"A lot of times, people don't know what they want until you show it to them."
-- Steve Jobs
Imagine yourself before September 2001 (pre-iPod launch), December 2006 (pre-iPhone launch), and December 2009 (pre-iPad launch) trying to analyze Apple (AAPL 0.86%). No one knew with any reasonable certainty what those devices were going to look like, how they were going to function, and most importantly, how many of those iProducts Apple was going to sell. So, how could anyone reasonably estimate the tremendous growth in future market value of Apple before the launch of those fortune-changing products?
It couldn't be evaluated effectively; there was no way to know anything because there was nothing to analyze. For example, iPod sales were 376,000 units in 2002 and peaked at nearly 55 million units in 2008. The average revenue per unit in 2002 was nearly $400, and around $200 in 2008. This means that iPod revenue grew from about $150 million in 2002 to $11 billion in just seven years.
iPhone sales grew even quicker, starting in the first full fiscal year, with sales of about about 5.4 million annual units (about $2.5 billion) to 150 million units in fiscal 2013 (about $60 billion dollars). A similar history can be told of the iPad as well.
The impact on market cap was equally robust, as it grew from $5.1 billion in 2002 to $75.9 billion in 2008. Then, from 2008 onward, Apple grew to be the most valuable company in the world.
Without being inside Jony Ive's workshop or Apple leadership meetings, there was no way for analysts to have modeled such metrics effectively. Innovation, especially the sort that Apple desires and expects of itself, is very difficult to predict almost by definition. We don't know what we don't know.
The negative press about Apple's stock price, waning innovation engine, failure to meet analysts' expectations, and Tim Cook's inability to stand on stage and pull a magical product out of a hat is nonsense.
Apple's innovation does not have a neat linear timeline, especially when it comes to inventing new product categories or brilliantly redefining existing ones. Incremental innovation (ex., increasing processor speed, and improving cameras) is much more predictable, and analysts can reasonably estimate financial results of those developments. But, those are not as important when talking about Apple. Why do we care if Apple doesn't meet analysts' expectations? Who cares about the company's financial models or predictions? Do we want to talk about Apple's inventive products, or its financial engineering of stock buybacks?
What matters when investing in Apple for the long term is that we believe the culture of Apple is intact and will continue to deliver great products and positive experiences. What matters is that we believe Tim Cook and his teams have a commitment to the Apple philosophy of creating a great customer experience. What matters is that we believe the underlying values that brought Apple to its zenith are still intact, even if deliverables are not introduced at some analyst's misplaced perception.
If you believe the answers to those questions are a resounding yes, then Apple is incredibly undervalued and is a steal at current prices.
