In the technology and business community, there is a tendency to see a company’s share price as an overall validation of its efforts. Facebook dropped sharply after its IPO, and the gut-feeling reaction (from the conversations I had at least) was that this marked (another) start of decline for the whole company. They disregarded user privacy, they introduced unnecessary features like Timeline, and so on. On the other hand Apple’s share price had an astonishing rise from the years after the launch of the iPod, iPhone and iPad, rising from $10 at the start of 2004 to the widely-quote $700 eight years later. I had so many conversations about Apple in those years, and the sharply rising share price was treated as almost divine assessment of their fantastic products that created or disrupted markets. A high and rising share price is the sparkle on the top of the halo effect.
So a lot of design thinkers were puzzled by the recent drop in Apple’s share price. They exceeded their profit expectations, yet their share price continued to fall. Why?
The New York Times has an interesting take on it in this story on Amazon, who recently announced a 45% drop in profit yet saw their share price rise. What the what?
Investors decimated Apple last week when it appeared that the world’s mightiest profit machine might be slowing down just a tad. But they cheered on Tuesday when Amazon said its fourth-quarter sales and earnings fell short of expectations. Oh, and expect a miserable first quarter, too.
Shares in Amazon immediately jumped nearly 10 percent in after-hours trading, about the same amount that Apple fell after releasing its news.
The killer quote comes right at the start:
A glorious future beats a glorious past
Meaning, future financial growth counts more than raking in billions now. Promises count more than results.
To the extent that good products are seen to unlock future financial growth, Wall Street sees value and transacts appropriately. In my view, Apple’s phenomenal share price was based on the belief that the stream of new products that unlocked consumer value and wallets would continue; that is they would continue to create new markets and disrupt existing ones.. I like the iPad mini, but it is an evolutionary product probably aimed at shoring up the iPad against cheap Android tablets. I like the iPhone 5, but it too is an evolutionary product. Apple’s high share price was for a market-making company and now that the perception is that it is falling into a market-competing company.