Sometimes just a few words can make humongous impact – something that DoubleLine Capital’s Jeffrey Gundlach proved spectacularly Wednesday afternoon when a statement he made caused Apple’s market value to drop 2.2% – an acceleration of a much milder downward trend that Apple’s stock has been on since its record high in early April. Gundlach comments added to that trend, causing Apple stock to plummet so much that it is down $96 billion since April 9th.
For those that weren’t following Apple’s stock price on Wednesday, just after 3 p.m. Apple’s stock price dropped sharply by 2.2% to just over $540. That’s about when Gundlach took the stage at a meeting of hedge fund managers in New York and said that he was shorting Apple because he didn’t see the company being able to sustain the massive consumer excitement generated by the new iPad and other hit products.
Referencing the iconic lines of fans waiting outside Apple stores for a new product, Gundlach said he didn’t see such phenomena being a long term possibility for each new iOS device.
I just wonder how many people will queue up around the block for an iPad 87.
Apple’s stock began to rebound when Gundlach walked of the stage and the next speaker, Greenlight Capital’s David Einhorn, told the crowd that Gundlach was dead wrong and that Apple can maintain its value even if the company doesn’t have a hit product like the new iPad or iPhone 4S every year.
[That] assumes that Apple is a hardware company. It’s not. Apple is a software company. Its value comes from iOS, the App Store, iTunes and iCloud.
Einhorn also pointed out that Apple products have a halo effect that typically leads new customers to buy a second or third Apple devices – like an iPad leading to buying a Mac and then an Apple TV
At that point, a future customer has to make a product that isn’t just a little better but a lot better to get the customer to switch.
Apple’s stock did rebound somewhat, closing down 1.3% for the day at $546.08.
The dramatic fluctuation in Apple’s stock can be attributed to Gundlach spooking a room full of investment managers taking part in the Ira Sohn Conference to raise money for pediatric cancer research. However, that wild ride yesterday also illustrates an underlying concern on the part of many managers and investors about whether Apple’s stock price is sustainable in the long term.
Overall, Apple shares are down 15% from their $644 peak on April 9.