We’re living in a fast-paced world today. A good example of this is the pressure to publish quarterly figures – financial markets run from quarter to quarter and survive with healthy amount of guesswork about the future. Let’s take a minute to look back in time, though. On October 18, 2000, Apple released their Q4 figures totaling $1.87 billion in revenue (a 40% increase over Q4 1999), $108 million in earnings from continued business and 1.122 million Macs sold; respectable figures by any account. But seven years later, Apple is clearly playing in a different league altogether with $6.2 billion in revenue, $904 million in earnings from continued business and 2,164 million Macs, 10.2 million iPods and 1.119 million iPhones sold.

Mac sales (in units) have increased by an average of 10 percent over the past seven years and stock has increased annually by a phenomenal 54% (from $9 to over $180). This leads us to two conclusions: first, shares are much more expensive than they used to be (the PE rose from under 20 to way over 40), meaning that the stock market thinks highly of Apple’s growth prospects. Second, Apple has been able to greatly increase organic growth over the years, which the stock market likes to see.

Things get even better for the shareholder if we take third-party royalties into account. According to calculations from Piper Jaffray’s Gene Munster, AT&T must pay an $18 monthly fee for every iPhone activated, which amounts to $432 in a two-year contract period. Figuring in similar contracts in other countries multiplied by 10 million iPhone owners by the end of 2008 (by conservative estimates), we arrive at an unbelievable additional market value of $90 billion – 50% more market capitalization! Pure speculation? In part, but the calculations are fairly simple: in one year, Apple produces roughly $2 billion in additional revenue (since there aren’t any costs; these are simultaneous net earnings) multiplied by the current PE of 47. We can ask the question how much of this fantasy is already priced in Apple’s market value and how valuable this exclusivity with AT&T is, but I’ll save that discussion for next time.

Next blog: The fun of peering into the crystal ball – especially as a shareholder!