There isn’t much Apple hasn’t done. From the proverbial come-back winning product launch to the industry-exploding sales figures, the company from Cupertino has defied all expectations. However, it has now caught the eye of the financial sharks the world over.
First, some facts:
The second quarter of the current financial year ends in less than two weeks, and Apple is expected to have over $70 BILLION in cash, short-term marketable securities, cash equivalents and long-term marketable securities. This means that Apple is SO far ahead of its competitors in the mobile segment that it can now afford to BUY out almost all of them, at their current enterprise values.
[ Nokia = $22.6b, RIM = $13.8b, HTC = $25.4b, Motorola Mobility = $4.2b, Sony Ericsson = $3b ]
To quote Asymco’s analysis:
If Apple’s revenue streams stopped completely, current cash would keep operations going for more than seven years, or until mid-2018.
Apple’s cash pile represents about half of Google’s total enterprise value.
Cash-on-hand for Apple represents a greater worth than Nokia, RIM and Motorola Mobility’s market caps.
Apple’s single quarter cash growth was higher than the market cap of many companies, and just about matched Motorola Mobility’s with the $900,000 in pre-payments added back in to the total.
Apple has enough funds on hand to put the company’s CFO among the top 100 largest fund managers in the world, and above any single hedge fund manager.
Core understanding from this would lead us to a simple conclusion that Apple agrees with the time-tested fundamental tenet of accounting – it is better to have cash today rather than pay back debt tomorrow.
Nothing exemplifies the cash-accumulating marketing machine at Apple more than its recent Back To School promotion. For a few years now, Apple has given out free iPods with a purchase of a Mac to every student during late summer. However, it has now stopped the free device handout and replaced the scheme with a $100 gift card that can be used to purchase apps on the Mac and iTunes App Stores, or books in the iBook Store.
This isn’t just a way to get students to “build their future” or “prepare for new challenges”, it’s also a way to make sure that the rewards cycle back to Apple in the end. How? Remember that Apple has structured an App Store revenue-sharing arrangement. Thirty percent of all purchases made on these stores are held by Apple. The developers get the rest, of course. But this entire marketing scheme scheme wraps up amazingly for everyone involved.
1. The students are made to believe (and with good reason), that their purchase of a new Mac comes with a good reason to load the machine up with the latest productivity applications like iWork and so on. They can still purchase their favorite tunes and a few best-selling novels as well, leaving them with an overall feeling of a massive “Win”.
2. The developers of both the iOS and the Mac platform get a significant heads-up, with new customers aching to spend freely (sort of) earned moolah on the latest and shiniest new software. The surge in study apps being promoted on the App Store isn’t just a coincidence! It’s an upsurge, almost like (but still not close to) Christmas time.
3. Of course, Apple makes a sweet 30% cut per app. But not only is it in this scheme for the money, it is also locking new customers on to its ecosystem. With more money to spend in making life easier on the Mac platform, students are being eased into what might have earlier been a more formidable (and even more expensive) exercise. Buying apps to use on an entirely new OS is generally a deterrent to “new” customers, but this new strategy is like a whoopee cushion that doesn’t make the funny noise in the end. Apple is also showing extra love to the developers who have stuck through with the platform and have taken the plunge to begin developing applications to cater to an ever-increasing ever-spending user base.
In summary, Apple’s competitors are only going to have more to catch up with in terms of both the user-base impact and the enterprise value. The gap in the latter is near impossible to lessen, unless Apple makes a couple of hefty acquisitions. But until then, the sheer polish and panache in Steve Jobs’ ever-evolving marketing machine leaves customers and developers happier with the finer things in life, and the company’s investors seeing that ever-increasing cash balance grow uncomfortably larger every quarter.