The day Apple lost 51.89%

Think today’s 4.63% loss was bad? Let’s take the time machine back to the fall of 2000.

From Dividend.com’s Apple’s Worst Day Ever:

On September 29th, 2000, AAPL saw a massive one-day drop of 51.89%. The stock’s steep decline was due to a number of factors, which in hindsight combined to form a perfect storm of headwinds that proved too fierce for shareholders to deal with at the time. First and foremost, shares of Apple were fairly flat YTD at that point, following a meteoric rise of 151% the year prior in 1999; this in turn set the stage for a potentially nasty sell-off for the stock in light of it stellar gains up to that point.

Second, the company issued an early warning on Thursday, September 28th, 2000, after the closing bell, stating that its fourth quarter results would come in substantially below expectations. In retrospect, the stock’s stellar run-up leading to that day, and the early earnings warning sign combined to create a laundry list of reasons for shareholders to ditch the company and take profits.

As the trading bell rang on the morning of the 29th, investors fearfully jumped ship and shares of Apple dropped below $13 a share after closing at $26.75 the prior day, effectively slashing its market cap in half overnight.

Cue the chart:

worst day ever

My take: The best part…

Steve Fortuna, an analyst with Merrill Lynch at the time, responded to Apple’s slump by downgrading the stock to “Neutral” from “Accumulate,” claiming the problems Apple was facing were ‘just the beginning’. He went on to say, “We believe there is a high likelihood that investors will overreact to this news and take down the PC names in sympathy. We would particularly view this as a buying opportunity for Gateway, and to a lesser extent, Compaq and Dell.”

Let’s review how that worked out. Compaq was acquired by HP in 2002 for $25 billion. Gateway was acquired by Acer in 2007 for $710 million. Dell raised $25 billion in 2013 to take itself private.

Apple, meanwhile, has gained 11,570% since Sept. 29, 2000, according to YCharts, and as everyone knows is now worth more than $1 trillion.

8 Comments

  1. Walley Francis said:

    I was there for that. My response, I bought more AAPL at the best price that I ever did. I don’t trade stocks but I knew that this was the buy of a lifetime which it has proven to be. my best decision ever. (Other than marrying my wife, etc.). If only I had bought even more. My investment thesis was that Apple was being valued at about its cash value and that its business was being valued at about 0. .I knew that it had to be worth far more than that and now am up over 17,000% on my investments in AAPL.

    4
    October 10, 2018
  2. Ken Cheng said:

    Even until the Spring of 2003, the stock was still in the same trading range, about $14, or $1 in today’s shares. The WSJ had an article about Apple having $12/share of cash on the books, meaning the EV was only $2/share, or about 14cents today. Factoring in the share count, Apple was worth ~$1B in Enterprise Value. And, 1000x more today. I actually invested in call options that year, made a small amount over the Christmas period based upon my gut feeling that the iPod would be a strong seller, which it was. Hard to imagine an opportunity like that again. The Firewire iPod I bought that year, still sits on my desk, to remind me how far we’ve come. And it still runs, 6hrs the last time I used it.

    0
    October 10, 2018
  3. Robert Paul Leitao said:

    I remember the day quite well. It was precipitated by the only time I can remember that Apple’s management offered aggressive quarterly guidance. When results didn’t meet expectations, the company had to issue the earnings warning.

    It wasn’t just that sales didn’t meet expectations. The lack of sales triggered minimum payments to component makers that exacerbated the financial challenges in that quarter.

    Apple had released the PowerMac G4 Cube at the start of the quarter along with PowerMac G4 models with dual processors. Management was obviously over confident about the Cube’s prospects for success.

    As much as the late September 2000 earnings warning was unpleasant for Apple investors, it really was much less of a crisis and far less dramatic than waiting on Apple to determine which technology the company would acquire and use for the foundation of its next generation operating system in late 1996. During that period the market had pretty much given up on the company.

    While speculation was rampant Apple would acquire Be OS (offered by a company founded by former Apple executive Jean-Louis Gassée), Apple chose to acquire NeXT Inc. and with it the NeXTStep operating system for the foundation of Mac OS X. The acquisition also brought Steve Jobs back to the company he co-founded.

    Although the sell-off in late 2000 was obviously extreme, at no time during that episode was the company’s future in doubt. It was definitely the last time management offered aggressive quarterly guidance.

    1
    October 11, 2018
    • “While speculation was rampant Apple would acquire Be OS (offered by a company founded by former Apple executive Jean-Louis Gassée)”

      Former Apple executive and friend-of-the-blog Jean-Louis Gassée.

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      October 11, 2018
  4. Gregg Thurman said:

    Ahhh, the Cube. Sales of the Cube were negatively impacted by absolutely false reports of ‘cracks’ in the corners of the case, throwing doubt of product quality in the minds of consumers.

    In reality the ‘cracks’ were nit lines caused by injected plastic comes into contact with injected plastic coming from a different direction, a fault in the injection mold design.

    Had it not been for a media ignorant of injection molding technology the Cube would have been hugely successful. This is when I first began thinking negatively of the media, a negativity that has only grown over the years.

    1
    October 11, 2018
    • David Emery said:

      The big problem with the Cube was it was just too darn expensive! At one point I was contemplating a job offer in Europe, and considered buying a Cube to take across the pond. But what you got for that price was seriously under-powered, even if the design (appearance) was beautiful and the fan-less cooling was an engineering accomplishment.

      0
      October 12, 2018
  5. John Kirk said:

    I thought the idea was to buy low and sell high. If a stock drops by 50% — and you think the company is going to survive — then analysts should be screaming for you to buy, Buy, BUY! Instead, like weather vanes, they don’t predict the future, instead, they simply reflect the present.

    0
    October 11, 2018
    • Gregg Thurman said:

      There’s much that WS should and should not be doing when a stock goes up or down.

      A good example is today’s drop in AAPL. The Talking Heads are all talking about the Sky is Falling, while on WS AAPL leads the Buying on Weakness list with a much greater dollar volume than usual.

      So while CNBC Talking Heads are scaring the hell out of retail investors, the big boys are buying by the boatload. Whores every one of them, except that with more traditional whores you get something of value for your money (if you’re into that).

      0
      October 11, 2018

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