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Apple's Earnings: Is the Run Over?

Posted
1/24/2013 10:14:00 AM
By: Chris Ciaccia
Referenced Stocks:AAPL

Apple's (AAPL) first-quarter earnings were mixed, with the tech titan beating on the bottom line, but missing on the top line. With this latest earnings "miss," it looks as if Apple has succumbed to what all great companies succumb to: the law of large numbers, becoming a great company and not a great stock. At least for the foreseeable future.

During the all-important holiday season, Apple earned $13.81 per share on $54.5 billion, up from $46.33 billion in the year ago period, though . Breaking down the quarter, Apple sold 47.8 million iPhones, 22.9 million iPads, 4.1 million Macs, and 12.7 million iPods.

There were gross margin concerns going into the quarter, and Apple's gross margin of 38.6% was lower than many on the Street were expecting. Apple has become a victim of its own success, with outside expectations on the company extraordinarily high, despite the company trying to talk them down.

Apple refreshed 80% of its product lineup in late September and October, and therefore knew that margins would be significantly weaker than they previously had been, but Wall Street didn't want to listen. Guidance is now a concern as well. In the past, Apple has under-promised and over-delivered when it comes to guidance, but now the company is giving a range of what it thinks it might do for the quarter. This was a bit of a blow to investors, and as the conference call went on, the stock continued to decline.

Shares of Apple had an incredible first nine months of 2012, gaining 65.4% from the start of the year until the announcement of the iPhone 5 in September 12. Since then, the tech giant has seemingly been able to do no right, despite record sales of iPhones and iPads, and incredible back log for the new Macs announced. Sentiment has changed on the stock, and it's going to take something major to get it back. Sentiment has gotten so bad that negative articles and press carry more weight than positive ones do, and CEO Tim Cook had to actually defend the company on the earnings call regarding some recent negative press. "I know there's been lots of rumors about order cut," Cook said when responding to a question about supply chain worries. "I would suggest it's good to question the accuracy of any kind of build plans."

Over the past three months, shares are off roughly 25%, which is indicative of a broken stock, though I don't think it's a broken company.

That something "major" could be an Apple television, which Apple again hinted at doing something more in the television space on the conference call. CEO Cook said Apple sold more than 2 million Apple TVs in the quarter, up 60% year-over-year, but the segment is an "area of intense interest for us." "I tend to believe there's a lot we can contribute in the space. We'll put the strings and see where it takes us."

The rose is off the bloom on Apple's stock now, that's for sure. It's remarkable that a company as large as Apple can still grow revenues 17% year-over-year, or more (roughly 27%) when you factor in that last year's quarter had an extra week. Apple is still a great company, there's no question about that. Right now, though, it's not a great stock.

Connect with Chris on Twitter @Commodity_Bull