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Is Apple Really Worth One Trillion Dollars?

Earlier this week, a couple of financial analysts "decided that":http://blogs.wsj.com/marketbeat/2012/04/03/apple-the-1-trillion-company/, within two years, Apple’s share price would top $1000, pushing the already behemoth of a company towards a...

Earlier this week, a couple of financial analysts decided that, within two years, Apple's share price would top $1000, pushing the already behemoth of a company towards a magical market cap of $1 trillion.

Which, despite the ridiculousness of thinking about all those 0s, seems like a fairly reasonable prediction when it comes to the house that Jobs built. I mean, if Instagram and its 12 person staff is worth a billion, why can’t Apple be worth a thousands times that?

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iPhones and iPads continue to sell like hotcakes all over the world, especially in China, where sales went from nothing to nearly $2 billion in just two years — and it's only just begun. More importantly, as a platform, iOS commands power not only in ubiquity but in cultural relevance. Sure, Android puts up solid numbers, but iOS is a system users are quite literally buying into: Android app expenditure pales in comparison to Apple's beast..

Success on iOS has also become sort of the litmus test for the “next best thing.” Why worry about developing for multiple platforms when you can focus on making your shit simply awesome on just the iPhone — a path taken by the likes of Draw Something, Instagram (finally released last week an Android a year and a half after the original iPhone app), and a flurry of other up and comers that have made me feel less and less “kewl” on my Droid Incredible. If you want to Scramble with friends, better get the 4S, bro.

Here’s your proof that Apple’s model is worth a lot of money. Even when market share was low, only selling expensive devices pulls in a lot of revenue. Via the Economist.

In terms of old school computing, Apple is still doing well, although its market share is still tiny relative to what it has in mobile. But with the Mac line, Apple continues to enjoy generous margins, while the rest of the industry continues their race to the bottom. That is, if they're still playing: IBM peaced out when they sold to Lenovo and HP has contemplated similar moves.

As such, none of what Gene Munster of Piper Jaffray is preaching, in terms of financial speak, is at all surprising.

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We believe shares of Apple will reach $1,000 in calendar year 2014, which would imply a roughly 1 trillion dollar market cap, the first in history. While some investors believe the biggest issue for Apple to get to $1,000 is the market cap along with excessive investor exuberance, we believe the real story is earnings growth. Fundamentally, we believe shares can reach $1,000 based on our belief Apple will continue to win in global mobile devices.

What is of course quite amazing about all of this is that is happening in the post-Steve era. Apple is and was Steve Jobs. That success has continued without so much as a hiccup is a testament to his achievement, commitment, and legacy of corporate culture that he has left behind. But where do we go from here? Is this sustainable? Well, in spite of constant flow of extravagant world-beating financial numbers, there have been some cracks in the foundation.

The iPhone 4S and the “new” iPad are, in their essence, evolutionary products. I can maybe see the use in Siri and the new iPad Retina display is indeed gorgeous, but let's be honest, neither release was truly exciting.

On the corporate front, it's understandable that the company has a lot of room to grow. The firm’s recent international expansion has left them flush with cash — which, don't get me wrong, is an admirable situation for any well-respecting firm, especially in our age of leveraged debt and selling the future. Apple decided to spend that money, not on interesting investments for the future, but to pay dividends to shareholders, which is nice from a financial perspective. But on the innovation front, it leaves many of us wondering: has Apple run out of steam in R&D? This whole scenario has a very Microsft-y feel to it.

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Sure, Android’s overtaken iOS in total market share, thanks to a number of cheap devices. But the reason people value Apple so highly is that every single device making up iOS’ massive share is a high-dollar Apple device. Via The Guardian.

Did innovation die at Apple along with Steve Jobs? Tim Cook is a crafty lieutenant more than capable of manning the ship, but he is quite clearly not the next Steve Jobs, we all know that. People talk about Scott Forstall, Apple's iOS dude, having the necessary charisma and clout to potentially fill those shoes — but is it realistic? Is it reasonable to think that there will ever be “the new Steve Jobs” at Apple? Is it possible in the shadow of man who, in our generation, has reached techno-demigod status, whether deservedly or not. My hunch would be no. My thought is that the next Steve Jobs is already out there starting his own company. What would Steve do?

Our boy Munster acknowledges this pesky unknown:

The key risk to the Apple story is pace of innovation. While we have not seen anything to make us believe innovation will slow, it is the fundamental barrier that stands between shares at $600 and at $1,000. Apple has won the ecosystem and interface war, and must continue to innovate around its leadership position to grow the business. Going forward, consumer interest in owning future Apple products is a key metric to measuring Apple's pace of innovation.

Which brings us back really to how useless financial analysis of this sort can feel. “If they're awesome, they'll be awesome!” Thanks for that, really. None of that really matters in the end. The big litmus test looming will be the iPhone 5.

There is also the fear that it won't even matter. That despite Apple's failure to truly innovate, they've consolidated enough platform power and brand equity to continue expanding their colossal walled-garden information monopoly — a dystopian future where we're all losers.

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