This is a first for me. I have yet to write not one, not two, but three items on the same subject in such close proximity to each other, especially about something that has to do with a company’s financials. But, hey, it is Apple (News - Alert); depending on the day it is the company with the world’s highest market valuation. Plus, the headlines and buzz about them “missing” expectations have been huge news around the clock and around the world. I will be brief.
How about some context?
The talking heads have been babbling since yesterday about Apple missing expectations for the first time since 2004. What they fail to mention is that it was not Apple’s guidance that was missed, but rather Wall Street’s consensus view. The chart below from yesterday’s BusinessInsider says it all. In September, Apple’s estimated 4Q Earnings Per Share (EPS) of $5.50 and $25 billion in revenue.
So they missed Wall Street’s consensus of EPS $7.26 (actual was $7.05) and reveunes were not $29.41B (actual was $28.30B). For a company this size, what is a few billion amongst friends? The trends for both charts on guidance versus results remain in tact although the gap is obviously closing.
“Managing expectations” is a kabuki dance that companies must play with financial analysts. Thus, if you are to fault Apple management on anything, it is fair to say that Tim Cook and crew (and let’s be fair, Steve Jobs (News - Alert) was very much engaged back in September when the guidance was issued) may need to go on the popular U.S. tv show Dancing with the Stars.
As I pointed out previously, other than the miss on the iPhone, which can be rationalized because rumors of a 4G iPhone 5 were premature and constrained demand as consumers waited, this was a quarter that any company would be proud of. Better yet, the guidance going forward on EPS, gross margins and revenues even for Apple should be seen as rather bullish based on global economic conditions. So on a day when Yahoo! turns in a less than spectacular performance is rewarded with a stock bump for “beating” admittedly modest expectations, Apple gets penalized for more than solid performance. Go figure. These are hardly, results that warrant the use of the word “stunned,” which has been used by so many in conjunction with the earnings release.
The good news is that not everyone in financial circles is drinking the proverbial Kool Aid. Reuters (News - Alert) has an article this morning that says the following:
“One analyst called the results a ‘black swan’ and said now was the time to buy shares, with Apple providing a stronger-than-expected first-quarter outlook.”
"We would be aggressive buyers of Apple this morning as we anticipate a big holiday season for the company," said Ticonderoga Securities analyst Brian White, who reiterated a buy rating on the stock.
White said he expected Apple's iPhone 4S to be "another blockbuster iPhone product."
JP Morgan (News - Alert) said in a note to clients the rare miss is explainable and could be an entry point for opportunistic investors. It added that shares of Apple are likely to come under pressure in the near term but that the company's sales overseas will ultimately boost its growth.”
As I need to repeat, I am not a financial analyst and do not play one on the web or on TV. Hence, the only interest I have in whether Apple’s stock goes up or down is the impact such movements can have on the direction of global stock markets and on confidence in the technology sector specifically. That said, can we have an AMEN! On the Reuters quotes.
In fact, in the spirit of the day, why not join one hit wonders the “We Five” in the chorus of their blockbuster 1965 song, “You Were On My Mind.”
Finally, on a more serious note, in thinking about why Apple fans should not be hanging their heads in shame because their team has suffered a blemish on its reputation of invincibility. I am not in any way shape or form an Apple “homer.” However, there is a lot to look forward to:
- iPads are on fire and Amazon’s Fire is not likely to dampen enthusiasm since it is aimed at a different customer set, ecosystem and price point.
- Macs are still great and doing just fine thank you.
- The App Store and retail outlets are just fine, thank you, as well.
- Emerging markets present addressable opportunities that Apple is well prepared to penetrate, and possibly, if not probably, at rates that beat those of competitors.
- Yes there will be a 4G iPhone and it will find a market ready, willing and able.
- iOS improvements are in the works.
- Despite some early inconveniences, Siri can be as transformative as first the iPod, then iPhone and now iPad.
On the last point history is instructive. There were cellphones before iPhones. There were music players before iPods. There were tablet computers before iPads. Just because speaker dependent and speaker independent speech recognition have been around for decades with the failed promise that they were the most natural way for humans to interact with devices and content and hence would become the interface of consumer preference, does not mean speech’s time has not arrived. Indeed, if Apple’s history is a leading indicator, and not minimizing the lack of ingenuity and salesmanship of the late Mr. Jobs, as Tim Cook said about iPhone 4S on the call with the analysts, it exceed their wildest dreams.
Apple CEO Time Cook said, the company has, “Some fantastic things in the pipeline.” They usually do. At least on the product side it is typically a mistake to sell them short.
Peter Bernstein is a technology industry veteran, having worked in multiple capacities with several of the industry's biggest brands, including Avaya, Alcatel-Lucent, Telcordia, HP, Siemens, Nortel, France Telecom (News - Alert), and others, and having served on the Advisory Boards of 15 technology startups. To read more of Peter's work, please visit his columnist page.
Edited by Rich Steeves