It is well known that the stock market reflects all known information (as stated by the efficient market hypothesis), rapidly processing and assimilating new data through the market mechanism of buying and selling. The stock market is also forward-looking, explaining why a company's stock may fall, even when reported earnings have improved from the previous quarter.
Companies must beat collective market expectations of their earnings to have a positive influence on their market capitalization. It's no accident that firms are often caught manipulating their earnings reports to match or beat estimates in order to artificially enhance their stock prices. As a result, earnings management is highly scrutinized by the Securities and Exchange Commission (SEC).
Given the modus operandi of the stock market, the release of an innovative, revenue-driving good or service is one of the few ways that a company can dramatically influence the valuation of its stock. When Wall Street analysts are right or wrong on valuations, the reward or loss can be astronomical for investors. This is because the challenge of accurately estimating the impact that an internationally distributed product will have on a company's earnings, and subsequently, the company's stock, is herculean.
For example, Wall Street rated that the iPhone 5 would sell between 6 million and 10 million units on its first weekend being offered. Instead, the iPhone 5 sold a little over 5 million units. On Sept. 21, 2012, the official release date of the iPhone 5, Apple (AAPL) opened at $702.56. As of market close on Nov. 9, Apple traded at $547.06, a 22% drop in value.
As Apple Inc. offers innovative products and services that are in high demand by consumers, the company especially exemplifies the high correlation between new products and the stock price.
Apple's Product Lines
Apple's main product lines are the iPhone, iPod, iPad, and MacBook, which all compete in the cellular phone, media player, tablet, and personal computer markets, respectively, which represents a strong diversification in their product portfolio. The Cupertino-based company has a looming presence in each market—a reputation that can be attributed to the monopoly that the company seemingly has on innovation.
Starting with the iPod, the company has found ways to create markets that didn't previously exist and revolutionize ones that did. As opposed to other Fortune 500 companies, Apple is known for its commitment to innovation through research and design, evidenced by its $16.2 billion research and design (R&D) budget in 2019, up $2 billion from 2018. Other companies focus more of their energy on advertising, cost cutting, or overall efficiency, and the difference between Apple and "other companies" is clear.
The Heavy Hitters: Apple Products That Made a Difference
Product releases are a potential goldmine or landslide for investors. There has been a lot of study and analysis done in the field of predicting effects of events such as product releases, as evidenced by scenario testing through game theory. With that in mind, let us look at some of the big product releases by Apple.
The first iPod was released in November 2001 and could hold up to 1,000 songs with a 10-hour battery life, all for the price of $399. On the first day of trading after the product's release date, the stock bounced around to eventually finish an unimpressive 5 cents up at $9.38. However, a week later on Nov. 19, Apple would close at $10.00 per share, a 6.6% increase.
While its initial effect on Apple's stock price was muted, this first iPod would lead a chain of hit iPod products and would set the bar for other companies in the portable media player market. In 2002, Apple released the iTunes Store as well as a Windows-compatible version of iTunes, finally making the iPod a viable option for Windows users. By the end of 2004, Apple had sold over 10 million iPods and was trading at $32.20.
The reign of the iPod has come and gone as people are now carrying their music on their phones, having prompted Apple to phase out the product. The iPod Classic, Nano, and Shuffle have all been discontinued, only leaving the iPod Touch still in existence. In fact, as of 2014 onward, the iPod as a percentage of Apple's total global revenue is less than 1%.
The iMac and MacBook
The iMac and MacBook computers are another example of wildly successful Apple products. The iMac was released in May 1998, with Apple trading in penny stock territory at $7.58. While it did not have an immediate impact on Apple stock, Apple was trading at $9.22, a 21.6% increase, a mere three months later.
The iMac would go on to be the "Number one selling machine through the retail and mail-order channels in the 1998 holiday season," according to the New York Times. Two years following the release of the iMac, Apple was trading at $27.53—a whopping 263% rise. The popularity of the iMac paved the way for quality products like the PowerBook G4 in 2001 and the MacBook Pro in 2006. Though popular products, the iMac desktops and MacBook laptops hold a small market share of global personal computers. As of Q3 2019, their market share was 7.6%.
Arguably the most revolutionary tech product ever created, the first Apple iPhone was announced with much fanfare on Jan. 9, 2007. The phone boasted a combination of three products: "a mobile phone, a widescreen iPod with touch controls, and a breakthrough Internet communications device with desktop-class email, web-browsing, searching, and maps."
When the phone was officially released for sale in June 2007, it sold around 270,000 phones in its first 1.25 days on the market. Apple stock only gained 7 cents on the phone's release date, a reaction perhaps muted since the phone's early sales missed Wall Street estimates. A month later, however, the stock's price had risen to $141.43 from $122.04, a 15.9% increase. The iPhone truly changed the landscape of the mobile phone market. As of Q4 2019, the iPhone holds 17% of market share in mobile phones, while capturing 66% of mobile phone profits.
The latest iPhone, the iPhone 11, was released on Sept. 20, 2019. At that time, the stock was trading at $217.73 and did not experience any significant movement in the days before or after. However, two months later, the stock was trading at $263.19, a 21% increase.
The iPad finishes off our list of game-changing Apple products. Announced on Jan. 27, 2010, and first sold in early April of the same year, the iPad essentially created the global tablet market. Interestingly, Apple had actually sold a tablet in 1993. It was known as the Newton MessagePad and was used as a personal digital assistant. Nevertheless, it was a shadow of the iPad, which contained all the functionality of the iPod Touch on a much larger screen with a faster processor.
On the first day of trading following its sale, Apple stock rose slightly from $234.98 at open to $238.49 at close, a little over a 1% increase. A month later, however, Apple was trading at $266.35 a share. Just a year after the iPad's release, Apple was up to $341.19, a 43% increase. Apple currently holds a market share in the tablet arena of 36.5% as of Q4 2019.
The Bottom Line
There have been few Apple product releases that immediately resulted in a meteoric rise in the company's stock price. Day traders are known to target Apple at the release of each of its products, but the quick riches that they seek are all too often a mirage that swiftly disappear.
On the other hand, each product had a noticeably positive effect on the stock over a longer period of time. The overarching, long-term view is the one to properly frame your investment decisions on, not day-to-day volatility. Over time, the market mechanism will identify true value in the marketplace. Rely on the wisdom of the masses over the long term, not on the speculators that routinely come and go, thereby letting companies like Apple work for you.