Road to IPO 🛣️
The story of Apple begins with two Steves, Jobs and Wozniak, college dropouts who bonded over their love of technology and pranks. After attending the Homebrew Computer Club and having been inspired by the MITS Altair 8800, a do-it-yourself computer designed for simplification, the two Steves set out to create a truly user-friendly computer. This focus on simplicity and design are major principles that are still found in all Apple products today.
In 1976, Wozniak hand-designed and built the Apple I, a computer that was unlike anything that came before it. What made it unique was it had both a keyboard and a TV output. Though he didn’t know it at the time, Wozniak would be the technical driving force behind the personal computing revolution and what would become the most valuable company in the world. In an interview with NPR, Wozniak said this of designing the Apple I,
When I built this Apple I, sort of the first keyboard – the first computer to say a computer should look like a typewriter. It should have a keyboard. And the output device is a TV set. It wasn’t really to show the world here is the direction the world should go. It was to really show the people around me, to boast, to be clever, to get acknowledgement for having designed a very inexpensive computer.
With the combination of Jobs’ entrepreneurial vision and Wozniak’s technical expertise, Apple emerged. It’s with the Apple II computer that Apple was thrown into the spotlight and began its astronomical rise – in 1978, revenues were around $7.8M, but by 1980, revenues topped $117M. On December 12, 1980, Apple had its IPO and sold 4.6M shares at $22 each. At the time, this was the most capital generated in any IPO since the Ford Motor Company’s IPO in 1956. This groundbreaking liquidity event for Apple created about 300 millionaires instantly.
Turning to the Past ⏪
After its IPO and an incredible run of success up until the mid-80s, Apple experienced a significant amount of turbulence internally between John Sculley and Steve Jobs. Sculley was an executive Jobs had poached earlier from Pepsi to become the Apple CEO with the infamous question, “Do you want to sell sugared water for the rest of your life? Or do you want to come with me and change the world?”. Jobs eventually left Apple in 1985 and founded a new company NeXt and a year later acquired Pixar.
Despite not having both its original founders, Apple continued to boom into 1990 when it posted its highest profits up to that point. However, into the 90s, Apple’s market share slipped slowly until 1996 when experts thought that Apple was doomed. To put their financial troubles into context, within the span of 5 years (1993 to 1997), Apple had four different CEOs – Sculley, Spindler, Amelio, and Jobs.
As you probably know, Jobs eventually returned to Apple when they purchased his company NeXt in 1996. He became the interim CEO in 1997 and eventually permanent CEO in 2000.
The Digital Hub 💻 ->📱
Since then, Apple has had an amazing run. They’ve created one of the most profitable and sticky ecosystems in all of the technology world. Clearly, this is no accident. Their product development strategies specifically look to expand on or improve their existing ecosystem. This ecosystem-focused strategy can be traced all the way back to 2001. One of the reasons Apple has become so successful today is that it foresaw the digitization of everything that we do in our daily lives. On the 25th anniversary of Apple, Steve Jobs presented his vision for the Macintosh in what he called the digital hub. He believed that the Macintosh could become the centerpiece of our digital lives, from the way we took photographs to how we listened to music. This presentation would ultimately serve as the foundation for Apple’s dominant ecosystem that exists today.
However, with the rise of mobile, largely because of Apple, this digital hub strategy has evolved into its second form. I’d argue that the iPhone is now the center of Apple’s ecosystem and has emerged as the hub at the center of our lives, not only our digital lives. In a Bloomberg Technology Newsletter, Shira Ovide quite succinctly summed up Apple’s ecosystem strategy by explaining the overall significance and purpose of the HomePods,
If Apple is not exactly innovating with this device, it is doing something that savvy and relatively mature companies do: coming up with ways to extend its main product. The HomePod, Apple Watch and services like Apple Music and iCloud are add-ons to the iPhone. People can buy a HomePod or Apple Music if they don’t own an Apple smartphone, but it’s unlikely.
Apple has masterfully engineered its ecosystem to be both closed (HomePods, iMessage, iCloud, etc.) and open (App Store, iTunes, ARKit, etc.) where it needs to be. What has emerged is an ecosystem designed to lock users in. This ecosystem strategy is ultimately Apple’s long-term plan and will shape the products, features, and acquisitions they make. I certainly believe that this strategy and their future ecosystem can help them reach the $1 trillion market cap. Currently, their market cap is less than $150M away from the trillion-dollar mark. It’ll be interesting to see if their pushes into augmented reality and self-driving cars, which are certainly huge growth opportunities, can be the catalysts to push them to a trillion-dollar valuation.
A War Chest of Cash 💸
Repatriation is a topic that I found really interesting and relevant to Apple’s future besides augmented reality. It has been discussed in quite some detail by other blog posts, so I won’t dive too deeply into it. However, it is something that is important and will have massive implications for Apple’s future.
In a recent Goldman Sachs analyst note, Apple can access about $200B in repatriated cash from overseas to make some pretty big moves. Other than the expected increases in dividends and share repurchases that will certainly drive up Apple’s Stock, many say that Apple is in a position to make a monster acquisition. Several analysts predict that Apple will make an acquisition that trumps its largest acquisition to date (Beats Electronics for $3B). I am a bit wary of this sentiment since Apple hasn’t been one to make any headline-grabbing acquisitions. However, with this much cash, Apple can pretty do anything they want; they could buy Tesla three times over, which is highly unlikely but has been floated around as a possibility. Predicting Apple’s M&A is virtually impossible, however, I’m willing to bet that there will be a significant uptick in the volume of acquisitions in both the AR and AI space, two spaces they’ve recently increased their presence in via M&A.
Ultimately, with their massive augmented reality and self-driving bets, this cash will allow for both acquisitive and organic growth that will help push them closer to the trillion-dollar mark I mentioned earlier.
Below are some questions that I came up with during my research:
- What has been the single most influential acquisition Apple has made to date?
- What country is Apple’s biggest growth opportunity internationally?
- With the smartphone becoming commoditized and the market maturing, how does Apple plan on differentiating the iPhone to continue to grow market share?