Apple currently has the 4th largest market capitalization for USA stocks, behind ExxonMobil (over $300 billion), Microsoft ($250 billion) and Wal-Mart and ahead of Berkshire Hathaway, General Electric, Procter & Gamble and Google ($180 billion). Eric Bleeker has a nice article on fool.com looking at how Apple can grow to a $300 Billion market capitalization.
In many ways, the mobile race is similar to the PC battle of the ‘80s. In one corner we have Apple, packaging its hardware and software in a limited number of systems. In the other corner, there’s Google (replacing Microsoft), licensing out software to any number of hardware vendors.
Apple could actually learn from Microsoft. It needs to be more than just the best smartphone on the market right now. Microsoft never controlled the operating-system market because it was the best — it won because it locked users in, and most people essentially had to use its products. Microsoft has released some real clunkers over the years, but it took few hits from them. Likewise, even though Apple’s unparalleled in its commitment to quality-unlike a certain competitor we just discussed — with a price tag that implies sustainable long-run dominance, Apple needs a margin of safety to ensure that even with a hiccup or two, it will continue to rule the mobile world.
The $300 billion question
So it all boils down to one question: How well can Apple lock users into its ecosystem? As developers continue building apps at rates far in excess of competing platforms and more users synch their digital lives around iTunes, you can see Apple creating a platform that’s sustainable well beyond just the next upgrade. From there, no company possesses a virtuous circle like Apple. Higher iPhone market share begets high-margin sales of apps and media, as well as increased Mac sales. Given the size of the smartphone market, the margins Apple collects from each iPhone, and the boost to other Apple products, you can see a path to $300 billion forming.
I missed out on investing in Apple. I came close to buying in, but didn’t quite do it – that was a big mistake. And I am still not buying now, which could be another mistake. We shall see. I am very comfortable owning Google. But I think Apple could well be good also. My 12 stocks for 10 years portfolio has Cisco, Intel and Amazon which I am happy with and Dell which has been a mistake.
Related: Apple exceeded Google for the first time since Google went public (Aug 2008) – Amazon Soars on Good Earnings and Projected Sales – It is Never to Late to Invest – Great Google Earnings (April 2007)