Will Apple's Phenomenon Continue To Grow?

Tyler is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Apple's (NASDAQ: AAPL) management and business have established the company as one of the top marketers in the world. Their popularity is unmatched in today's market. However, Apple is still not marketed in some major American stores, and their products still lack one major resource many customers want. 

It has been rumored for quite some time that Microsoft (NASDAQ: MSFT)  has been developing a solution for the missing link. Some people won't buy Apple products because they want a product like Microsoft Office that they are already accustomed to. Adam Holt, of Morgan Stanley, believes that Microsoft has abandoned approximately $2.5 billion/year by not developing a Microsoft Office Application for iOS products.  Microsoft's current revenues are nearly $74 billion/year. Considering Microsoft's revenues only increased slightly over 5% last year, this $2.5 billion represents a 3.4% increase, which would be huge. 

Apple would also benefit greatly from this deal as iPhones generate more revenue than any other company item. This $2.5 billion dollars of deserted cash by Microsoft only accounts for usage on iPads. Adam's research showed that 30% of iPad users would buy a Microsoft Office application. The iPhone and iPod Touch would also have the application, and Apple would receive 30% of all sales from the App Store. Apple is already known for the cash it has available, but this move could only generate more. Aside from the 30% of App Store sales, Apple would undoubtedly sell more iDevices with Microsoft Office capabilities.

In 2012, Microsoft Office accounted for nearly 33% of Microsoft's revenue, but iPads only accounted for approximately 21% of Apple's revenues. iTunes and the App Store only accounted for 5.2% of the company's revenues, but an acquisition of this capacity could certainly bump that percentage. Earnings Per Share (EPS) for Microsoft have risen steadily over the past decade from $.92 to $2.00. Apples have risen from $.1 to $44.15 in the same period of time. With Apple's EPS rising 43,933% more than Microsoft's in that period of time, Microsoft would seemingly get a better deal, although Apple shouldn't turn down the opportunity.

On Valentine's Day, news reports were received that Apple's products would now be sold in Staples' (NASDAQ: SPLS) stores nationwide. Staples has sold Apple products internationally for quite a while, but never had reached an agreement in the United States. Regis Mulot, Staples' senior vice president of global human resources, confirmed these reports with a tweet that read, "After Canada, #Apple products are coming to #Staples in US. Great news!" Although this tweet is now deleted, several other Staple's employees tweeted similarly shortly after the meeting. 

Without a single annual decline in revenues for the past decade, Staple's revenues have increased 216%. EPS have increased 222% since 2003, from $.63 to $1.4. Apple, Microsoft, and Staple's stocks have all decreased by 6.5%, 6.9%, and 14.1% respectively in the past year. If Microsoft does release an iOS compatible Microsoft Office application in the next year or two, even Best Buy (NYSE: BBY) could benefit. 

With a market cap of approximately $5.6 billion, it is the smallest of any of these companies. Microsoft, Apple, and Staples market caps are roughly $324 billion, $436 billion, and $8.7 billion respectively. Although Best Buy's stock has started to recover recently, it is still down almost 35% for the year. Best Buy is a company that markets a lot of Apple's products, so maybe they will start to recover more as Apple grows in popularity. In 2012, Best Buy's EPS fell from $3.08 to -$3.36, a whopping $6.44 difference. With very minimal decreases in 2009 and 2011, 2012 became only the third time this decade when EPS fell.  

In the chart below, you can see how each of these companies’stocks have fallen in the past year. 

<img src="http://media.ycharts.com/charts/0e2cd1e0f2e444496c2301d955a4719f.png" />

MSFT data by YCharts

The Foolish Conclusion...

Even with the stocks being down, I wouldn't count them all out. Staples is yet to experience the Apple phenomenon in America, and I don't see slowing down any time soon. Microsoft has the potential for an estimated $2.5 billion annual increase if a deal is reached with Apple. Even with Apple's "mid-year" crisis, I believe the company is under bought and has the potential to sky rocket in the near future. I wouldn't count Best Buy out just yet, but these other companies might be better buys. 


tlwofford has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple, Microsoft, and Staples. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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