(This guest post previously appeared at the author’s blog)
I always snicker when I start hearing stories about some company or sector’s market capitalisation being bigger than some other better known thing. It usually means that something’s value has grown to absurd levels, and that’s why we’re comparing it to something much more sane. It generally isn’t that we have reached a new and permanent plateau.
The latest example? Apple (AAPL) is newly more highly valued in public markets than is Wal-mart. Now, I like Apple waaaay more than I like Wal-Mart (WMT) – shopping at the former is fun; shopping at the latter always makes me feel icky – but that isn’t enough to justify the valuation premium. Instead, it has much more to do with the market elation at Apple’s rapid share growth in smartphones, plus excitement about the iPad, with a dollop of vestigial iPod and Mac excitement left over. That isn’t to say Apple is a bad company, because it isn’t, or that Wal-mart is a wonderful company, because it isn’t that either. It’s just that we have the incongruous value collision of two very different companies and markets.
To put Apple’s $205-billion market cap in non-Wal-mart context, it is:
- 4x the global smartphone market
- 5x the global music market
- 100x the global smartphone app market
- Enough to buy HP, Dell and Hitachi, with mad money left over for Xerox or Seagate
In short, this is a surreal number. And when you start seeing this sort of number, you almost always start seeing giddy news stories about the underlying company’s market capitalisation being bigger than __________. Look at this related Google news archive trend search:
This sort of thing has happened in waves in the past, like in 2000 and again in 2005. When we press our noses against the market glass and “oooh” and “aaah” at a company’s market capitalisation exceeding something it shouldn’t … let’s just say bad things tend to happen. Eventually.