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Tech Stock Ebb and Flow: Apple Dominates Wall Street While Facebook Flails

August 21, 2012 at 12:00 AM EST
Apple became the highest valued company ever when its stock reached a new high. Meanwhile, Facebook stock has lost about half its value since its May IPO. Jeffrey Brown discusses the Apple boom and the Facebook bust with Ted Schadler of Forrester Research and Richard Sylla from the New York University Stern School of Business.
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JEFFREY BROWN: And speaking of tech companies, we turn to a business story about rising to the top and staying there, as Apple reaches new heights and Facebook explores new lows.

Wall Street’s closing bell yesterday rang in a new all-time high stock price for Apple. It closed trading at $665.15 per share. That eye-popping figure, thanks to all of those iPods, iPads and iPhones, made Apple the highest valued public company ever, at least in non-inflation-adjusted terms, worth $623.5 billion.

That’s 50 percent more than ExxonMobil, the second largest company, nearly two-and-a-half times rival Microsoft, almost three times Google’s value and six times that of Amazon. The stock dropped back into nearer-Earth orbit today, closing under $660 per share, as investors took profits.

Meanwhile, it’s been a much different story for Facebook and other companies that are part of the social media boom. Just three months after the company’s initial public offering had Wall Street salivating…

WOMAN: This is expected to be huge. This IPO has hit the mainstream.

JEFFREY BROWN: … 28-year-old founder and CEO Mark Zuckerberg has seen the company’s share price nearly cut in half from its IPO of $38 to around $20.

MAN: If you thought you were buying Jack Welch, you bought into the hype.

JEFFREY BROWN: And even with nearly a billion users worldwide:

MICHAEL PACHTER, Wedbush Securities: This company has to be absolutely crystal-clear about where it’s going and how it’s going to get there, and they’re not.

JEFFREY BROWN: And yesterday, came word that a board member and early investor cashed out to the tune of nearly $1 billion.

WOMAN: It’s like sitting on an airplane and watching the pilot walk down the aisle wearing a parachute.

(LAUGHTER)

JEFFREY BROWN: Facebook is not the only tech company that has fallen on harder times. Game maker Zynga and online coupon broker Groupon have seen their stocks tumble too, as investors look for long-term models for making money off the new, new thing.

And some perspective now on these two different business models. Ted Schadler is a technology company analyst at Forrester Research. Richard Sylla is an economics historian at the New York University Stern School of Business.

Ted Schadler, first, I guess a simple question, why Apple? We know all of the gadgets of course, but why Apple? You certainly wouldn’t have thought this 10 years ago.

TED SCHADLER, Forrester Research: Well, Apple has obviously not just the iPods and iPads and iPhones and all of those gadgets we carry around. They also have 375 retail stores — 300 million people walk into the mall and go to the Apple Store every year in 2012.

So they have a lot of technology to sell, they have a lot of services, a lot of media that they’re selling as well. So, they have really taken the world by storm here at home and at work.

JEFFREY BROWN: Now, Richard Sylla, I want you to put this in some perspective. When you think about what — the particular company that’s number one at a particular time, what does that — what do you read into that? What does that tell us?

RICHARD SYLLA, New York University: Well, I think it tells that certain products at certain times are dominant products.

You know, if you go way back, United States Steel in 1901, put together by J.P. Morgan, was the dominant country — company of that era, and that was the age of steel. You know, we were building skyscrapers in New York and railroads all across the country. Later on, General Motors in the 1950s and ’60s, automobiles were the biggest American industry. General Motors was the biggest and top American auto company.

The 1970s, mainframe computers, IBM, 1980s, General Electric, 1990s Microsoft, and now Apple — and I think we’re in a consumer age, and Apple makes really nifty consumer products. And so they’re number one.

JEFFREY BROWN: Well, Ted Schadler, speaking of those products, if I understand this right, part of the most recent run-up in the stock price is expectations over some new products, right, some new — or at least some new versions of products.

TED SCHADLER: Yes. Well, Apple is on like an annual release cycle kind of like timed with the holiday season in this case, and so we certainly expect to see some new iPads, maybe different sizes, who knows, a new iPhone and whatnot. And that’s kind of how they keep the hits coming.

They want people to buy and rebuy and buy a new one, give the old one to the kids and maybe buy a new one for themselves. And so they really have kind of a hit machine going here right now. And to the point made earlier, it’s really their time.

Now, does that time last forever? Well, I don’t know, but certainly the tech economy continues to be a very important part of the overall economy here in the U.S.

JEFFREY BROWN: Well, Professor Sylla, does their time last forever? That’s always the question, right? Here we are talking about the new products, and there’s always the challenge of making sure those products sell as well as the old ones.

RICHARD SYLLA: That’s right. We already answered the question in a way, because we pointed out that a number of companies, General Electric in the ’80s was on top, Microsoft in the 1990s, and now it’s Apple.

And just think about it. Microsoft was a huge company and everybody thought Apple was going to fold because they just couldn’t compete with Microsoft. And now, as was pointed out earlier, Apple has two-and-a-half times the market cap of Microsoft.

I believe that there are people like Steve Jobs and Bill Gates working right now, as we talk, trying to come up with some better product that three or five or 10 years from now will threaten and perhaps even topple Apple from its perch.

JEFFREY BROWN: And just to stay with you on that, is it usually that the companies fail somehow, or that there is that other competitor waiting in the wings, ready to zip ahead?

RICHARD SYLLA: I don’t think it’s inevitable that they fail. I can think of the case of IBM, which was tops in mainframe computers, then didn’t do such a good job with P.C.s, so they were in real trouble about 20 years ago.

Lou Gerstner came in and turned them around, converted them from a hardware to basically a software and consulting company. And now IBM is a great company again.

So, it’s possible for a company to reinvent itself, but many more companies are probably going to have the trouble like General Motors did, where they were on top of the world in the mid-20th century and basically in bankruptcy 50 or 60 years later.

JEFFREY BROWN: Now, Ted Schadler, even as we are talking about Apple, a lot of talk about another part of the technology sector, and that’s social media companies, Facebook notably, a lot of talk about whether the bubble or the — such as it is, I guess, at this point, has burst. What can be said at this point?

TED SCHADLER: Well, certainly, people are looking at companies like Facebook and Groupon and Zynga and they’re asking themselves, well, what do these companies sell that I want to buy?

And in the case of Facebook, they sell advertising mostly, and not a lot of people want to buy advertising, particularly when you are Facebooking on your phone, right, because who wants an ad on their phone? So, it’s not clear what their business model really is going to be.

Groupon, another example you mentioned, I think people had crazy expectations about where the money was going to come from to sustain the value, and it just wasn’t there. It hasn’t been there.

So, coming to the previous point, you have to think about what these companies sell, what do they make that people want to buy, and if the answer is, I don’t know, then probably that valuation is high.

And so we have had this little bubble happen here, and I think we’re going to see more companies come to market, and if they don’t have something that, you know, that people are interested in, it’s going to be a head-scratcher to say whether you should buy their stock.

JEFFREY BROWN: When you are talking about selling ads on mobile devices, that means that the tech company still has a tech problem it has to work out?

TED SCHADLER: Well, it’s — in this case, it’s probably a people opportunity or problem that people want to buy what they have. So, in this case, yes, they have got to figure out how to sell mobile ads, and then have companies, you know, buy those ads. So, yes, that is a tech problem.

JEFFREY BROWN: Richard Sylla, you are sort of talking about sort of different business models. You look at an Apple and a Facebook or Facebook and Groupon. What do you see? Is that sort of normal to have competing business models at the same time?

RICHARD SYLLA: Oh, yes. That’s part of capitalism. People try different things. Some of them work. Some don’t.

But it seems to me that Apple is on top because it has, you know, products that everybody in the world wants to buy. You know, Asians buy Apple in preference to their own Asian products because you get prestige in Asia by owning an Apple product.

We are talking about search, and selling ads, well, Google is doing a pretty good job of it, but when I go on Google, I’m looking for something, I may be looking for a hacksaw, let’s say, and a hacksaw ad comes up. It’s not clear exactly how Facebook is going to solve that problem. People on social media, they want to sort of find out about each other, and it’s not clear exactly what sort of ads work when people are looking for that.

JEFFREY BROWN: But at the same time, just to stay with you on this question, just because some of these companies might be down now doesn’t mean they don’t rise again. I mean, that’s clearly what happened with Apple at one point.

RICHARD SYLLA: Yes, I think it’s a remarkable story about Apple, you know, was the first to introduce the P.C. and then IBM sort of took over with the P.C. markets, and Apple was in real trouble in the mid to late 1990s.

Steve Jobs came in. He came up with — he’s a creative genius. He came up with these new products, and a dozen years later, the company is on top of the world. So, that’s kind of a wonderful thing about our system that people can get up off the floor and rise to the top again.

JEFFREY BROWN: Richard Sylla and Ted Schadler, thank you both very much.

RICHARD SYLLA: You’re welcome.

TED SCHADLER: Pleasure.