Apple "Trained" Investors to Raise Their Expectations

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One year ago, Apple (NASDAQ: AAPL ) was the golden child on Wall Street. It was the stock you could not ignore. Every analyst in the world anticipated big gains from the company. Many of them believed that Apple's stock would rise to $1,000 per share; others expected Apple to become the world's first trillion-dollar company. Those expectations were supposedly justified by the growth of the iPhone, which continually broke records, as well as the iPad, which proved to be the world's most successful tablet.

Then something odd happened in the latter months of 2012. Dissatisfied with Apple's performance (which was still strong but not on par with analysts' inflated expectations), investors began to second guess their view of the Mac maker. They started to wonder if Apple could, in fact, become the first trillion-dollar empire. They wondered if the iPhone could really sell 10 million units in one weekend, as one analyst claimed. They also wanted to know if the company could release a groundbreaking product on par with the iPhone.

Quarter after quarter, investors waited for groundbreaking products and record-breaking earnings results. While the latter was often reported, analysts continued to raise their expectations, making it impossible for Apple to stay in-line with Wall Street. At the same time, Apple has continued to reiterate its existing line of products without releasing any fresh items that could bring value to the company's long-term strategy.

This, combined with doubt about the future, has caused Apple's value to plummet over the last few months. Analysts are not the only ones to blame, however. Jan Dawson, Ovum's Chief Telecoms Analyst, argues that Apple has "spent a long time training investors to expect them to beat their own guidance [and] to expect them to grow revenue very significantly and to maintain margins."

"The problem is that those three things are not sustainable," he told Benzinga. "They cannot keep beating their own guidance."

Dawson believes that Apple's conservative forecast was part of the problem. "That came back to bite them this time around, and that's why they said now they're gonna provide realistic guidance instead of conservative guidance," he said. "They can't keep growing revenues and maintain margins at this rate. If you want to keep selling more phones, you've got to sell them cheaper, you've got to have things like the iPad Mini that's gonna have a lower margin. It was inevitable that this was going to happen."

That said, "There's still massive growth there, there's still massive profitability," Dawson added.

"It's not clear to me that they were responding to real performance issues. They were just responding to their own expectations, which had become unrealistic -- not being met 100 percent."

Follow me @LouisBedigianBZ

(c) 2013 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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This article appears in: Investing , Investing Ideas

Referenced Stocks: AAPL

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