I’ve struggled to articulate some of the sentiment I sense toward Apple in many public and private conversations, as well as the many we will see over the coming weeks and months. Apple has been an area of study for me for over 15 years. For my father, Apple has been a focus for over 30 years. The company, the cast of characters involved, their role in the tech industry, are all fascinating topics. Yet for Wall St., pundits, and so many commentators, there is a sensibility I could not put my finger on until recently. Apple does not seem to be granted what many companies like Amazon, Google, and more are–the benefit of the doubt.
Too often, it seems, discussion surrounding Apple tends to lean toward doubt and skepticism. “Apple is doomed!” is basically the underlying and all too common tone. Interestingly, this is nothing new. Steve Jobs was asked, during a Q&A at the 1997 Macworld Expo, why Apple is continually shorted by the media. He explained how this is common and it’s been going on forever. Whenever they shorted Apple, he said he recommends buying more stock. Steve believed. He had faith while many others did not.
The examples of Apple’s death are too numerous to count here but Bryan Chaffin of The Mac Observer has been keeping tabs with his Apple Death Knell Counter For many years. Check it out for some instances of Apple’s imminent demise being horribly wrong.
I’ve been having these discussions of doubt with many in the investor community, both on the private and the public side. How can Apple keep growing? How can they do better than last year? How do they keep the momentum going? It all has to end sometime, right? These are all questions and part of key debates in the industry. More often than not when I hear these remarks, they are statements, not questions. For smarter investors, these are questions. For the narrow-minded ones, they are remarks. The latter is generally deep with conviction from the all too dangerous viewpoint of a strong opinion strongly held. Regardless of whether these statements are questions or remarks, my favorite response is a simple why?
Are you absolutely certain they can’t keep the momentum going? Are you sure this was their best year? Does it really have to end? I submit the following charts from Jan Dawson. These charts are part of a service he offers for subscribers. I recommend checking it out if you are interested in the financial details of many public tech companies.
While not every line is an S-curve, and perhaps the line has slowed at times, the bottom line is Apple’s growth has continued. Of course, as the saying goes, we can’t ALWAYS use historical data to predict the future. What we can do is set up a belief system of the fundamentals — “if this holds true, then so does this”. Hence, the last slide from Jan’s deck. While I won’t go into every bit of fundamental analysis of Apple, the developer chart is an interesting one. Apple is an amazing company that makes amazing products. Those amazing products attract amazing developers. If those developers don’t just survive but thrive, then Apple succeeds. If Apple’s amazing products benefit more than just themselves, meaning, if they create things that create value for others, then their run will likely continue. It’s not entirely that simple, but it is a fundamental piece of the puzzle.
I’m not suggesting the benefit of the doubt be given lightly. On the contrary, I believe it should be earned. But so many other companies seem to have that benefit without earning it. While Apple’s stock trades at a P/E ratio much lower than many other companies, historical data doesn’t necessarily suggest they earned it in the way we can make a case Apple has.
No company is perfect. I think we have to make that clear. There are many things that make Apple unique and it is the culmination of people, process, culture, philosophy, and more that tend to help me extend Apple the benefit of the doubt. What they have is very rare. Maybe someday it won’t be but it is today.
As I pointed out in this article, seeing your death before it happens is tricky yet doable. Investing in the future and taking on new challenges with your company’s unique people, processes, and philosophies is the best way to keep momentum going. As we’ve seen, Apple is not afraid to enter new categories. Today it’s watches, then cars? TV? Apple doesn’t seem to be slowing down or believe their growth will end or that they are doomed.
The benefit of the doubt or “faith” in a company should not be given frivolously. It should be well earned. But, objectively speaking, Apple has indeed earned it.