Just last year Apple (AAPL) appeared set to win the race amongst a group of select tech stock to reach $1,000. Though the company had become the largest valued stock in the world, it still was competing with Google (GOOG) and Priceline (PCLN) to be the first to reach the magical $1,000 mark. Clearly reaching such a figure is partially the function of not splitting the stock, but it also is indicative of truly fast growth.
With Apple plunging to below $400 in early 2013, most investors probably don't even consider it has having a chance to even reach $1,000 period much less beat Google to that number with it trading at $890. Typically those are the stocks discussed in that race to $1,000, but it actually appears that Priceline will easily win the contest with it now trading near $960. Time will tell so let's review the possibilities as the probability of reaching that magical figure is higher than most think these days.
The below chart showcases the prices over the last five years including the dramatic shift in the race as 2012 ended:
AAPL data by YCharts
Towards the end of 2012, Google and Priceline surged higher while Apple plunged due to a dramatic shift in forward earnings expectations. While analysts were expecting Apple to reach earnings of over $50 while Google and Priceline were $30s, the expectations quickly shifted to where current year or now the 2013 estimates are now comparable. See the chart below:
AAPL EPS Estimates for Current Fiscal Year data by YCharts
Now the momentum has shifted towards Google and Priceline, but has the pendulum shifted too far in that direction and away from Apple?
The Apple Potential
Apple has three primary opportunities to kick the stock upwards towards $1,000. While the updated iPhone 5 gets a lot of press, the two opportunities for much higher prices are likely hinged to a large China Mobile deal and a huge stock buyback that takes advantage of the massive cash flow and cash balances.
Naturally the updated iPhone 5 and even the possibility of an iPhone 5c for mid-level smartphone buyers will be a plus for the stock. The current leak is a September 10 announcement of these phones followed by a release on the 20th. None of the released details suggest that the phone will be a game changer though the 5c does have the potential to vastly expand the market opportunity especially in lower income countries.
The potential home run comes from a China Mobile (CHL) deal that finally unleashes the Apple phones on the largest customer base in the world. China Mobile has around 740 million users or around 3x the total cell phone users in the U.S. Tim Cook made a recent visit to that company in order to hopefully secure business. It is possible that the 5c is needed to attract China Mobile in order to reach a lower price point. The speculated list price of around $300 could more easily attract the typical China consumer compared to the high-end iPhone that lists around $650. Either way, China is a big part of the problem with the recent slowdown in Apple's revenue. In the last quarterly report, Apple saw China revenue plunge 14% to only $4.6 billion, a number that was down 45% from the previous year.
Secondary to signing up China Mobile as a massive customer is the potential to continue buying back tons of stock. The company spent $18 billion so far this fiscal year and could easily repeat those totals with over $130 billion in cash and equivalents plus billions earned each quarter. The company has already reduced the outstanding shares to around 910 million from over 947 million in the quarter ended in June 2012. Another substantial reduction in shares outstanding would quickly juice the earnings for next year already estimated at over $42.
Apple has the lowest estimated earnings of the group for fiscal 2014. This factors into the unlikelihood that it will reach $1,000 first without a major gain from China Mobile users or a stock buyback that juices earnings.
Google Stalls At $925
The Q2 2012 results were a complete disaster for Google as the company missed analyst estimates by a whopping $1.22. For a stock that has surged from $650 to $925 in the last year, it has surprisingly missed analyst estimates by over a $1 for the second time in a year. Even more important is that earnings were lower than last year.
The biggest issue impacting earnings was a larger loss at Motorola Mobile that increased $168 million over last year's loss of $49 million. The subsidiary recently released the Moto X that provides a slim possibility of returning that division to prominence. Regardless, the disappointing results in Q2 have caused analysts to begin dropping earnings estimates by several dollars per share for this and next year.
Priceline Leads The Race
Priceline has quickly become the favorite in the group after again smashing earnings estimates. Amongst the threesome, this company is the only one with analysts raising earnings for next year. The stock has already surged to a high of around $995 so the race has almost been completed already, but the stock could stall at these levels providing the others an opportunity to rally past it.
With strong Q2 results, Priceline has now surged to a market value of nearly $50 billion. Amazingly though, the company saw net income surge over 25% during the quarter. The online travel specialist continues to see what appears to be unlimited growth. It forecast Q3 2013 earnings to reach a mid-point of $15.80 or around 29% growth. The stock only trades at 17x forward earnings, which is actually cheap compared to that growth rate. The major concern is that the online travel leader won't be able to maintain this growth now that it has reached this size.
As a Minyanville writer articulated back in 2009, Apple appeared destined to eventually reach $1,000. Maybe that was partially impacted by the death of visionary leader Steve Jobs, but it should send a warning to investors of Google and Priceline that the future can be clear yet never materialize. At that point in 2009, Apple appeared destined to reach the magical number though it now seems in doubt if it ever reaches new highs again much less $1,000. Apple has still yet to make some of the those goals of reaching all of China and bringing the brand to the living room. Those dreams still exist that could ultimately lift the stock to the magical $1,000, though at this point it won't likely be the first to reach it.