Jobs’ genius paid off hugely for investors


The revolution that Steve Jobs unleashed in consumer technology also generated astounding wealth for Apple Inc. investors.

The market value of the company’s shares has mushroomed from about $5 billion at the end of 2000 to $351 billion now -- making Apple the second-most-valuable publicly traded U.S. business, after Exxon Mobil Corp. For a time last summer Apple had surpassed Exxon for the crown.

Apple’s 927 million outstanding shares, at Wednesday’s price of $378.25 each, are worth more than the combined stock value of Microsoft Corp., Hewlett-Packard Co., DirecTV, Dell Inc. and Nokia Corp.


Measured from 2000 through September of this year, Apple shares soared the equivalent of 44% a year, while the blue-chip Standard & Poor’s 500 index gained less than 0.5% a year.

While Apple’s stock, like its array of products, has long enjoyed cult status, tens of millions of Americans have gotten richer from Apple’s success probably without even knowing it. That’s because the shares have been a popular holding among many of the country’s largest mutual funds, including Growth Fund of America, Fidelity Contrafund and the Vanguard 500 Index fund.

Although Silicon Valley has produced hundreds of spectacular success stories over the last 50 years, many have been short-lived as hot investments. That’s the nature of the constantly evolving technology business.

Apple, by contrast, was a hit with investors in its initial public stock offering in 1980, then soared again when the company remade itself under Jobs beginning in the late 1990s.

After adjusting for stock splits, an investor who paid $2,200 to buy 100 shares of Apple at its IPO price of $22 in December 1980 today would have 800 shares worth a total of $302,600.

Just 4 years old at the time, Apple got a warm reception at its IPO, with the stock climbing 31% on its first day of trading. It might have done better but the company didn’t offer its 5 million shares in a number of key states because of regulatory issues. Some states, including Massachusetts, labeled Apple “too risky” to pitch to investors even though the company was profitable.


Still, the IPO valued Apple at more than $1 billion and was the biggest new-stock deal at the time since Ford Motor Co.’s offering in 1956.

As excitement rose over the fledgling personal computer industry, Apple shares jumped 185% from their IPO price by mid-1983. But Jobs’ new Macintosh computer, unveiled in 1984, failed to sustain the sales that investors had anticipated. By August 1985 the stock hit new lows. A month later Jobs was forced out by the Apple board after a power struggle with then-Chief Executive John Sculley.

The shares mostly languished from 1988 through 1997 as the company’s image waned and its profitability fluctuated wildly.

Jobs’ return to Apple as CEO in September 1997 coincided with the beginning of the dot-com mania. Apple stock rocketed in 1998 and 1999, then crashed in 2000 as the tech bubble imploded.

In 2001 Apple introduced the first of Jobs’ new generation of consumer electronic devices, the iPod music player. But with investors still leery of tech stocks after the bursting of the dot-com bubble, Apple shares fell further in 2002 and bottomed for the decade at $6.56 on April 17, 2003.

By late 2004, however, the company’s sales and earnings began to rocket and the stock has followed, as consumers worldwide have snapped up Apple’s iPods, iPhones, iPads and Macs at a pace that has consistently exceeded Wall Street’s expectations.


The company’s total sales have tripled from $9.08 billion in the second quarter of 2009 to a record $28.6 billion in the quarter ended in June. Earnings rose from $1.79 a share to $7.79 a share in the same period.

Apple’s fans say that the high nominal price of the shares, at nearly $380 each, unfairly creates an image of a bubble. What counts, they note, is the level of earnings underpinning the shares.

For the fiscal year ended Sept. 30, Apple is expected to have earned $27.77 a share, according to the mean estimate of analysts. That would be an 83% gain from the $15.15 a share the firm earned the previous year.

Bottom-line growth is expected to slow in 2012 but still be robust compared with what many large companies can achieve. Analysts’ mean estimate is for Apple to earn $32.83 a share in fiscal 2012, which would be a gain of 18% over expected 2011 results.

At about $380 a share, Apple stock has a price-to-earnings ratio of 13.6 based on analysts’ 2011 earnings estimate. By contrast, the P/E ratio of the S&P; 500 index is 11.5 based on S&P;’s estimate of 2011 operating earnings.

Typically, the faster a company’s earnings growth, the higher the P/E ratio investors are willing to pay.


Some analysts believe that Apple stock has been held back, relative to earnings, by doubts about the firm’s long-term growth prospects after Jobs.

In effect, that could mean that new CEO Tim Cook faces a relatively low hurdle with Wall Street: If he can keep Apple’s growth on track, there may be little danger of a drastic slide in the stock, and an increasing chance that investors will be willing to pay a higher price compared with earnings.