Hey guys, it’s Greg with Apple Explained,
and today we’re going to explore in detail, exactly how Apple managed to become America’s
first trillion-dollar company. This topic was the third place winner of last
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which video you’d like to see next. So you may have already heard that Apple’s
valuation crossed one trillion dollars on Thursday August 2nd, but you may not know
exactly what that means. So before we get into the story of how Apple
grew to become a one trillion dollar company, let’s first get an understanding how a company’s
value is calculated. So you can calculate any companies value by
multiplying how many shares of that company exist by how much each share is worth. And whatever number you get is called the
company valuation, or value. Now this number constantly changes depending
on whether the company’s share price goes up or down, or if they initiate a stock buyback,
so although Apple has broke the one trillion dollar mark, they may fall back under that
number as their value moves up and down. Okay so now that we understand how Apple’s
value is calculated, let’s explore their incredible journey from a one hundred million
dollar company to a one trillion dollar company. It all started on December 12th, 1980. That’s when Apple went public and first
listed on the stock market. They were able to sell 4.6 million shares
at twenty-two dollars a piece. Which meant at that time, Apple was worth
101.2 million dollars. Now you may be wondering why so many people
bought Apple stock at that time considering the company had just been founded four years
earlier. Well in those four years Apple had accomplished
quite a bit. They had already released the Apple I, Apple
II, and Apple III, with revenue increasing by 533% every year. That meant by 1980 Apple was generating $118
million in revenue annually. And that kind of growth was definitely something
investors wanted a piece of. So there was actually a very high level of
anticipation of Apple becoming listed on the stock market, and when it finally happened,
investors jumped at the opportunity. But despite this financial head start, Apple
was worth just 1/10,000 of what it is today. Now things continued to go well for Apple
although there weren’t any huge spikes in stock value through the early 80’s. Now something big happened in 1985 that kind’ve
had a destabilizing effect on Apple’s market value. Steve Jobs was forced out of the company by
then Apple CEO John Sculley. Now this was a very intense situation since
Sculley was actually brought on to Apple by Steve Jobs himself. Sculley had previously served as Pepsi’s
CEO, and Jobs thought he had the business expertise to take Apple to the next level,
as he had done at Pepsi. Sculley initially declined the offer, but
Jobs was persistent. Eventually winning Sculley over by asking,
“Do you want to sell sugar water for the rest of your life, or do you want to come
with me and change the world?” But things didn’t turn out the way Jobs
had hoped. John Sculley and Apple’s board of directors
felt Jobs leadership was detrimental to the company, since the Macintosh group he was
heading turned out to be a financial failure. Jobs later turned in his letter of resignation
and left Apple, heartbroken and devastated. Now Jobs departure from Apple was highly publicized
and Apple’s stock dipped slightly before bouncing back in ’86 and spiking in 1987. Now Apple underwent a reorganization during
this time and their business model shifted from lower profit-margin computers aimed at
consumers to high profit-margin computers aimed at the pro market. And although Apple raised the prices of their
newer Macintosh computers, it didn’t effect their total sales since pro users were eager
to take advantage of the most powerful technology available at the time. But this business model wasn’t sustainable
as PC makers released their own desktop computers that offered nearly the same functionality
of the Macintosh, but at much lower price points. This led to a 20% drop in Apple’s share
price at the end of 1989, as it was their first holiday season that saw declining sales. Clearly Apple knew something had to change,
so their business model shifted yet again in the early 90’s, this time back to Jobs
original vision of selling low-cost, low-margin consumer products and aiming for high sale
volumes. This initially went well for the company as
they released lower cost computers like the Macintosh LC that sold well due to the high
demand for lower cost computers from the company. But Apple took things too far. They introduced several new models of products
like the Quadra, Centris, and Performa lines, in order to offset the declining sales of
their higher-priced machines. But the problem was these “new” products
weren’t really new at all, but similar products aimed at different markets. And this only caused product fragmentation
and confusion for customers, who didn’t understand the difference between models. Apple also experimented with other unsuccessful
consumer products during the 90’s including digital cameras, portable CD players, and
speakers. But the most resource-intensive product that
had the biggest effect of Apple’s share price was the Newton MessagePad. Sculley bet a portion of the company on the
Newton, but it failed to deliver on its promises, and this string of disappointments led to
Sculley’s eventual departure from the company, replaced by Michael Spindler. But Apple couldn’t seem to recover from
the damage that had been done, no matter who was CEO. The company’s sales peaked at $11.1 billion
in 1995 and as their sales fell, so did their share price. Spindler was replaced as CEO by Gil Amelio
in 1996, and this began Apple’s downward spiral that everyone assumed would lead to
the end of the company. But in 1997 Apple made a surprising move. They bought the computer company called NeXT. But it wasn’t really for ownership of the
company’s hardware or software or patents, but rather for Steve Jobs himself. Since NeXT was the company Jobs founded after
leaving Apple in 1985. Apple offered Jobs a role as interim CEO,
essentially giving him power to reorganize Apple and get them back to being profitable
again. Now I should mention that very few people
actually believe Steve Jobs could save Apple. When he returned to the company, they were
just ninety days from bankruptcy and Jobs himself admitted things were a lot worse than
he thought. But with a little financial help from Microsoft
and the release of the wildly successful iMac in 1998, Jobs was able to transform Apple
from a company bleeding money, to a company making money. And the turnaround was reflected in the company’s
share price, which grew month after month until reaching a peak in early 2000. But Apple didn’t stop there, they kept their
share price afloat through the early 2000’s with the release of the iPod in 2001 and iTunes
Music Store in 2003. At this point, Apple’s valuation didn’t
just remain steady, it started to climb. And in early 2006, Apple announced the first
Intel-based iMac and MacBook Pro models. Now this was a big deal since they were able
to transition their computers from Power-PC to Intel way ahead of schedule, and investors
felt Apple became a much more competitive company with products based on the new Intel
architecture. So their share price rose even further at
the beginning of 2006, and this marked a very important milestone for Apple. Because on Friday the 13th of January, the
company’s market value surpassed Dell for the first time. And it was Dells CEO in 1997 who said Jobs
should shut down Apple and return the money back to the shareholders. So Steve Jobs was set on making Apple a more
valuable company than Dell, and when it finally happened, he sent a brief email to Apple employees
to commemorate the occasion. It read, “Team, It turned out that Michael
Dell wasn't perfect at predicting the future. Based on today's stock market close, Apple
is worth more than Dell. Stocks go up and down, and things may be different
tomorrow, but I thought it was worth a moment of reflection today. Steve.” And while that was a big accomplishment for
Apple, 2007 was the year when Apple began their ascendancy to the $1 trillion dollar
valuation they’re at today, and it all happened with the introduction of the iPhone. The iPhone was probably the most revolutionary
product Apple has ever made, and it’s definitely their most profitable. Even though iPhone sales in the early years
of 2007 and 2008 don’t compare to the numbers today, it still provided Apple with a major
source of revenue. But more importantly, it solidified Apple’s
reputation in the tech industry as a pioneer of revolutionary technology that was unmatched
by any other company. And that meant Apple shares were a hot commodity
among investors, who believed Apple had a bright future ahead. Now things picked up even more at the beginning
of 2010 with the release of the iPad. And although the product wasn’t perceived
to be as revolutionary as the iPhone, Steve Jobs called it the most important product
he’d ever made. And customers seemed to agree since 300,000
iPads were sold in its first day of release. The iPad went on to become one of Apple’s
best selling products ever and investors were quick to buy up as much Apple stock as possible,
causing their share price to rise even higher. But something major was about to happen that
very few people expected. A year later, in 2011, Steve Jobs resigned
as Apple’s CEO, appointing Tim Cook in his place. This created a stir in the tech and investment
communities, causing people to wonder whether or not Apple could continue to innovate without
its iconic visionary leader. Despite this uncertainty, Apple’s share
price continued to rise during this period, until the end of 2012, when the iPhone and
iPad began to lose their shine. The company experienced a sharp drop in their
share price, likely because the iPhone 5s was losing out to its competitors which featured
larger displays. But Apple met the competition head-on in 2014
with the introduction of the iPhone 6 and the iPhone 6 Plus. And they were a huge hit, especially in China. There was clearly pent-up demand for an iPhone
with a larger display, and thanks to that demand, iPhone sales rose to $155 billion
and share prices rose with it. So Apple’s valuation remained strong until
2016 when quarterly profit fell by 27% due to a slowdown in iPhone sales. And Apple’s share price reflected these
disappointing earnings by dipping to a two-and-a-half-year low. But just like in 2014 with the iPhone 6 and
6 Plus, another iPhone was introduced and saved the day. The iPhone X. It lifted the average selling price of an
iPhone to a new record and also the share price. And after Apple reported excellent third quarter
earnings this year that exceeded expectations, their share price rose once again. And when considering that good news along
with the excitement surrounding the new products to be introduced in September, Apple’s market
value ended up crossing the one trillion dollar mark. But excitement for new products can always
backfire if they turn out to be a disappointment, so investors will be looking to see what else
Apple has to propel their valuation past the one trillion dollar mark. And who knows, maybe Apple will have one more
thing in store for us. So that is how Apple became a $1 trillion
company, and if you want to vote for the next video topic, don’t forget to subscribe. Thanks for watching, and I’ll see you next
time.
