Financial fruit: Apple becomes 1st trillion-dollar company
By MICHAEL LIEDTKE
AP Technology Writer
Friday, August 3
SAN FRANCISCO (AP) — Apple is the world’s first publicly traded company to be valued at $1 trillion, the financial fruit of stylish technology that has redefined what we expect from our gadgets.
The milestone reached Thursday marks the latest triumph of a trend-setting company that two mavericks named Steve started in a Silicon Valley garage 42 years ago.
Apple’s shares gained $5.89 to close at $207.39, leaving the company’s market value a notch above $1 trillion — around $1,001,679,220,000, according to FactSet. Apple sits atop a U.S. stock market that has become dominated by technology-centered companies: Amazon, Google’s parent Alphabet, Microsoft and Facebook round out the top five in market value.
The achievement seemed unimaginable in 1997 when Apple teetered on the edge of bankruptcy, with its stock trading for less than $1, on a split-adjusted basis, and its market value dropping below $2 billion.
To survive, Apple brought back its once-exiled co-founder, Steve Jobs, as interim CEO and turned to its archrival Microsoft for a $150 million cash infusion to help pay its bills.
If someone had dared to buy $10,000 worth of stock at that point of desperation, the investment would now be worth about $2.6 million.
Jobs eventually shepherded a decade-long succession of iconic products such as iPhone that transformed Apple from a technological boutique to a cultural phenomenon and moneymaking machine.
The stock has been surging this week as anticipation mounts for the next generation of iPhone, expected to be released in September.
Although iPhone sales aren’t rising as rapidly as they were a few years ago, Apple has been adding enough new features to persuade consumers to pay higher prices for its top-of-the line devices. In its most recent quarter, Apple fetched an average price of $724 per iPhone — a nearly 20 percent increase from an average of $606 per iPhone at the same time last year.
The price escalation has widened Apple’s profit margins to the delight of investors, who have boosted the company’s market value by about $83 billion — nearly equal to the entire market value of American Express — since the quarterly report came out late Tuesday. The 9 percent gain was Apple’s biggest two-day advance in nearly a decade.
Apple’s stock has climbed by 23 percent so far this year, compared to a 6 percent gain for the Standard & Poor’s 500 index.
The recent rally in Apple’s stock contrasts sharply from a deep downturn in the fortunes of two social media companies, Facebook and Twitter that offer some of the most popular apps used on iPhones and other mobile devices. User growth and engagement on Facebook and Twitter has been wavering amid deepening concerns about their ability to protect people’s personal information and shield them from misinformation and other abuses that have been infecting their services.
As mighty as Apple may seem now, economic and cultural forces can quickly shift the corporate pecking order.
Consider the plight of Exxon Mobil, which was the most valuable U.S. company five years ago. Now, it ranks as the ninth most valuable, surpassed by Apple and a list consisting primarily on companies immersed in technology.
Some analysts believe e-commerce leader Amazon.com will supplant Apple as the world’s most valuable company in the next year or two as its spreading tentacles reach into new markets.
And Saudi Arabian Oil Co., known as Saudi Aramco, is planning an initial public offering that Saudi officials have said would value the giant oil company at about $2 trillion. But until the IPO is completed, Saudi Aramco’s actual value remains murky.
This much is certain: Apple wouldn’t be atop the corporate kingdom without Jobs, who died October 2011. His vision, showmanship and sense of style propelled Apple’s comeback.
But the recovery might not have happened if Jobs hadn’t evolved into a more mature leader after his exit from the company in 1985. His ignominious departure came after losing a power struggle with John Sculley, a former Pepsico executive who he recruited to become Apple’s CEO in 1983 — seven years after he and his geeky friend Steve Wozniak teamed up to start the company with the administrative help of Ronald Wayne.
Jobs remained mercurial when he returned to Apple, but he had also become more thoughtful and adept at spotting talent that would help him create a revolutionary innovation factory. One of his biggest coups came in 1998 when he lured a soft-spoken Southerner, Tim Cook, away from Compaq Computer at a time when Apple’s survival remained in doubt.
Cook’s hiring may have been one of the best things Jobs did for Apple. As Jobs’ top lieutenant, Cook oversaw the intricate supply chain that fed consumers’ appetite for Apple’s devices and then held the company together in 2004 when Jobs was stricken with a cancer that forced him to periodically step away from work — sometimes for extended leaves of absences.
Just months away from his death, Jobs officially handed off the CEO reins to Cook in August 2011.
Cook has leveraged the legacy that Jobs left behind to stunning heights. Since Cook became CEO, Apple’s annual revenue has more than doubled to $229 billion while its stock has quadrupled. More than $600 billion of Apple’s current market value has been created in that time.
Cook hasn’t escaped criticism, however. The Apple Watch has been the closest thing that the company has had to creating another mass-market sensation under Cook’s leadership, but that device hasn’t come close to breaking into the cultural consciousness like the iPhone or the iPad.
That has raised concerns that Apple has become far too dependent on the iPhone, especially since iPad sales tapered off several years ago. The iPhone now accounts for nearly two-thirds of Apple’s revenue.
But Cook has capitalized on the continuing popularity of the iPhone and other products invented under Jobs’ reign to sell services tailored for the more than 1.3 billion devices now powered by the company’s software.
Apple’s services division alone is on pace to generate about $35 billion in revenue this fiscal year — more than all but a few dozen U.S. companies churn out annually.
Apple had also come under fire as it accumulated more than $250 billion in taxes in overseas accounts, triggering accusations of tax dodging. Cook insisted what Apple was doing was legal and in the best interest of shareholders, given the offshore money would have been subjected to a 35 percent tax rate had if it were brought back to the U.S.
But that calculus changed under the administration of President Donald Trump, who pushed Congress to pass a sweeping overhaul of the U.S. tax code that includes a provision lowering this year’s rate to 15.5 percent on profits coming back from overseas.
Apple took advantage of that break to bring back virtually all of its overseas cash, triggering a $38 billion tax bill. All that money coming back to the U.S. also spurred Apple to raise its dividend by 16 percent and commit to buy back $100 billion of its own stock as part of an effort to drive its stock price even higher.
Apple’s $1 trillion value doesn’t mean it’s the ‘biggest’ company
August 10, 2018
Apple may seem a giant, but by some measures it’s not. Reuters/Lucas Jackson
Professor of Management and Sociology, Ross School of Business, University of Michigan
Jerry Davis does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
University of Michigan
University of Michigan provides funding as a founding partner of The Conversation US.
On Aug. 2, Apple became the first U.S. public corporation to achieve a US$1 trillion valuation, making it the largest company in the world – by one measure at least.
A New York Times article proclaimed that this milestone “reflects the rise of powerful megacompanies” that control a large and growing share of all corporate profits. It also warned that this phenomenon might be contributing to stagnant wages, a shrinking middle class and rising income inequality, suggesting regulators may need to rein them in or break them up.
But what exactly defines a “megacompany”? And what would make it so powerful that it needs dismantling, like “Ma Bell” back in the 1980s?
As a scholar of corporations, I believe that if we want to understand – and regulate – big companies, it’s important to be clear on the very different meanings of “big.”
When General Motors was the most valuable U.S. company, it was big in many ways, including having the second-most employees. AP Photo
When Fortune magazine first wanted to create a roster of America’s 500 biggest corporations in 1955, revenue was the obvious way to think about size.
A “major corporation” was one that sold a lot of products. With almost $10 billion in annual sales, thanks to its 54 percent share of the U.S. auto market, General Motors topped Fortune’s list that year.
But GM was also big in most every other way, including its stock market valuation or “market cap” (where it was No. 1), assets (No. 2, after AT&T) and employment (also just behind AT&T at 624,000). Indeed, for much of the post-war era the biggest corporations were big in every way, and market cap was very highly correlated with revenues, employment and assets.
Not anymore. The post-industrial corporation of today is often heavy on market cap but, like Apple, light on employment and hard assets.
Let’s look at Apple
Apple does not own the giant factories that assemble its popular phones – Foxconn does. Apple is notably light on tangible assets like property, plan, and equipment, relative to its total assets. And with only 123,000 employees globally, Apple is not even among the 50 largest employers in the U.S., in spite of operating a chain of retail stores.
So how exactly is Apple “mega”? In the eyes of The New York Times and Wall Street, it seems, primarily because it’s worth a trillion dollars.
Market capitalization is the market value of all of a company’s shares. By this measure of size, Apple is not alone in the stratosphere. On the day Apple passed $1 trillion, Amazon was worth $895 billion, Google owner Alphabet was valued at roughly $853 billion, and Facebook was at $509 billion.
Yet just like Apple, their market caps belie more traditional measures of size.
Facebook vs. Kroger
To illustrate this, let’s compare Facebook with Kroger.
In 2017, Facebook had 25,000 employees and $41 billion in revenue. Grocery chain Kroger – America’s third-largest employer – had 449,000 employees and $123 billion in revenue. In other words, it would take 18 Facebooks’ worth of employees to make one Kroger, and the revenues of three Facebooks to equal one Kroger. The 135-year-old, (mostly) unionized grocer operated 2,782 supermarkets and hundreds of other stores across the U.S. Facebook’s revenues came almost exclusively from selling advertising.
Market cap, however, tells a different story: Facebook’s market cap on Aug. 2 was $509 billion. Kroger’s was a fraction of that, at less than $24 billion. That is, it took more than 20 Krogers to equal the value of one Facebook. This divergence was highlighted the previous week, on July 26, when Facebook’s market cap dropped $119 billion – five Krogers’ worth – in a single day.
So which one is mega, Facebook or Kroger? Is market cap really the measure we should be using to define what makes a company big?
After all, Facebook’s high valuation does not mean it has a half-trillion dollars sitting in an underground vault somewhere in Menlo Park. Its shares are mostly owned by outside investors (although Mark Zuckerberg still controls an absolutely majority of the votes and, therefore, the board of directors). And if we think of businesses as “job creators,” then the tech sector turns out to be a big disappointment.
Facebook is hardly alone in its employee-light approach.
Netflix, the global video-streaming behemoth, has just 5,500 employees, of whom 600 are temps. Its market cap was $345 billion on Aug. 2, or 14 Krogers.
Even Alphabet, the paradigmatic corporation of the 21st century, has only 80,110 employees around the globe. Notably, Bloomberg reports that Google’s “temps, vendors and contractors” actually outnumber its permanent employees.
Even though Walmart’s market cap is barely a quarter of Apple’s, it employs about 19 times as many people around the world. Reuters/Daniel Becerril
Does Wall Street hate job creators?
The seeming paradox of corporations being giant in one dimension and tiny in others can be resolved by examining what Wall Street values and what it disdains.
Specifically, it seems that the stock market does not love job creators, and if it is impossible to avoid having employees, Wall Street prefers that they not be paid well.
In other words, in the minds of those in business, there may be a built-in negative relation between market cap and employment.
Consider some examples. On Feb. 19, 2015, Walmart – America’s largest employer by far – announced that it would raise the minimum hourly wage paid to its U.S. employees to $9, at an expected cost of $1 billion for the year. By the end of the day its market cap had dropped 3.2 percent, or over $8 billion.
And in April 2017, when American Airlines announced that it had negotiated raises for its pilots and flight attendants, the market punished it with a 5.2 percent share price drop. Analysts explained their displeasure: “This is frustrating. Labor is being paid first again. Shareholders get leftovers.” And: “We are troubled by AAL’s wealth transfer of nearly $1 billion to its labor groups.”
Today’s corporate leaders have received Wall Street’s message and seek to stay as “lean” as possible. Indeed, the median corporation to go public after 2000 had added just 51 jobs globally by 2015, and these often came from acquisitions. When it comes to employment, evidently small is beautiful.
The meaning of ‘big’
How we think about corporate size matters.
Big is sometimes linked to better, particularly in business schools and executive suites. And cities and states pay millions and even billions of dollars to lure “big” companies in hopes that they’ll bring jobs and economic growth – which may not turn out to be true for today’s megacompanies.
On the flip side, there are people like Teddy Roosevelt, who railed against giant, powerful corporations, arguing that they led to greater inequality, a concentration of wealth and the corruption of politics.
Today we face similar problems: growing inequality, concentrated wealth and shadowy corporate money shaping our politics. But if we want to tame the giant corporations – as Roosevelt did – we need to have a clear sense of just what “giant” means. And we need to give up on the idea that corporations that are big in market cap necessarily create jobs.
The Conversation US, Inc.
Profit, not free speech, governs media companies’ decisions on controversy
August 10, 2018
Fellow, Peabody Media Center; Professor of Media Studies, University of Michigan
Amanda Lotz does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
University of Michigan
University of Michigan provides funding as a founding partner of The Conversation US.
For decades, U.S. media companies have limited the content they’ve offered based on what’s good for business. The decisions by Apple, Spotify, Facebook and YouTube to remove content from commentator Alex Jones and his InfoWars platform follow this same pattern.
My research on media industries makes clear that government rules and regulations do little to limit what television shows, films, music albums, video games and social media content are available to the public. Business concerns about profitability are much stronger restrictions. Movies are given ratings based on their content not by government officials but by the Motion Picture Association of America, an industry group. Television companies, for their part, often have departments handling what are called “standards and practices” – reviewing content and suggesting or demanding changes to avoid offending audiences or advertisers.
The self-policing by movie studios and TV networks is very similar to YouTube’s and Facebook’s actions: Distributing extremely controversial content is bad for business. Offended viewers will turn away from the program and may choose to boycott the network or service – reducing the size of audiences that can be sold to advertisers. Some alarmed viewers may even urge boycotts of the advertisers whose messages air during controversial programming.
Over the decades, television networks have internalized feedback from advertisers and unintended controversies to try to steer clear of negative attention. Social media companies are just beginning to understand these forces are at work in their own industries as well.
Self-regulation to avoid government intrusion
The practices of media industries to police themselves arose over many years, as companies tried to appease public concern without triggering formal government supervision. This pleased all sides: Elected and appointed officials avoided having to do much of anything that might look like squashing free speech, companies avoided formal restrictions that might be quite severe, and concerned citizens had their objections heard and acted upon.
When concerns about the amount of sex and violence on broadcast television developed in the 1970s, the networks agreed – with strong encouragement from the federal government – to establish a “Family Hour” during the first hour of prime-time programming that was monitored by the National Association of Broadcasters. Music labels agreed to place “Parental Advisory” labels on albums with explicit lyrics. Inspired by moviemakers, video game developers adopted ratings based on evaluations by an industry group, the Entertainment Software Ratings Board.
There is, though, a key difference between those industries and the situation of YouTube and Facebook. Movie studios, record labels and TV companies are responsible for making their content as well as distributing it – and are legally liable for any problems that might arise.
Online media companies, though, typically don’t create most of what appears on their platforms, and are expressly protected from legal responsibility for the content of the messages others post. But hosting information publicly viewed as hateful can damage a business, even if it doesn’t run afoul of government rules.
Challenges of social media content regulation
Social media companies have achieved their ubiquity and high profits because they do not have to pay for creating the content that attracts attention to their services. They reap the financial rewards of a technological advantage in which billions of users can create, share and look at different messages and pieces of content every day.
They are just beginning to understand the downside to that technological advantage, which is that the public – even if not the law – considers them at least somewhat responsible for what is said on their sites. And it’s extremely difficult to sort through, classify and police all those billions of posts – much less to figure out how to automate some of those tasks.
So far, social media sites have avoided limiting content except in the most extreme cases, because it is difficult to draw lines of acceptability that don’t produce more controversy themselves. Their decision likely included weighing the effects of the objections that would erupt if they did ban Jones against what might happen to their brands if they didn’t.
In the past, self-regulation often allowed media companies to evade governmental action. It is unclear whether these latest moves by social media companies are the start of lasting self-regulation or a one-off effort to quell current concern. Either way, their decisions are all about what is good for business.
Their response to outcry may be craven, but it might suggest these companies are recognizing the cultural power of their products. Ultimately, social media companies – like other media companies – are showing that they will respond to pressure from their audiences and the marketplace. In the absence of regulation, consumers will encourage companies to change policies by opting out of social media that enable cesspools of trolling and hate.
Users who want changes made should take note of how audiences have pressured other media industries to make changes in the past. Consumers who want greater privacy controls, environments free of hate speech, and different kinds of algorithms could demand them by leaving flawed services or boycotting the advertisers that support them. As demand for alternatives becomes clearer, services will change or a competitor will arise.
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