Apple No Longer the World's Largest Company. Does It Matter?

If Apple  (NASDAQ: AAPL  ) investors were hoping for a rebound today after yesterday's 12% post-earnings sell-off, little relief came today. In fact, Apple shares have shed another $10.62 today, or 2.36%. 

Perhaps more interesting is that Apple's drop, for the time being, has pushed its market capitalization back below ExxonMobil  (NYSE: XOM  ) , making it the U.S.' second-largest company. Exxon is currently worth $418 billion, while Apple sits slightly below at $413 billion.

Apple first passed ExxonMobil's value in August 2011, though its passing of the energy giant was brief. While Apple gave back the title of largest company to Exxon during the remainder of 2011, on Jan. 25, 2012, it once again passed Exxon. As Apple's shares rallied for the first nine months of 2012, it cemented its lead as the United States' (and the world's) largest publicly traded company. 

The battle over big: Exxon vs. Apple


Source: S&P CapitalIQ. Market values for each company are quarterly.

In August, Apple's rally led it to attain the largest market cap in the history of American markets. At its peak, Apple was worth about $660 billion. 

Let's get real

Apple's loss over the past few months has been especially fascinating in part because of the sheer size and speed of its shares decline. Apple has lost about $249 billion in market value since its peak. To put that in perspective, its value loss in that time is greater than Microsoft and Google's entire market caps today! Below is a comparison of the value Apple's lost since its peak relative to some of the market's largest tech companies. 

Source: S&P CapitalIQ

That's a fantastically large reduction in Apple's value. However, comparing the market caps of companies like Exxon and Apple comes with a laundry list of caveats long enough to take up a whole column of its own. When Apple became the largest American company in history, fellow Fool Alex Planes did just that

Among the key areas that make market capitalization comparisons silly is they don't incorporate total returns. That is, while Exxon is worth $416 billion today, its been returning cash to shareholders since 1882, when it was a part of Standard Oil. Exxon has also increased its dividend for 30 straight years!

The implication here being, when a company pays out a dividend, that actually decreases its market cap as that capital is sent to its shareholders. Exxon has paid out over $75 billion to shareholders in the past decade and repurchased $190 billion of its own stock. Today it has $13 billion in cash. Without returning that capital across the past decade, the company would have $278 billion in cash sitting around. Such a figure would make Apple's much-discussed $137 billion cash hoard look puny in comparison. 

The big implications
Apple's just beginning to use its cash, with its pledge to return $45 billion to shareholders. As the company continues accumulating cash -- it had $23 billion in operating cash flow last quarter! -- it'll likely increase those actions. 

This is all to say, ranking market caps is more a beauty contest than anything useful to investors. The fact Apple had passed ExxonMobil was interesting because it showed how transformative mobile was as an idea. As the company generating the majority of mobile profits, Apple had passed ExxonMobil, the corporate titan of our time. 

That narrative was interesting. The second act of this narrative is whether Apple can continue holding such a large market cap as it's besieged by low-cost Android devices. Historically  we've seen other hardware companies -- whether in mainframes, mini-computers, or PCs -- fall as competition reduced their profits. Last quarter, Apple saw its gross margin contract from 44.7% the year before to 38.6% now. 

Yet, the counterpoint is that Apple's as much a software company as a hardware company. With iPad Minis selling at $330, Apple's pricing strategy isn't too different from Microsoft's. It's essentially collecting the profits from the operating system, but choosing to control all the hardware itself. Each new technology wave is different, and the second act of Apple's battle to be the defining company of the mobile revolution is yet to be written. 

Scared by Apple's plunge? We've got expert advice for you
As traders dump their Apple shares for a second straight day, will you have the resolve to hold your ground -- or possibly buy more? Emotions aside, Apple's growth story is far from over and it still has massive opportunities ahead. We've outlined them right here in The Motley Fool's premium Apple research service, and it may give you the courage to be greedy when others are fearful. If you're looking for some guidance on Apple's prospects, get started by clicking here.


Read/Post Comments (26) | Recommend This Article (31)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 25, 2013, at 4:36 PM, daveandrae wrote:

    ...."Scared by Apple's plunge? We've got expert advice for you

    As traders dump their Apple shares for a second straight day, will you have the resolve to hold your ground -- or possibly buy more? Emotions aside, Apple's growth story is far from over and it still has massive opportunities ahead. We've outlined them right here in The Motley Fool's premium Apple research service, and it may give you the courage to be greedy when others are fearful. If you're looking for some guidance on Apple's prospects, get started by clicking here."

    Why in God's name do you people keep selling this load of crap?

    Every reasonably intelligent investor that's been around the block in this business knows damn well not to try and catch this falling chain saw.

  • Report this Comment On January 25, 2013, at 5:20 PM, bluedepth wrote:

    @ daveandrae

    falling chainsaw? every reasonable investor? If a company is making as much profit as Apple has been, if it is sitting on a mountain of cash, and if it effectively met expectations for EPS, and if that company's share price takes a beating because meeting expectations isn't good enough... that will always peak my interest.

    sometimes the discount rack is the best place to find quality stocks at discount prices. I'm not saying that's true all the time, but I still see a company generating tons of cash and actually growing (albeit more slowly). That doesn't seem to be the horror show you suggest it to me.

  • Report this Comment On January 25, 2013, at 6:32 PM, iflusht wrote:

    This doesn't help the poor soul you told to buy appl at 500, 600 or 700 saying the stock was never going to stop going up.

  • Report this Comment On January 25, 2013, at 6:51 PM, abcvb wrote:

    Everywhere we go, anywhere in the world, we see I-Phones being used. Apple is the market leader and will stay that way for the foreseeable future. I'm buying now and hope the "falling knife" analogy is still years away.

  • Report this Comment On January 25, 2013, at 7:09 PM, bordereiver wrote:

    Haven't sold any, bought some, not a lot.

  • Report this Comment On January 25, 2013, at 7:13 PM, bordereiver wrote:

    Quite frankly I am happy to see other techs like DDD and Rax move strongly. Apple still my biggest position, but they aren't the only good techs.

  • Report this Comment On January 25, 2013, at 8:23 PM, umpirechuck wrote:

    The more important question is, for those of us who bought at $60, for a stock that peaked at approximately $702 not so long ago and is now at $439, do we sell now or wait for the rebound ...???

  • Report this Comment On January 25, 2013, at 8:36 PM, Chilaxin wrote:

    I guess that you've got to "click here" to find out!

    I have the same dilemma.

  • Report this Comment On January 25, 2013, at 10:08 PM, TMFRhino wrote:

    iflusht,

    Oh, those poor souls who bought? You mean when I recommended buying 32% ago (http://www.fool.com/investing/general/2011/01/06/rising-star... or when Stock Advisor recommended Apple at 37% and 153% gains (Even after the recent fall)? Sure, people have also bought Apple at times they've lost money, but this isn't Enron... It's a company still 40% off its peak at most. If part of a diversified portfolio, that's not the end of the world.

    Which is to say, this is investing... It's a long-term game. If you want to call people who are making money from most recommendations "poor souls", well... Then I'd love to be a poor soul. The whole idea is to buy a group of excellent companies and beat where others are parking their money - such as cash, and funds with outsized fees.

    I know its internet comments... But come on, to judge a company from its low requires some perspective.

    -Eric

  • Report this Comment On January 25, 2013, at 10:16 PM, TheDumbMoney wrote:

    In response to the title: No.

    On a free cash flow basis, discounting cash on hand 35% to assume AAPL dithers with it losing value to inflation and also has to pay some taxes, AAPL is, if memory serves, cheaper than Dell, HP, or Microsoft, at the moment. So. Yeah. It is priced as if GOOG is going to turn it into RIMM. Technicals say there is a high likelihood it goes to $430 or even $400, but I think it's a buy anywhere between about $0 and $570.

  • Report this Comment On January 25, 2013, at 10:35 PM, daveandrae wrote:

    @bluecloth-

    This company is NOT meeting profit expectations! Fiscal year 2013 earnings estimates have already come down from 62 to 40 dollars a share over the last three months. If you think this won't continue, with margins contracting, the competition continuing to gain market share, and more than 10 MILLION iphone 5's in inventory, you are deluding yourself.

    Good day.

  • Report this Comment On January 26, 2013, at 2:17 AM, snapperreef wrote:

    "Apple No Longer the World's Largest Company"

    As Hillary, our Secretary of State says, "What difference does it make?" !

  • Report this Comment On January 26, 2013, at 2:40 AM, gtwhitegold wrote:

    Personally, I would not buy Apple at any price. Over the long term, companies with the largest market caps are unable to maintain superior performance and trail the overall market. If I could, I would short Apple relative to the S&P 500, but considering how all of the money I have tied to the S&P is in my 401(k), I can't. Below is a study that ties market underperformance to the largest company in many developed and emerging economies.

    http://www.indexuniverse.com/publications/journalofindexes/j...

  • Report this Comment On January 26, 2013, at 9:51 AM, EquityBull wrote:

    I sold my shares at 480 after hours during the conference call not because of something I heard but because of something I did not hear. Earnings and growth were fine in my book. So what did I not hear?

    Well I figured since management did nothing to stem the 30% slide by way of a dividend boost or increased buyback over the last few months that they (as they say in poker) had the nuts. Was looking for blowout earnings. Well that did not happen. So at first I figured, well since they did not blow it out they are definitely going to announce that 50B+ buyback and at least double the dividend and maybe even a 10 for 1 stock split.

    Well I listened and what I heard was deafening. Nothing on all fronts. Apple has sat on this cash for years. The 45B quoted is an illusion because it is over 3 years. Also it is 10.60 x 3 years plus 10B buyback. That does not add up to 45B.

    Why is it an illusion? Because relative to apple's cash on hand and cash flow each yeaer the 13B paid out is a joke. This is $13/share for a company with 137B in cash plus pulling in over 40B per year. This means the company does not care about shareholders, they never have, not under Jobs, and now under Cook more of the same. If they did you would have seen something over the last 2 years or at least 3 months substantial to stem the massacre. Nothing.

    You wrote "it had $23 billion in operating cash flow last quarter! -- it'll likely increase those actions. " This is exactly why the stock is down and will potentially go quite a bit lower. The street believes that cash is never coming back to shareholders. Not in a buyback or increased dividend.

    Oh yeah..that buyback. It is a smokescreen. Merely serves to offset the 3B per year in stock option grants. Does not shrink the float one share.

    Cook wants the cash because in 5 years he gets his stock and another slug at 10 years. He would rather have the optionality of cash to keep the company alive so he gets his payday.

    It is very telling right now that most of the apple execs and board don't hold any shares or very very little.

    The final straw for me? This shareholder meeting coming up. On the ballot is a proposal. The vote is whether execs must hold significant stakes in apple stock. They recommend you vote NO. They don't want to have to hold any stock. Just blow it out the moment it vests. Very different from owning and holding a stock that you can sell but you don't.

    I voted with my feet. Never fall in love with a stock. Apple now needs to go up well over 50% to hit it's old highs. I've deployed my cash to other stocks already that have a higher likelihood of that happening and a lower chance that they fall further from grace and hit multi-year lows

  • Report this Comment On January 26, 2013, at 10:39 AM, vince1919 wrote:

    One has to seriously question the validity of your research on Apple. Like someone has already mentioned, you`ve been recommending this stock since it sold at above $700.00, and you`ve been recommending it since. Each time it drops in value, you have been claiming that the drop makes it all that much more attractive. Yet, it just keeps dropping. I was tempted to buy it. I`m glad i didn`t. The stock was overpriced, obviously, and is now being corrected. Your research didn`t help in predicting a drop of approx. $250. out of $700. ?? Apple may make it back to $700., or it may not. It may even continue to drop. I think the best people can do is flip a coin. A good investment is one that grows in the long term. And little drops along the way are to be expected. Nobody expects, or even hopes, for a smooth straight line with a constant positive slope. But a stock that drops as much has Apple has is just a bad investment. No invester should be put through that. And research that didn`t foresee that is suspect, to say the least. I`m very glad i read some of the articles put out by Montley, and acted on them. I`m glad i didn`t follow your advice on Apple.

  • Report this Comment On January 26, 2013, at 11:57 AM, TheHappyHiker wrote:

    I read but don't act on comments made in this forum. Isn't MF about the long haul? I trust Eric's analysis more than "experts" who many or may not have hidden agendas.

    We bought at 80 and pulled the seed money out long ago. Still have 100+ shares, so the sell off hurts on paper. But, if it drops to $400, I'll look at buying more.

    Tim Cook doesn't have the founder's charisma that Jobs did, but is a hugely talented ceo. He is firmly in control and has shown he knows how to meet challenges and make adjustments. No one outside of aapl knows just how much world changing technology is still in the vaults, but for my money there's enough to stay the course.

  • Report this Comment On January 26, 2013, at 12:34 PM, mhonarvarthe2nd wrote:

    Wonder if the "premium report" was helpful over the last week. I'm guessing not.

  • Report this Comment On January 26, 2013, at 3:00 PM, Shiroto wrote:

    One great thing about it not being the largest cap stock, is that hopefully there will be less discussion about this essentially meaningless issue.

  • Report this Comment On January 26, 2013, at 5:43 PM, robbie6 wrote:

    With Apple now at a market cap of $413b with $135b defined by cash on hand, you are looking at a $280b market cap company that produces some $40b+ in free cash flow per year. That math works out to be a 14% cash yield. Even if annualized cash flow drops to $30b (and, again, I am not predicting that, as, remember, revenue grew double-digits and they essentially met expectations this quarter for the most part) it is still yielding over 10%. And this company has a history of innovation and pretty loyal customer base. I don't know about you, but once I get used to a particular carrier or system, I am not one to easily change. I think it may be best to sit back and let the hoopla die down a bit, and maybe gobble up a bit more at these levels. It is opportunities like this that rarely come around. Just study the financials, take a look around you and see how many people are attached to Apple's products and it is not hard to see this is an attractive buy. Following the crowd is no way to invest so let the naysayers drive this baby down some more and then get yourself some cheap stock !!!!!!

  • Report this Comment On January 26, 2013, at 11:33 PM, Panth wrote:

    Part of what scared some investors is the iPad mini. In that case, Apple, who for years said that nobody wanted a smaller tablet, finally followed the Androids in putting out a smaller tablet. A lot of people are thinking that Apple is not the innovator anymore, just a slightly off colored part of the crowd. Where I think that the great St. Jobs was wrong on that one, and they are finally correcting, it seems that the market does not like it.

    Also, a lot of their products are 'old' before their time. The iPhone 5 was slightly better than the 4, but not leaps and bounds. Competitors are coming out with all kinds of new products.

    Not sure where the stock will go, the numbers look pretty good, but maybe the markets expect more from Apple than just good numbers.

  • Report this Comment On January 27, 2013, at 3:22 AM, lcdyers wrote:

    I like to quote Warren Buffett: To be fearful when others are greedy, and to be greedy only when others are fearful.

  • Report this Comment On January 27, 2013, at 8:03 AM, JeffParrel wrote:

    Agree with Mr. Buffett: "To be fearful when others are greedy, and to be greedy only when others are fearful."

    Actuallly I did it with AAPL:

    Sold on October 15 per this signal:

    http://alturl.com/6wr6o

    IMO now AAPL is crazy cheap and it is time to BUY.

  • Report this Comment On January 27, 2013, at 4:20 PM, enthuskeptic wrote:

    Biggest is not always best. Remember the dinosaurs?

    Please stop obsessing about AAPL! The sock market is so much bigger,

    A company reaches a high and goes down again. What else is new?

    I don,t own AAPL and can't or technical reasons. Anyhoo it would be hard for me to find USD 4,5,6 or 700 to buy one share.

    -And bonus info if you didn't know: Apple is a dictatorship, exactly the opposite of Google.

  • Report this Comment On January 27, 2013, at 6:00 PM, Landsman55 wrote:

    Really the "fearful/greedy" thing is the most thoughtless quote on the MF Boards. I don't think he meant it about every stock and strangely he doesn't own Apple. I think the Fool is a great service period, but from my experience you are on your own when it comes to the stocks they worship: AAPL, AMZN, NFLX. And once the love happens, I think bias confirmation sets in. I took my profits after the earnings announcement not because of the earnings results, but rather the management of my company was completely absent on cash management at a crucial time. There is no concern at Aplle about maximizing shareholder value. It was the biggest position in my portfolio and now that money is spread amond UL, CVX, GIS, AFL. Who knows what my total return with Apple would have been but I'll take my chances compounding the higher income from this group.

    You want to put Apple in perspective? Get the latest copy of Fortune and read about investors 100% invested in Apple and pofeesionally managed funds that are over allocated. If the reference to tulips means anything to you, then think long and hard whether Apple isn't in the cloud but in the bubble.

  • Report this Comment On January 28, 2013, at 1:32 AM, TheRealRacc wrote:

    The debate over AAPL is simple: expect low-to-negative returns until we are within 12 months of their next big/"transformative" product release.

    Until then, your money should be elsewhere. Someone said it best - Jobs, and now Cook, are not interested in pleasing shareholders.

  • Report this Comment On January 30, 2013, at 8:46 AM, mikecart1 wrote:

    People complaining about Apple are the same ones that whined about getting in at a lower price when it was $700... $600... $500. Now that it is low, they people aren't buying Apple. But they will surely complain again when it rises and they miss the train.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2216222, ~/Articles/ArticleHandler.aspx, 9/20/2014 6:03:49 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement