. Geddon
        • I'm sorry.. but...

          What exactly does *any* of that have to do with the subject of this post (which has nothing to do with Microsoft other than the 'losing one whole Microsoft' comment)?
          TheWerewolf
        • im scratching my head at this

          for a moment there u thought i was reading another post

          until i saw your name and figured you just were an anti-MS apple fanboy

          please stick to the subject apple shill
          Master Wayne
  • What you need to know about Apple's tanking share-price and tumbling market

    Its easy to tell what happened. Apple's shares were grossly overpriced and over valued. Everyone wanted a piece of the pie while it was still good now the pie went sour everyone is selling. Its only going to go lower as Apple keeps disappointing. Analysts saying this is a buy want a bump in stock price so they can sell higher so they don't have as big of a loss, once they do then the stock will tank again.
    Loverock-Davidson
    • Loverock being...Loverook(Beta)

      One can search for the Loverock+? beta versions.

      So funny, Loverock trying proclaim some knowledge of stocks.....
      Yes, All will follow Loverocks stock advise.

      How funny “Analysts saying” You are now on record to have agreed to what?,,,,
      Analysts.

      Stick with that Laptop and that square device known as Surface RT.
      That same device Ed Bott called a compaion device
      RickLively
      • actually hes right fanboy

        Apples old stock price was a bubble ready to explode like it or not. Weve been saying it all long. It doesnt take a genius to see that.

        These analysts that are calling it a buy are trying to get the price higher so they can sell at their sweet spot and cover their loses. They are in full survival mode right now after having gambled all your money
        Master Wayne
      • and no where did you say I was wrong

        Instead you just kept saying my name over and over in an act of passion which I do appreciate. You refuse to admit the stock tanked because it was over valued so I'm going to guess you lost thousands on AAPL. Too bad.
        Loverock-Davidson
      • hey Rick

        you didn't show where exactly Loverock was wrong. Perhaps he is right and you are not able to digest it.
        Ram U
    • It can not really go much lower

      Apple has over $140 billion of "cash", which 1/3 of its market capitalization. So now Apple's shares are incredibly cheap.

      Also ROI of Apple's shares is twice higher -- 9% per year -- comparing to, say, Google: 4.5% per year. So Apple can easily cost $900 billion instead of current $450 billion and it will still only match the level of "overpriciness" of Google, not surpass it.
      DDERSSS
      • Hahahahaha

        That's it, ride it all the way down man! This will go lower when people panic and start selling to prevent losing more of their money.
        slickjim
      • blind

        This thing may go up a little bit while fund managers cover their losses. Once they sell in mass this thing will torpedo down to earth. It may even be considered radioactive for a while
        Master Wayne
      • It can go $400 lower

        It can go a lot lower. If Apple reports disappointing sales you will see just how low it goes. Its not about how much cash they have on hand, its about what they can sell and nothing new or innovative has come out. Wall Street is a tricky game and they can send the stock into a downward spiral.
        Loverock-Davidson
    • Timberrrrrrrrr

      Don't try and catch a falling knife.

      Hubi
      hubivedder
  • Bahahahahahaha

    The way I see it, Apple went to the well one too many times with the same old garbage tech they keep pushing.

    The sad thing is, I would gladly use an iPhone if they let me choose the default apps.
    slickjim
    • Bahah.... is some kind of a language?

      Do you really read what you wrote.

      Only in your world.
      RickLively
      • of course, do you?

        Bahahahahaha is phoentical laughing, been used in comics and the like for years but, I guess you don't get out much huh?

        And no, it is really sir, look at the stocks.
        slickjim
      • it seems you lost preety much there and fallen dreams.

        n/t
        Ram U
  • yesterday it was the first time I saw new apple products discounted

    at ebay daily deals. although the discounts weren't big, for apple products it is normal to be overpriced but never cheaper that srp
    nitekatt