Apple's iPhone Launch Valuation Drops: A Trend for Reasons You Don't Expect
Apple has a problem: publicity.
A curious sideshow to the Apple product release spectacle is watching the almost inevitable drop of Apple stock valuation, followed by a return to average. Except in limited cases, the trend is surprisingly consistent - markets hate Apple releases. Almost as fun is watching the dozens, if not hundreds, of blog posts, all lamenting Apple’s “problem,” their impending doom, or the escalating danger of the open market.
The recent announcement of Apple’s iPhone 5c and iPhone 5S models, the former of which is a cheaper alternative to the iPhone series, was relatively no different: Apple’s stock took a significant 2.8% dive on day one, followed by a nearly 6% drop over the next trading period.
Graphs, charts, and averages dominate the analysis of this period: Apple’s average change in price one month after an iPhone release comes out to a -2.06% drop. Ignoring the blatant issues of plotting a single variable as the driver of change across a 1 month time period, the analysis buries the same realities lost to many trading day-to-day or failing to look at the larger market: Apple has emerged, and continues to emerge, as not only an industry leader, but an economic force to be reckoned with.
Undoubtedly, the exact valuation is skewed by the same factors driving day-to-day market fluctuations in the greater economy. Apple’s announcement, for example, fell not only just after a particularly juicy jobs report and indications of a Fed reduction in mortgage security buyouts, but also indications of a rapidly improving industrial and commercial market in China and a possible pathway to conflict resolution in war-torn Syria. Similar large-scale market shifts have occurred on or near Apple launches - the first iPhone, premiering on January 9th, 2007, paralleled a major shift in the Iraqi war plan and was the day Apple Inc. became a brand. Regardless, the simultaneous events can be ignored: a trend of volatility persists.
The iPhone in 2007 was undeniably revolutionary, outpacing every phone on the market, and most computers, in terms of innovation, design, and dominance. Apple followed up the announcement with a phenomenal, and sustained, 10 point gain above open. Following that, though, was the 2008 announcement of the iPhone 3G which, while not flopping in any sense, witnessed a nearly 4 point bottom out, before regaining. The trend continues for the iPhone 3GS, iPhone 4, and so on.
Why, then, does Apple suffer product launches? Diminishing returns. Like computing’s Moore’s Law, which forms a correlation between time and transistor size, there reaches a point when innovation must be so exponentially large that no company, Apple’s behemoth included, can keep up. The crisis for Apple is two-fold: the lapse between products created by Apple’s insistence on a non-fragmented, single operating system-based release schedule gives competitors ample chance to push innovation. The Android operating system in particular, due to its fragmented and fundamentally open nature, became the dominant market force and supported more radically changes on a stable platform. The second force working against Apple was its own success: Apple pushed the bar so high in the first day that it was expected to do the same every single launch. The result, and the reality for post-announcement valuations, is failure. Apple will never be able to satisfy the increasing announcement-day hunger of its fans; like the Star Wars prequels, nothing can touch the classic.
Nothing about the trend suggested is wrong: it seems fairly clear that, for whatever reason, nearly every Apple product guarantees an immediate, and often sustained, drop in valuation. But as always, correlation does not imply causation: interpreting the reasons, rather than the data, is the only real analysis possible.
Regardless, Apple has rather clearly shifted its innovated-based trajectory into the long game, namely in the introduction of a second line of iPhones. For a company of any size, a 6% drop in valuation is scary and risky, but not at all unexpected: this is part of the plan. Bolstered by a significantly cheaper model, entry into Japanese and Chinese markets from day one, and no need to fundamentally alter the base technology of the iPhone 5, Apple is poised to make significant gains in its market share over Q4 and 2014. Initial reflections on the phone are useless measures: the experience of the Nokia Lumia and countless other radically inexpensive and colorfully hip phones dictate that the iPhone 5c will likely reach a market unseen in Apple’s history. Thus, for the trailing quarter, market valuation is an extremely unreliable and, at times useless metric: Apple just entered the phone market for the first time. Not surprisingly, Microsoft and Nokia also came out to play.
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