Following the poor performance of Apple shares over the past 8 months, many investors are starting to wonder if Google shares are about to follow a similar fate.
Apple’s share price has dropped from over US$700 in September 2012 to US$440 in May 2013. Over the same period, Google’s share price has increased from less than US$700 to over US$900.
What lies Beneath
Apple shares now trade a relatively low multiple for a tech company. The company currently has a trailing PE ratio of 10.5x and a forward PE ratio of 9.9x (for year-end 2014). This shows that the market expects little further growth from the company after 2014.
On the other hand, Google is valued highly. It trades at 27x earning on a trailing basis and 17x on a forward basis.
The Steve Jobs factor
There is no doubt that Steve Jobs was a revolutionary thinker. His multiple successes at Apple and Pixar are testament to that.
When he died, many felt that Apple would struggle immediately. However, these fears were quelled as Apple’s share price rose strongly. When Jobs died in October 2011, Apple share price was at US$400. Then, following a few months of static growth, the share price rose steadily to reach its peak of US$705 in September 2012.
The share price then declined heavily, dipping to as low as US$390 in April 2013, before recovering to US$440 in May 2013.
Why has this happened?
There are a number of possible reasons for this decline, including:
- Apple’s upcoming products lack the enthusiasm they had under Jobs and although their previous products remain market leaders, they now face strong competition from the likes of Samsung, Google and Amazon.
- Now that a couple of years have passed many of the best ideas that Jobs put in place – the ipod, the iphone, the ipad - have been used up and any new products going forward will have to be ones that he was not involved with. While there is no disputing that Apple still has a great design team led by Jonathan Ive, they perhaps lack the final decision over which new product to go with. Steve Jobs was notoriously difficult to argue with and that was surely one of his greatest strengths in pushing through products he liked.
- With Jobs gone, Apple’s rivals sense blood. They know that Apple’s x-factor is gone and have therefore been more keen to innovate themselves. In short, the fear that Apple will always be two steps ahead is gone.
In closing, Apple’s core consumers loved Steve Jobs. They went wild when he gave his speeches in his turtle neck at product unveilings. They lined up to meet him. They slept on the streets outside Apple stores to be the first to get their hands on his latest gadgets. They miss him… and the market has finally started to realise it.
Google, on the other hand, is a different story.