This week I was in New York for a day. At lunch, Sir Martin Sorrell pointed out that Microsoft overtook Apple as the most valuable software company as measured by market capitalization. It's a close call but Microsoft is now worth $805 billion while Apple is worth $800 billion.
What is interesting to me are the radical "ebbs and flows" of each organization.
In the 80's, Apple's market cap was twice that of Microsoft. Microsoft overtook Apple in the the early 90's, and by the late 90's, Microsoft's valuation was a whopping thirty-five times Apple's. With a 35x difference in valuation, no one would have guessed Apple to ever regain the number-one position. However, Apple did the unthinkable and regained its crown in market capitalization. By 2015, Apple was, once again, valued two times more than Microsoft.
And now, eighteen years after Apple took the lead, Microsoft has taken the lead again. Everything old is new again.
As you'd expect, the change in market capitalization corresponds with the evolution and commercial success of their product portfolios. In the 90s, Microsoft took the lead based on the success of the Windows operating system. Apple regained the crown in the 2000s based on the success of the iPhone. Today, Microsoft benefits from the rise of cloud computing, Software-as-a-Service and Open Source, while Apple is trying to navigate the saturation of the smartphone market.
It's unclear if Microsoft will maintain and extend its lead. On one hand, the market trends are certainly in Microsoft's favor. On the other hand, Apple still makes a lot more money than Microsoft. I believe Apple to be slightly undervalued, and Microsoft is to be overvalued. The current valuation difference is not justified.
At the end of the day, what I find to be most interesting is how both organizations have continued to reinvent themselves. This reinvention has happened roughly every ten years. During these periods of reinvention, organizations can fall out out favor for long stretches of time. However, as both organizations prove, it pays off to reinvent yourself, and to be patient product and market builders.
I understand why organizations might be tempted to de-prioritize accessibility. Making a complex web application accessible can be a lot of work, and the pressure to ship early can be high.
In the past, I've been tempted to skip accessibility features myself. I believed that because accessibility features benefited a small group of people only, they could come in a follow-up release.
Today, I've come to believe that accessibility is not something you do for a small group of people. Accessibility is about promoting inclusion. When the product you use daily is accessible, it means that we all get to work with a greater number and a greater variety of colleagues. Accessibility benefits everyone.
As you can see in Drupal's Values and Principles, we are committed to building software that everyone can use. Accessibility should always be a priority. Making capabilities like the Layout Builder accessible is core to Drupal's DNA.
Drupal's Values and Principles translate into our development process, as what we call an accessibility gate, where we set a clearly defined "must-have bar". Prioritizing accessibility also means that we commit to trying to iteratively improve accessibility beyond that minimum over time.
Together with the accessibility maintainers, we jointly agreed that:
Our first priority is WCAG 2.0 AA conformance. This means that in order to be released as a stable system, the Layout Builder must reach Level AA conformance with WCAG. Without WCAG 2.0 AA conformance, we won't release a stable version of Layout Builder.
Our next priority is WCAG 2.1 AA conformance. We're thrilled at the greater inclusion provided by these new guidelines, and will strive to achieve as much of it as we can before release. Because these guidelines are still new (formally approved in June 2018), we won't hold up releasing the stable version of Layout Builder on them, but are committed to implementing them as quickly as we're able to, even if some of the items are after initial release.
While WCAG AAA conformance is not something currently being pursued, there are aspects of AAA that we are discussing adopting in the future. For example, the new 2.1 AAA "Animations from Interactions", which can be framed as an achievable design constraint: anywhere an animation is used, we must ensure designs are understandable/operable for those who cannot or choose not to use animations.
Drupal's commitment to accessibility is one of the things that makes Drupal's upcoming Layout Builder special: it will not only bring tremendous and new capabilities to Drupal, it will also do so without excluding a large portion of current and potential users. We all benefit from that!
Apple had a rough year; its stock price has fallen 25% since the beginning of the year. Apple also reported a weaker than expected outlook and shared that it will no longer report individual unit sales, which many consider a bearish signal within a saturated smartphone market.
It's no surprise that this has introduced some skepticism with current Apple shareholders. A friend recently asked me if she should hold or sell her Apple stock. Her financial advisor suggested she should consider selling. Knowing that Apple is the largest position in my own portfolio, she asked what I'm planning to do in light of the recent troubles.
Every time I make an investment decision, I construct a simple narrative based on my own analysis and research of the stock in question. I wrote down my narrative so I could share it with her. I decided to share it on my blog as well to give you a sense of how I develop these narratives. I've shared a few others in the past — documenting my "investment narratives" is useful as it helps me learn from my mistakes and institutes accountability.
As a brief disclaimer, this post should be considered general information, and not a formal investment recommendation. Before making any investment decisions, you should do your own proper due diligence.
Over the last five years, Apple grew earnings per share at 16% annually. This is a combination of about 10% growth in net profit, combined with almost 6% growth as the result of share buybacks.
Management has consistently used cash to buy back five to six percent of the company's outstanding shares every year. At the current valuation and with the current strength of Apple's balance sheet, buybacks are a good use of a portion of their cash. Apple will likely see similar levels of cash generation in the coming years so I expect Apple will continue to buy back five to six percent of its outstanding shares annually. By reducing the number of shares on the market, buybacks lift a company's earnings per share by the same amount.
Next, I predict that Apple will grow net profits by six to seven percent a year. Apple can achieve six to seven percent growth in profits by growing sales and improving its margins. Margins are likely to grow due to the shift in revenue from hardware to software services. This is a multi-year shift so I expect margins to slowly improve over time. I believe that six to seven percent growth in net profits is both reasonable and feasible. It's well below the average 10% growth in net profits that we've seen in recent years.
Add 5-6% growth as the result of share buybacks to 6-7% growth in profit as a result of sales growth and margin expansion, and you have a company growing earnings per share by 12% a year.
If Apple sustains that 12% percent earnings per share growth for five years, earnings per share will grow from $11.88 today to $20.94 by the end of 2023. At the current P/E ratio of 15, one share of Apple would be worth $314 by then. Add about $20 in dividends that you'd collect along the way, and you are likely looking at market beating returns.
The returns could be better as there is an opportunity for P/E expansion. I see at least two drivers for that; (a) the potential for margin improvement as a result of Apple shifting its revenue mix, and (b) Apple's growing cash position (e.g. if you subtract the cash per share from the share price, the P/E increases).
Let's assume that the P/E expands from the current 15 to 18. Now, all of a sudden, you're looking at a per share price of $397 by the end 2023, and an average annual return of 18%. If that plays out, every dollar invested in Apple today, would double in five years — and that excludes the dividend you'd collect along the way!
Needless to say, this isn't an advanced forecasting model. Regardless, my narrative shows that if we make a few very reasonable assumptions, Apple could have a great return the next five years.
While Apple's day of disruption might be behind it, it remains one of the greatest cash machines of all time. Modest growth combined with a large buyback program and a relatively low valuation, can make for a great investment.
I'm not selling my Apple stock and I'd be tempted to buy more if the share price were to drop below $155 a share.
Disclaimer: I'm long AAPL. Before making any investment decisions, you should do your own proper due diligence. Any material in this article should be considered general information, and not a formal investment recommendation.
Many of Acquia's customers have hundreds or even thousands of sites, which vary in terms of scale, functionality, longevity and complexity.
One thing that is very unique about Acquia is that we can help organizations scale from small to extremely large, one to many, and coupled to decoupled. This scalability and flexibility is quite unique, and allows organizations to standardize on a single web platform. Standardizing on a single web platform not only removes the complexity from having to manage dozens of different technology stacks and teams, but also enables organizations to innovate faster.
A great example is NBC Sports Digital. Not only does NBC Sports Digital have to manage dozens of sites across 30,000 sporting events each year, but it also has some of the most trafficked sites in the world.
In 2018, Acquia supported NBC Sports Digital as it provided fans with unparalleled coverage of Super Bowl LII, the Pyeongchang Winter Games and the 2018 World Cup. As quoted in NBC Sport's press release, NBC Sports Digital streamed more than 4.37 billion live minutes of video, served 93 million unique users, and delivered 721 million minutes of desktop video streamed. These are some of the highest trafficked events in the history of the web, and I'm very proud that they are powered by Drupal and Acquia.
To learn more about how Acquia helps NBC Sports Digital deliver more than 10,000 sporting events every year, watch my conversation with Eric Black, CTO of NBC Sports Digital, in the video below:
Not every organization gets to entertain 100 million viewers around the world, but every business has its own World Cup. Whether it's Black Friday, Mother's Day, a new product launch or breaking news, we offer our customers the tools and services necessary to optimize efficiency and provide flexibility at any scale.
Congratulations to two of my best friends, Klaas and Joke, for selling their company, Inventive Designers. The sale is a great outcome for Inventive Designer's customers, partners and employees. This sale also means I will no longer serve on Inventive Designer's Board of Directors. I'll miss our board meetings, but I'm sure Klaas, Joke and I will replace them with nights in a local bar. Congratulations, Klaas and Joke!