Both Apple and Amazon are now valued at over a trillion dollars. How did they reach a valuation previously considered impossible? We take a look at two contrasting journeys to a trillion dollars…
Throughout this year there has been an unofficial race going on – the first public company to be valued at a trillion dollars (at current exchange rates that is around £770bn). There were four runners in the race: Alphabet (Google’s parent company), Amazon, Apple and Microsoft. Some people argued that Facebook was also a contender but with the company mired in data breach problems and Mark Zuckerberg spending as much time at Congressional hearings as in his office, it was never a serious contender.
And the winner is…
Apple. At the beginning of August, the share price reached a new high of $207.39 (£159) officially valuing the company at a trillion dollars. But Apple was only in the very exclusive club for a month: in September Amazon also passed the trillion dollar mark, although it is interesting to note that it did so with its shares valued at 82 times future earnings, compared to a multiple of 15 for Apple. What the stock market is saying – in simple terms – is that it thinks Amazon currently has much more growth potential than Apple.
But whatever happens in the future these two companies – both of which have had a significant impact on our daily lives – have made it to a valuation previously considered impossible. How have they done it? We take a look at the history of both companies…
Apple’s journey to a trillion dollars
Apple was founded on April 1st 1976 – so the journey to trillion dollars winning line took just over 42 years. The founders were Steve Jobs, Steve Wozniak – we’ve all heard of those two – and Ronald Wayne, who had a 10% stake in the company in return for lending his electronics industry knowledge and administrative oversight.
In what is almost certainly the biggest investment blunder in history, Mr Wayne sold his stake in Apple back to Jobs and Wozniak for $800 (£615) and later accepted a further $1,500 (£1,150) to relinquish any further claim on the company. Had he held his 10% stake today, Mr Wayne would be worth over $100bn (£77bn), making him the second richest person on the planet, behind Jeff Bezos, founder and CEO of Amazon.
The company was founded in the garage of Steve Jobs’ childhood home in Los Altos, California, and the first product was an assembled circuit board which lacked some fairly basic features – a keyboard, a monitor and a case.
The company went public in 1980, instantly creating 300 millionaires and it is tempting to think that the history of Apple since then is one of seamless success: the Mac, the iPod, the iPhone, iPad, the Apple Watch, more than 2m apps available in the app store and who knows what in the future. In fact, the exact opposite is true.
The company has had some spectacular failures, such as the Apple Pippin, the Newton and the Macintosh Portable. Then there was the Apple Lisa, on sale in 1983 for $9,995 – the equivalent of just under £20,000 today.
In the early 90s the company was in more or less continuous decline, only returning to profitability at the end of the decade and, as anyone who has seen the Steve Jobs biopic will know, there were a few personality clashes along the way…
However, the company never stopped innovating, saw Tim Cook take over as CEO following the death of Steve Jobs in 2011 and now has 123,000 employees around the world and operating revenues (in 2017) of $230bn (£177bn). It does not sell the most mobile phones – it is second behind Samsung and may one day be overtaken by Chinese company Huawei – but it has enjoyed spectacular success with its more expensive phones, and it was an increase in demand for these that sent the share price up to the level required to value the company at a trillion dollars.
The biggest bookstore in the world
I remember when I first heard of it.
“There’s this company in America,” someone said to me. “Only sells books. And only sells them online.”
“Really? What’s it called?”
“Amazon, I think.”
“Right. Well, good luck with that. I read somewhere that people aren’t reading books any more. And it’s not like this internet thing is going to last…”
That was probably the second biggest investment blunder in history. Just 20 years later Amazon is the biggest online retailer in the world as measured by revenue and market capitalisation. And Jeff Bezos, founder, chairman, president and CEO, is the richest man in the world.
Amazon was founded in July 1994. It was originally called Cadabra, but that name was jettisoned after someone mistakenly heard it as ‘cadaver.’ Bezos also considered calling the company ‘Relentless’ – but that was dismissed for sounding “slightly sinister.”
So why did Bezos settle on Amazon as a name? Because it sounded “exotic and different:” and because it was the biggest river in the world and he intended to create the biggest bookstore in the world.
When he founded Amazon at the age of 30 Jeff Bezos was a vice-president of a Wall Street brokerage. He was presumably on course for a successful and wealthy career.
But he went west, as a result of what he described as his ‘regret minimisation framework.’ In a 2010 speech at Princeton, he described the decision as “the less safe path.”
“I decided I had to give it a shot,” he said. “I didn’t think I’d regret trying and failing.”
The company was funded with $100,000 of personal and family money. Within a month of the launch, it had already shipped to every US state and to 45 countries. In the first five years, customer accounts jumped from 180,000 to 17 million. Sales went from $511,000 to $1.6bn – and Jeff Bezos was already one of the world’s richest men.
Since then, of course, Amazon has gone on to become rather more than just a bookstore, even going back to a substantial brick and mortar presence with the purchase of Whole Foods for $13.4bn in 2017.
Now Amazon supplies everything. I am constantly amazed by how many everyday items I buy from them. We will leave the rights and wrongs of Amazon’s impact on the high street to another day, but millions of people must now think, ‘Why go shopping? Amazon will deliver it for free tomorrow.’ There are now more than 100 million members of Amazon Prime: that is equivalent to 64% of the households.
Apple has continued to innovate – as Jobs is reported to have said, ‘The customers didn’t know what they wanted until I showed it to them’ – while Amazon has had a relentless focus on the customer. Amazon has always been a company willing to spend money to make money. It failed to make an annual profit in 10 of its first 23 years as it ploughed money back into what Bezos described as a “heads down focus on the customer,” cutting prices, offering free shipping and developing new devices like the Kindle.
Both approaches have worked – as the trillion dollar valuations show. The question is, what do they have planned for us next…