Apple (AAPL): A Victim of Its Own Success?


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By Martin Tillier

Apple (AAPL) is in the news. Nothing new there. The legacy of Steve Jobs ensures that every time a product is tweaked, every time an incremental change is made, it is a huge media event. That is why the recent Samsung commercials were so powerful. It made those eagerly awaiting every change into objects of fun. The commercials are aimed at adoring, unquestioning consumers, but it sometimes looks like the markets have been behaving in the same way. Every release has been preceded by a run up in the stock and it seems that investors and traders are just beginning to realize that not every product release is “the next big thing.”

Back on August 29th, I wrote a piece about Apple  that suggested that the company’s days of consistently outperforming the market may be over. At the close of business that day the stock closed at $673.46. Yesterday, AAPL closed below $620. As I mentioned, AAPL is in the news this week, with Tuesday’s release of the ”i-Pad Mini,” and with earnings to be released on Thursday. Monday’s move is consistent with the past performance of the stock. AAPL has typically been strong going into product releases and earnings reports, but the last two release events have been ‘buy the rumor, sell the fact’ events.  I have heard it said that this is to do with the fact that AAPL is in a “refresh” quarter, where the changes in products are minimal, but the reaction to the i-Phone 5 is very different to that following the release of the i-Phone 4.

The magic has gone. Other than the hard-core Apple fanboys, consumers are beginning to see product launches as an opportunity to buy the previous model at bargain prices. Before this release, my wife bought an i-Phone 3 for 99 dollars and now regrets it. Not because she dislikes the phone, but because if she had waited for the launch of the 5 she could have bought a 4 for that 99c. That launch, of the i-Phone 5, was an interesting event.


Since that release AAPL has trended lower. Indeed, the stock’s all-time high was achieved that day.

As I stated in August, expectations are part of the problem. It is not that Apple is anything but a great and massively profitable company. It is just that it is impossible to maintain exponential growth forever. Reviewers seemed to go out of their way to find fault with the i-Phone 5 and there are many people pointing out that the “i-Pad Mini” is the result of AAPL reacting to the success of their rivals, rather than leading the way. The smaller tablet may be successful and Apple’s earnings may be stellar, but the mood seems to have changed. Analysts will be highlighting, rather than glossing over, any weakness. It is hard not to disappoint traders accustomed to regular, massive beats in revenue and EPS.

The point is that, as far as traders are concerned, perception is reality. If it is perceived that growth is slowing, or that there is no revolutionary new product in the pipeline, the stock will suffer, maybe unjustifiably. AAPL is a solid company that will offer long-term investors a decent return for years to come, but it is no longer the darling of the markets that can shrug off bad news, whether that is about the company or the economy in general. Apple is being punished by the market, not for their own success, but for the market’s own previous ‘irrational exuberance.’

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Stocks , Earnings , Technology

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Martin Tillier

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