Other matters are frequently consigned to the dreaded 'soft' category: leadership, culture, reputation and the like. But as Apple continues its stock price descent and Google's begins a phoenix-like rise, it may well be that these supposedly weak signals, divorced as they allegedly are from the manly virtues of quantitative analysis, hold the key to the performance changes.
The first issue is that the past twenty years have dramatically increased our knowledge and understanding of the role such factors play in driving business results. That intangibles are not accounted for in audited financial statements says more about the outdated nature of such assessments than it does about the statistical quality of the data available to measure them. Research, in fact, has demonstrated that intangibles are frequently better predictors of future performance than traditional financial metrics. The fact that even audited financials full of 'hard' numbers sometimes prove to be misleading - or even fraudulent - has enhanced interest in alternatives.
The Apple-Google battle is beginning to resemble some historical drama based on the English War of the Roses or the Chinese clash with the Mongol hordes. As in those battles, persons and personalities matter. While Apple has made a relatively seamless leadership transition, it may well be that investors' discontent has as much to do with the comparatively colorless if competent Tim Cook era - and what they fear it portends for future innovations and profits - as it does with iPhone 5 sales. In a further intimation of palace intrigue, Jobs' favorite, designer Jon Ive, has been rumored to be defiantly going his own way, sometimes to the cost of the larger enterprise. In a similar vein, the Larry and Sergei evolution from boy princes learning at the knee of their appointed 'regent' Eric Schmidt to full-fledged leaders demonstrating vision and boldness has caught outsiders' attention.
While one risks taking the historical analogy too far, the reality is that the financial markets have always been emotional and susceptible to a good - or worrisome - story. The future may well depend on investors, employees' and alliance partners' assessment of these qualities and what they mean for those stakeholders as it does on the quarterly filings. JL
Tim Bradshaw, Richard Waters and Arash Massoudi report in the Financial Times:
Apple’s stock fell to a fresh 12-month low just as Google hit an all-time high, reflecting Wall Street’s struggle to come to terms with the rapid shifts in the smartphone market.
The investor rethink about the prospects of the two tech companies has led to a striking readjustment in valuation, with Google climbing from barely a third of Apple’s worth six months ago to more than two-thirds yesterday, or $267bn.
Reports that Apple could introduce a new smart watch as soon as this year and an endorsement of chief executive Tim Cook’s strategy from Warren Buffett failed to counter the negative sentiment that has plagued Apple’s shares, which are now 40 per cent below their highs.
Some Apple investors, led by Greenlight Capital’s David Einhorn, have been pushing the company to pay out more of its $137bn cash pile, something founder Steve Jobs long resisted.
On Friday, Mr Einhorn dropped a lawsuit against Apple over corporate governance changes but continues to push for higher returns of cash, something Mr Cook has said the board is actively considering.
Speaking on CNBC on Monday, Mr Buffett said that if he were in Mr Cook’s shoes, he “would ignore” Mr Einhorn but added that he did advise the late Mr Jobs to buy back stock.
“I would run the business in such a manner as to create the most value over the next five to 10 years. You can’t run a business to push the stock price up on a daily basis,” the Berkshire Hathaway chief said. “I think Apple’s done a good job of building value. They may have too much cash.”
Apple’s recent stock market weakness stands in stark contrast to the strong momentum in Google’s shares, which have risen by 15 per cent since the start of 2013. At the same time as investors’ love affair with the iPhone has waned, many have warmed to Google’s prospects in mobile.
Its Android smartphone operating system has gained market share at the iPhone’s expense over the past two years, and Samsung is set to unveil its latest flagship Android device, the Galaxy S4, this month.
Wall Street’s worst fears that the shift to mobile would devalue Google’s advertising have been dispelled in recent weeks. In January, Google reported that it had managed to hold the decline in its overall pricing to 6 per cent in the final months of last year.
That news, along with other indications of strong momentum in its core search business, sparked a rally that has since seen its shares rise by nearly 16 per cent, pushing them through $800 for the first time two weeks ago.
At the close in New York, Google had climbed 1.9 per cent to $821.12, a new high, while Apple’s stock was down 2.5 per cent to $419.57.
Last week, Mr Cook said he sympathised with “disappointment” among Apple shareholders about its stock price, saying: “I don't like it either . . . We are focused on the long term.”
Colin Gillis, technology analyst at BGC Partners, said Apple shares were suffering mainly because investors had soured on the stock and were looking for a catalyst to revitalise its share price.
“Another Monday has come and gone with nothing from Apple’s management,” he said. “There’s been no news on new products, there’s no news on dividends, there’s no news period from the company.”
In January 2012, when Apple’s market capitalisation first passed $400bn, its valuation was compared with nation states, and little more than a month later it went on to surpass $500bn, a figure few companies have attained.
After its shares touched an all-time high of $705.07 in September, Apple’s valuation fell back below $500bn in December amid fears about iPhone sales and its slowing growth rate. Those concerns have intensified since quarterly results in January, with many Wall Street analysts projecting limited earnings growth for fiscal 2013.
Ben Bajarin, principal analyst at Creative Strategies, a technology researcher, said Wall Street was unable to see past the negative sentiment despite the company’s strong fundamentals.
“Wall Street was enamoured by Steve,” Mr Bajarin said. “Investors are not getting that captivating, gripping view that they used to have. It’s actually better positioned in the long term than when he was alive.”
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