Comparing Apple to Apple
Apple is always in the news these days, if it’s not releasing a cool new or slightly improved product it is constantly talked about as being the most valuable company on the planet. In addition, there are numerous news articles trying to give some perspective on how big Apple really is. This article is my spin on some of the comparisons out there.
Okay so the most common one is that if Apple (market value in excess of $500B) was a country it would be bigger than Poland (GDP $469B), Belgium (GDP$469B), Sweden (GDP $459B) and Saudi Arabia ($435B). I know what you are thinking wow, is Apple really that big? Of course not, in fact this comparison silly. GDP is a measure of the total output of a country in one year (similar to one year revenues in a company) where as the market value of a company is a measure of the total present and future value of a company. If you wanted to compare Apple in terms of GDP we should use their revenues ($108B). In that case we would see that Apple is about a quarter of the size of Sweden. Okay, let’s try something else and take a stab at valuing a country. Take Sweden for example, let’s assume it has an annual growth rate of 2.5% and is an asset that has a risk of 4%. With those assumptions and using the terminal value calculation Sweden would be worth $30.6T (way bigger than Apple). Hope this puts some perspective to the country comparisons. It bugs me that news articles then go to compare revenues of US cities to the market value of Apple. Doesn’t make sense!
There are however some interesting facts floating around. If you took every single US bill with a $1, $2, $5, $20 and $50 value, it wouldn’t be enough to purchase all the shares of Apple. In total there is $252.8B in currency with a face value of less than $100.
The S&P 500 is a fairly accurate representation of the 500 largest companies in the US. If we take the value of the smallest 45 companies, they would be smaller than Apple. Wow! Google for example has a market value of $202B.
Okay, so you thought Apple was big. Let’s put that in comparison with Saudi Oil Production. Most oil production in Saudi is done by state owned Saudi-ARAMCO and the smaller players all pay a royalty to the government. In terms of pure revenues it would take Saudi Arabia just 87 days of full production (10.52 million barrels per day) to generate over $500B in revenues. Of courses there are production and transportation costs, so it’s an unfair comparison. On a net income basis Saudi Arabia will have sufficient cash to purchase Apple in only 15 months.
With a dividend that was introduced yesterday and a share repurchase strategy, Apple’s share price will continue it’s near term ascent. That being said the new iPad (they didn’t call it the iPad 3 as they wanted to be unpredictable) and the iPhone 4s aren’t the revolutionary products Apple is known for. The market is expecting a new iPhone in October and if it isn’t close to being a game changer, Apple will get punished. (Source: CNBC, Google Finance, NY Times).
Written by: Sam Perera, Financial Savant