Is Apple’s Bubble Expanding Or Ready To Burst?

Do you remember back in September of 2008 when the news came over the wire that Lehman Brothers was in trouble?  They were in deep trouble.  And so were many other of the world’s largest financial institutions.  It didn’t all happen that day, however, it actually started a long time before that.  It represented a bubble that had burst.  And in 2000 we saw another bubble burst, the dot com fall.  Looking back we can surmise that whenever you see a sharp increase in something then it’s a pretty good bet that it will come down.  Is Apple reaching this point?

The Facts Please

Let’s look at some facts to support our theory that a bubble is forming.  Take a look at this chart:

As you can see, we have evidence of a continually rising stock price.  But this simply isn’t enough information.  Here are some more interesting facts:

  • Macs are more than doubling the growth of the PC industry average of 22 percent thanks to strong iMac, MacBook and MacBook Pro sales.
  • Despite decreasing sales, the iPod continues to represent about 70 percent of the media player market in the U.S., and is the top-selling device internationally in most markets.
  • The iPhone had a blowout quarter with more than 14.1 million units sold, up 92 percent year over year, compared to 64 percent for the industry average. It’s now available in 89 countries, and being piloted or deployed by 80 percent of Fortune 100 companies. While there’s still a “sizable backlog” of orders, supply/demand equilibrium is getting closer.
  • The iPad is being met with “great enthusiasm” in 26 countries and 66 percent of Fortune 100 companies. Supply channel inventory is now 3 to 4 weeks, less than the 4 to 6 desired, but enough so that additional partners and countries can start to sell iPads.
  • Sometime in September, the 125th million iOS device was sold, up from 100 million in June, meaning Apple is now tracking at 100 million iOS devices sold per year and growing.
  • Retail saw nearly 75 million visitors, up from 50 million a year ago. 874,000 Macs were sold at 317 Apple Stores worldwide, “about half” to those new to the platform. The company plans to open between 40 and 50 new stores in 2011.

Additionally, another story that broke was the increase in Apple’s retail stores.  From The Apple Blog, “Further increasing its reach, Apple plans to open 40-50 new stores in 2011, with half of those overseas, and it plans to renovate many existing stores to reflect its new product lines and achieve ‘service goals’.”

The Rise

Clearly you can see that things are rising.  A lot of things are rising.  And rapidly.  Now lets shift to another interesting story.  Apple has ventured into the Social Networking world with Ping.  That’s no surprise.  But about a week ago Steve Jobs met with Mark Zuckerberg to apparently discus the integration of Ping with Facebook.  This, of course led to even more rumors that Apple may want to buy Facebook.  They certainly have the cash to do it but I really don’t believe that would ever happen.  The point here is that they are entering into another growth market which is Social Networking.

The Fall

So, will Apple’s sharp rise mean that the bubble is about to burst?  Or is that bubble going to continue to expand?  Bubbles cannot last forever but they don’t have to burst.  They can just contract a little and the grow some more.  Perhaps that’s what will happen with Apple.  They do, however, need to be careful with too much exposure.  There is a mathematical theory that says when you use up all your resources (over exposure) people will get bored and wander to something new and promising.  It’s called the Levy Flight.

Eventually things will have to balance out.  Apple has been on an amazing run for the past few years and it’s actually quite phenomenal to see what they are able to produce.  They brought digital music to the mainstream, they brought us the iPod, the iPhone, and iPad, and now Apple TV.  It seems like nothing can stop them from continuing to grow and increase market share.

I just keep reminding myself that eventually…..what goes up, must come down.  The question is, how will it come down?

Thoughts are welcome.

Comments

  1. Mindy says:

    Apple has quite a bit more upside. Both the iPad and AppleTV are still in their first iterations. They also have the opportunity of migrating sensors and radios from their iPhone line to their other hardware platforms. One also suspects they could expand into Automobile and Wrist mounted displays based on iOS or through the aquisition of some portion of the radio spectrum or the requisite network provider.

    1. Shane says:

      Mindy –
      Thank you for for the comment. I really appreciate it. You are right…these are still in their first iterations and they have a long way to go. I also see iOS going a lot further – perhaps then…apple has a long way to go before any sort of bubble bursts!

  2. Ha, just wish I had bought stock last year.

    1. Shane says:

      Ha! I wish I bought it like 8 years ago ;-(

  3. Steven Cohen says:

    i was thinking about this yesterday co-incidentally when i saw the share price hit $3.10
    jobs came back to apple and grew it big time from a low base
    however – the bigger you get the harder it is to grow and justify a 20 multiple
    it has to happen – just look at google, yahoo, micrososft etc.
    apple set the scene for “cool” technology – they have had the last 8 months all to themselves on tablets
    android is coming on the phone
    i think there is either going to be a sharp pull back or a pedestrian share performance – like MSFt over the past 10 years!

    1. Shane says:

      Thanks for that great insight! I agree completely about the era of cool tech. While they have had the past 8 years to themselves, some do say that with ios still just beginning and with iPad at version 1 then they still have a long way to go! I just hope apple remembers what it stands for….

  4. waveneyman says:

    I can understand your puzzlement. Can a company keep bucking the economy, the stock market, established trends and historical evidence to the contrary? – and all at the same time? Well the answer to that, is yes, if using the three examples you quote.
    Lehman Bros. were caught cooking the books; the Dotcom bubble was based, for the most part, on fluff and bogus sales projections before anybody would admit the infrastructure was not in place and the Levy Flight theory hold water if, and only if, the markets in which Apple operates, were at or approaching saturation. This last aspect is worth further consideration.
    I would argue that the expanding mobile market, where all Apple’s products bar Apple TV and some peripheral accessories, operate either fully by mobile devices or partially with desktop computers in the creation arena, is barely on the first step to market saturation. Which leaves a lot of headroom for Apple to expand into. If we consult the history of ‘busted’ bubbles, the common factor was that there was no real product or value, to buy into, only the promise of riches if you buy into it. Apple on the other hand, has an expanding line of highly regarded products which do exactly what it says on the tin with a satisfaction rating beyond most company’s dreams. And three years ago, none of them existed, which means they’ve hardly started to realise the true potential of the worldwide mobile market.
    Bearish?… yup

    1. Shane says:

      Thanks for the comment!! Yeah, it is bearish! I guess in my mind everything eventually reaches a point where there is market adjustment, or saturation (as it’s called). I see rapid growth and get concerned that it will fragment apple if they are not careful. And by that I mean the eventual decline of their high standards for quality and uniqueness. Let’s hope they can use this current momentum to their advantage a
      And not to their demise. Quite frankly, we need apple around if not to provide a solid alternative.

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