Long before computers, or blogs, Alexis de Tocqueville sad, “The power of the press is second only to that of the people.” Yesterday morning, around 11am EST, popular gadget website Engadget demonstrated just how powerful a part of the press blogs have become.
At 11:49am Engadget, which is part of the AOL owned blog-network Weblogs, posted a story that Apple’s much anticipated iPhone and Leopard operating system would both be delayed by months. The story was based on a reported internal memo from Apple that Engadget had been forwarded.
Believing the memo was accurate, and confident the memo came from inside Apple (a “trusted source” they reported), Engadget ran the story. Like a viral epidemic, the news of Apple’s delays rapidly spread around the web – through major RSS feeds re-broadcasting the Engadget story, through Engadget’s own direct audience, and through other sites that repeated the apparent news. Within minutes of the posting Apple’s stock began to drop, quickly falling more than 2% (around $4b in Market Cap) as investors began to sell off and panic.
20 minutes after posting the story, a second announcement began to circulate suggesting the supposed memo was a fake. A short while later, Apple issued an official release saying there would be no delays with either the iPhone or Leopard and Engadget formally corrected its earlier release.
As the stock chart reprinted here shows, the volume spike and price drop were short-lived. Apple’s stock price largely recovered, and it did so quickly. Shareholder’s who didn’t panic were likely unscathed. Other’s who pulled the trigger based on trading behavior were not so lucky. Apple closed down on the day only $0.18 despite hitting an intraday low of more than $5 a share below its opening price. (AAPL was also trading up in after-hours trading).
There will no doubt be ongoing investigations to determine if the hoax was related to some hacking or break in into Apple’s mail systems, a malicious act, or any form of market manipulation (either people shorting the stock, buying on the drop – both with straight equities or options and other derivatives). At this point there have been no released statements and it’s much to early to even guess what motivated the hoax, or how it happened. Those facts may take months to come out, if at all.
It’s no shock that news travels fast in our connected world but the pace at which the news effected the market was remarkable. It’s a certainty there will be rumblings and grumblings from all sides over the next week – not to mention a few calls of criticism about the blog-o-sphere and journalistic integrity.