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How Apple became the most profitable company in the world?

Apple stocks flew overboard despite slowdowns from COVID-19.

In 2018, Apple’s stock surged to a 1 Trillion dollar cap and became the first US company to do so. And on July 31st, 2020, Apple surpassed Saudi Aramco to become the most valuable company in the world with a staggering market cap of 2 Trillion Dollars. It took Apple 42 years to reach the 1 trillion dollar market cap and only 2 years to reach the 2 trillion dollar market cap. Let’s see how the Cupertino giant was able to pull this off.

First we need to understand how companies are valued in the first place:

They are valued with the revenue they generate and the future scope of cashflow. A business encapsulates everything right from the salaries of the employees to the inventories that they own. A fiscal value is denoted along with the physical assets and the revenue they generate on future cash flows. This fiscal value gives a glimpse as to how much a business is worth.

Let’s understand this with an example of Apple if Apple has 4.127 Billion shares and the price of the share when it is trading in the market is around $500 then the market cap is a simple multiplication of the two, which is around 2.01 Trillion. This calculation is very rough and only used for an easier and simpler understanding of market cap.

Let’s look at how Apple made such a successful journey into the technology market via a timeline and story. If you want to read Apple’s entire history in detail, I suggest you check out these books about Apple. Its a combination of innovation and financial milestones. Let’s dive in:

Timeline

1972- Innovation prior to “Apple”

Blue Box 1
Blue Box built by Steve Wozniak and sold by Steve Jobs. Credits: Maksym Kozelnko

Not a lot of people know that Apple was keen on innovation prior to its existence. Steve Wozniak, a self-educated electronics engineer, and Steve Jobs, still a student both managed to sell “Blue Boxes – A device that lets you call at long distances. They sold close to 200 units of Blue Boxes and split the profits among themselves.

This was the beginning of a very important partnership and rapport in the history of not-yet-formed — Apple.

1975 – 2 Steves and an idea

Steve Jobs and Steve Wozniak
Steve Jobs and Steve Wozniak. Source: Leaderonomics

In an era where the computer world was dominated by IBM, HP, and Atari, It was evident that the computing industry was starting to take hold onto to consumer market. Predominantly in the late 60s, computers were of little use to the consumer, either because they were too costly for an average consumer ($1600 +, a little more than $7200 of today) or because of the lack of functionality or use to a normal consumer. Thus it was not perceived as a “sell” into the public domain.

But Steve Jobs, while a young college student in the mid-’70s, saw this as an opportunity once he met Steve Wozniak for a video game gig. Initially, he realized that it was easy to make some money, but further down the line he saw the genius in Wozniak and found a new, buzzing, fresh market for personal computers.

1976-Its Official with a catchy name 

Original Apple Logo
This was Apple’s first logo back in 1976.

On April 1, 1976, Apple is officially registered as a business partnership between both Steves and Ronald Wayne. Sadly like most cofounders split and confident issues, Wayne quits 8 days later and sells his equity of 10 percent to Jobs (Wayne would roughly be worth 200 Billion dollars, had he not sold his stake)

Nevertheless, Apple was born with its first machine ready to kill, the Apple Computer 1.

1977- First Trusts

Steve with Mike Markkula
Steve Jobs standing beside Steve Markkula showing Markkula’s investment in Apple. Source: All About Steve Jobs

After the early and quick success of Apple I, Jobs went out looking for investors to invest in the company. Jobs and Wozniak had phenomenal sales and almost a 100% growth rate month on month. As Jobs looked around for investors, he stumbled upon Mike Markkula who became the angel investor for Apple and invested close to 92,000$ in personal and a 250,000$ line of credit later on. Markkula received a 10% stake in the company.

1980- Apple II’s and III’s

Macs
Apple II (2) and III (3). Source: Pinterest

These were the first taste of success and failure for Apple, both the Apple II as well as Apple III taught Apple how to make better computing devices. While Apple II went on to be quite a success in the long run. Apple III was a disaster. Jobs didn’t want the cooling fan on Apple III, he played his innovation risk right from the start. Overheating problems on Apple III taught Apple cold lessons.

It also paved the way towards progressive incidents, like going public.

1980- IPO’s millions

Nasdaq

Apple went public on December 12, 1980. The Initial Public Offer was of 4.2 million shares at 22 dollars a share. Just to give a hint as to how important this was, let me demonstrate an example,

Let’s say you had invested 1000 dollars in Apple the day it went public, that would be 430,000 dollars today taking into account inflation. That’s a 430 times return on initial investment which is staggering.

This was one of the biggest open that companies on a stock exchange had after Ford in 1956. This decision was quite rational and necessary. The IPO raised more than 100 million and made more than 300 millionaires on the same day. These instances tell you that such a company is very valuable, Apple was just 5 years old and had become a billion-dollar company.

1982- Inspiration from Xerox

Xerox Logo

Some sources say that it was a deal between Apple and Xerox while others say it was just a visit into Xerox. Whatever be the case, we can’t ignore the fact that this visit at PARC ignited technological innovation for Steve Jobs. He wanted a piece of everything and almost didn’t believe that Xerox wasn’t doing much with this technology. Everything exciting jobs, right from the mouse to the menus.

While Xerox A lot of that happens today at the innovation hubs at Apple had humble beginnings at PARC.

1984- “The 1984 Commercial”

1984 Apple's Macintosh Commercial (HD)

This commercial paved way for Apple in a huge manner. This was the inaugural of the Macintosh, and the commercial depicted a very deep meaning. It’s an unnamed heroine in the video who comes with an athlete uniform carrying a sledgehammer towards the screen. It aims to show that the arrival of Macintosh is to save Humanity from “conformity”. It says “On January 24th Apple computer will launch the Machintosh and you will see why 1984 won’t be like 1984” 

This was one of the most expensive commercials to be shot and executed at the time. Apple spent close to 650,000$(1.6 Million dollars of today) on this commercial. This commercial was directed by Ridley Scott.

1985- Sculley arrives and both founders leave

After the failure to defeat IBM PC, Jobs had a backup plan ready in action. Jobs had recruited John Sculley, the CEO of Pepsi by asking the famous question “Do you want to sell sugar water for the rest of your life or come with me and change the world?”

It wasn’t long after when a drift between Jobs and Sculley was evident, both had different viewpoints and different approaches to the companies future. Despite the majority of sales by Apple II, Its division nor its employees were mentioned in the annual meeting of 1985. In the midst of all this, Steve Wozniak thought its unnatural to stay on this course and left the company by selling most of his stock.

Another shock was, Sculley decided to remove Jobs from the company and gained support from the board. Jobs eventually resigned from the board, sold his stake, and went ahead to start a new company.

1997- The return of Jobs, with Bill

Steve Jobs and Bill Gates
Steve Jobs and Bill Gates. Source: Business Insider

After a long decade of Apple being under Sculley and Gill Amelio, there were both pros and cons that Apple had in terms of its position. Apple had acquired Next and that bought Jobs back to the company. Jobs had noticed that there were some loopholes in the way Apple was functioning. He demanded that he should be the interim CEO of Apple and yes, there was no turning back ever since.

With Jobs as CEO, he noticed that there is no denial or arguments with respect to Microsoft as a software company being the king in the software market and found an opportunity to let Apple and Microsoft be one team instead of competing. Microsoft invests 150 million dollars in Apple as well as builds Microsoft Office for Macintosh. This provides a jump start for Apple once the founder had arrived.

2001- Mac OS X and the iPod

Original iPod
Original iPod. Source: Apple

As Apple had acquired NeXT, it was working extensively on Mac OS X. The acquisition of NeXT and retrieval of Jobs was one of the most important incidents that happened for Apple. NeXT was constantly working on Mac OS X and made Mac OS better than ever before.

In October 2001, Apple announced the first-ever iPod, which had some tremendous specs, storage of 1000 songs in a player. This particular device was a huge success and thus Apple announced a range of iPods along with Mini, Nano, Touch, Classic as well as the Shuffle.

This entire range was a great financial boost in terms of revenue for Apple. Profit by the end of the 1st quarter was around 250 million with total sales as big as 3.4 billion, while the previous quarter sales were just 1.9 billion.

Along with these software developments, Apple was looking for retail as a way to go into for better revenue so they announced for the first time that they are going to open up retail outlets.

2003- Retail expansion and iTunes store

Early 2001, Apple stores had opened primarily in the united states but as time grew a need for a new market came from around the world. Thus Apple expanded and went international in 2003, opening the first international store in Japan, followed by London and Canada.

All in all, Apple has around 506 retail stores from about 25 countries as of 2018 and increasing year on year.

iTunes was introduced in 2003 and it was an instant success, It got 2 million downloads in the first 16 days itself. About a year later it was introduced to the world. iTunes became a sensation as it was growing at a rapid rate. It has one of the most impressive statistics with respect to online downloads.

iTunes sold its billionth song in 2006 and eventually diversified from music to video streaming platforms as well. Both these choices of having international retail and a music library opened a revenue stream that was unprecedented 

2007- iPhone and other new devices

Steve Jobs introducing the first iPhone
Steve Jobs introducing the first iPhone at MacWorld 2007. Source: Quartz

The iPhone was the most influential device in the 21st century. It not only changed dynamics for Apple from transitioning swiftly from a full-fledged computer company to an electronic device company. In an age where most mobile companies were playing around with a lot of experimentation on mobile phones may it be half touch and half keypads like blackberry or the foldable Motorolla phone, the iPhone comes out with a full touchscreen and a home button.

With impressive designs and promising price point, this phone was a flight to multibillion-dollar sales for apple, and the day they realized that they weren’t more correct about it. They went full-fledged with the iPhone 3GS and then the iPhone 4G. It has been an upward curve ever since the iPhone came out. It had an edge over most phones as they were mostly android based and had a specific User Interface, Apple provided something out of the box completely.

The iPhone sales were moderately okay (6.1 Million Units) for the first few quarters as iPhone was trying to penetrate the market of Nokia and Samsung, which by volume and sales were much larger than the iPhone. by 2010 iPhone had just got 4% of the market share. But by 2012,It had increased its global share to 13 % .iOS users had increased to 37.8% market share soon and android slid a little.

Then came the trade-in iPhone upgrade program from Apple where you could give your old iPhone and trade it with the latest iPhone which has a duration of 24 months. The payment cycle is 24 months actually made a lot of people comfortable at the fact that a certain small portion of their spending every month shall go to Apple but they can enjoy the latest iPhone. This particular scheme attracted a lot of people.

In the same year, Apple announced something else that was revolutionary, and that was, yes, the iPad. It had been worked upon by Apple before the iPhone. The iPad was historically different from the product that Apple had launched under Sculley’s leadership, Newton – a tablet developed by apple in 1983 which did not make a mark and was discontinued in 1998.

iPad had phenomenal sales, on the first day itself they had sold 300,000 units. and in 2 months they had sold a million units. They don’t have the same demand as the iPhone but they have done extremely well in sales.

Post-2010

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Apple Card

Apple has been a factory of tech innovation. Having started with computers and now they have their own Apple card (used for Apple Pay) and have interests in electric cars. They have sold more than 1.3 billion devices altogether and have generated more than 30 billion dollars and growing revenue for the last 7 years. 

It has penetrated almost all markets (entertainment, tech, music, retail, finance, etc) barring very few. This is just an example of how a company once specialized in a domain can branch out to many sectors and be successful in them.

Overall stakeholders

Apple is one of the very few companies to receive very early investments and has primarily run on the revenue it generates from the business itself. As in, it invests the profit earned in its own business. Along with that, it is one of the very few companies that have gone public within just 6 years of its registration, so maintaining a public image and responsibility has come on Apple very early on.

Lets look at the main stakeholders in Apple :

  • Vanguard Group: Holds a 7.12% stake in Apple (308 million shares)
  • Berkshire Hathaway: Holds 5.66% stake in Apple (245 million shares)
  • BlackRock Funds: Holds 4.32 % stake in Apple (187 million shares)

Institutional holdings cross 60% stake in Apple, this shows that responsibility is one of the most important factors for Apple.  

Last but not least- Branding

Apple Logo outside a store

This word “branding” is one of the reasons why Apple has been successful. They are very articulate about what is getting shown to the audience and what image is being held in different countries and target audiences. Their ability to package and give out the right product to the right group of people is the key.

For developed countries, Apple products are luxury as well as a norm, wherein a lot of people use Apple products. Especially in the west, with great schemes like Upgrade iPhone, it’s a great opportunity to continue being a customer and a perfect customer retention strategy.

For developing nations, Its almost a status symbol first and then a product. But Apple tries its best to launch products among a reasonable budget to get customers from developed nations and build a trust factor among the customers.

Apple spends humungous amounts on advertisements and they are in many ways trendsetters in most advertising campaigns, the best example being the “Do not blink” campaign which was critically acclaimed for its fast and accurate cuts and precise communication.

Conclusion

Does Apple become a 1 trillion-dollar company after 42 years and 2 Trillion dollar company in just 2 years? Wrong.

They became a 2 Trillion dollar company after 44 years, it’s the innovation and vision from the beginning that has a compounding effect and that’s how Apple doubled its worth in a span of 2 years.

It’s evident from the above points that Apple became a 2 Trillion dollar company because of its futuristic thinking and consistent will to execute a vision that unfolds the future of tech and leaves a mark in the history of innovation.

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