There is no doubt that Apple is on top of the world right now. They have the the best selling smartphone the best selling tablet and are currently worth over $500 billion dollars which makes them the most valuable company on the planet. But what is even more staggering is that just two years ago Apple was worth only $200 billion! That’s absolutely bonkers when you think about it in those terms. A $300 billion dollar gain in two years is unheard of.
The New York Times recently published a very interesting piece about Apple and its unprecedented growth over the past 5 years. The article goes on to explain further that Apple could be on a collision course with the “Law Of Large Numbers.”
Also known as the golden theorem, with a proof attributed to the 17th-century Swiss mathematician Jacob Bernoulli, the law states that a variable will revert to a mean over a large sample of results. In the case of the largest companies, it suggests that high earnings growth and a rapid rise in share price will slow as those companies grow ever larger.
If Apple’s share price grew even 20 percent a year for the next decade, which is far below its current blistering pace, its $500 billion market capitalization would be more than $3 trillion by 2022. That is bigger than the 2011 gross domestic product of France or Brazil.
Put another way, to increase its revenue by 20 percent, Apple has to generate additional sales of more than $9 billion in its next fourth quarter. A company with only $1 billion in sales has to come up with just another $200 million.
Microsoft and Cisco are two companies that are great examples of the “Law Of Large Numbers.” Both were at one point in time the largest company in the world and now are down hundreds of billions of dollars from the height of their power.
The reason for this really isn’t that hard to understand. Once a company has reached a certain level of dominance in their marketplace they simply cannot continue to grow unless they enter a new market.
So that brings us to a question… How has Apple grown at such a rapid pace in the last few years? The answer…. By following the “Law Of Large Numbers” and developing new products (iPhone, iPad, iPod Touch) so that they can enter new marketplaces and continue to expand. So it seems only inevitable that Apple would have a new product in the works to continue their global dominance. And personally I can’t wait to see what they come up with.
If Apple does have a new product in the works what do you think it could be and why?
Source: New York Times via MacRumors