It seems that Apple (AAPL) just can’t win with some people. Yesterday, AAPL announced earnings for the third calendar quarter (their financial Q4) that beat expectations on the top and bottom line, yet the stock took a hit and is trading around six percent lower than yesterday’s close in this morning’s premarket.
In announcing the spectacular results for last quarter, they once again made clear that the critics who had maintained that higher-priced iPhones would be a disaster were completely wrong, but the naysayers still found reasons to sell.
The most obvious reason was a guidance for the holiday quarter that fell short of expectations. Forward guidance tends to have the most influence on stock prices of anything announced by any company, and Apple are forecasting revenue of $89-93 billion versus a consensus estimate of $92.6 billion. That is somewhat disappointing, but in context it should not be enough on its own to justify the decline in price.
That context is that guidance from Cupertino tends to be conservative. This forecast for calendar Q4, for example, suggests only about five percent growth from last year’s quarterly record of $88.5 billion. On the earnings call that followed the release Apple execs gave several reasons for that, including forex rates, the timing of product launches that front-loaded some sales and the possibility of an imbalance between supply and demand.
Those could all be concerns, but history shows that the company finds a way to deal with problems. They have beaten estimates for EPS in each of the last four quarters, and more importantly, in the last four calendar Q4s.
The other thing that is weighing on AAPL this morning is the announcement that the company will no longer break down their sales into units and average selling prices (ASPs) for individual products. It is little wonder that today, when crazy conspiracy theories are so popular at the highest levels of politics, there is a common feeling that this is an attempt to hide something sinister.
Reduced transparency is never a good thing, but it could just be that Apple is tired of the nitpicking based on those numbers that seems to follow every beat of expectations. They rightly point out that none of their competitors give that kind of breakdown, and what really matters is the bottom line.
As a Wedbush analyst said this morning on CNBC, “we understand the logic of not providing these metrics anymore given that ASPs are all over the map and a slew of new smartphone releases has catalyzed Apple to focus more on overall segment revenue rather than myopic quarterly unit sales.”
Regular readers will know that while I have been bearish on AAPL in the past I have had a positive view for a while now, and yesterday’s earnings didn’t change that view. It seems to me that people are overthinking things here. They are viewing solid growth in sales despite some understandable headwinds as a major disappointment and seeing evil intent in the decision to fall in line with competitors in how they report results. As a result, they can’t see the forest for the trees.
The simple fact is that Apple grew sales a stunning twenty percent last quarter and is doing that even as they increase margins. They have proven that people will pay the higher prices asked for the new phones and are growing their high-margin services business.
As is their wont, they have come up with fairly conservative guidance for next quarter, but as it becomes clear that they will once again beat that over the next couple of months, this dip will, with hindsight, look like a great opportunity to buy stock in the most successful company in the world at a discount.