Apple market value and cash on balance sheet
Apple net worth as measured by the equity market capitalization is more than $500 billion (in US dollars) with more than $200 billion in cash on balance sheet. Apple along with Google are both purest example in the value of innovation.
Companies of this size essentially got here by not only create value for customers but also by creating a new market completely. Investors would never receive the same compound return from investing in real estate with even Sydney real estate market at record high.
Stages of growth
All companies go through similar stages of development from small cap where it is gaining traction with its product in the market to ultra growth where it is achieving double digits growth for years to become a large cap stock.
It is still impressive it is still growing the top line even with $200 billion in revenue. Similar to Apple, Google achieved its size today by scaling its advantage in search where it has unbeatable market share.
The value of Apple today shows that the law of large numbers does not apply to technology companies when they are staking out a new market like the way Apple did with itunes, iPad and iPhone.
The increasing economies of scale or network effect is not new for technology companies. Just like when Microsoft Windows operating program dominated the desktop operating environment. Software developers primarily focused on the operating system that is used by most of its customers.
Paypal and Apple
We think that Paypal will follow the same growth trajectory. The total addressable market for Paypal is a multiple relative to where it is today. It is essentially riding on the back of growth of eCommerce with the goal of being the next Visa and Mastercard.
It has unbeatable brand recognition where it is the go to payment processor for online stores and a reliable trusted brand for consumers.
Paypal Wallet is also gaining traction. As transactions shift to mobile, paypal is in the perfect position to leverage its platform. While challengers like Square and Stripe has taken a foothold and looking to dominate the space.
Its financial strength with a strong free cashflow business means that it has the ability to fight for market share for a protracted period. We are not so sure that the current challengers can sustain the current cash burn rate.
The growth above is similar to apple where the business gradually shifts or soft pivots in its core platform from computers to iPod to music then iPhone and iPad. Paypal is using its core online platform on the back of ecommerce to scale into mobile and offline wallet products.
Out of the world idea: paypal acquisition as next growth stage?
There are not alot of markets that can provide the growth opportunities for Apple. Payments is clearly the next stage of Apple’s growth. Apple pay is predominately designed as offline mobile platform with a good chance transforming to a payment wallet product.
There is much to be said on the synergy of acquiring a paypal to plug the whole on the online payment portion of the transaction. The value in linking online and offline payment platforms and Paypal is best of class competitor. The combined company would overnight become the industry leader.