Apple (AAPL) Stock Price: Why the Company Missed the Mark

In order to justify an enormous valuation of $561 billion, Apple (AAPL) must constantly perform by posting out sized revenues and profits every quarter.

During the latest quarter, Apple reported revenues of $35.02 billion and net earnings of $8.82 billion, versus $28.57 billion and $7.31 billion, respectively,  in the same period last year. This is a remarkable performance, on the surface, but the stock dropped 5% in after-market trading after its earnings were announced.

Even though the company exceeded it own forecast, it did not reach the levels predicted by stock analysts, who expect Apple to always outperform its forecasts. The result, the stock fell precipitously.

Is there a problem brewing at Apple? Hardly. The sale of iPhones during the quarter was “negatively” impacted by the expectation that a new iPhone will be introduced this fall. In the previous quarter, sales of iPhones totaled 26 million, up 28% from last year. It is a stretch to call this performance a disappointment. Yet, great things are expected from Apple, high growth and high profitability on a quarterly basis, to justify the way its designation as a darling of the investment community.

It is possible that “economic weakness in Europe, Australia, Brazil and other countries”  caused some of the shortfall of iPhone sales. “But the company also said that the widespread chatter about whatever smartphone it will sell next was a significant factor.

It is commonplace for iPhone sales to fall off in the summer quarter. This creates a huge demand into the holiday season that Apple usually stokes with new iPhone introductions. Speculation that iPhone is losing ground to Google’s Android is unfounded as iPhone’s market share is expected to increase from 30% to 31%.

Timothy Cook, Apple’s CEO, said, “I’m glad people want the next thing, . . . I’m not going to put any energy into trying to get people to stop speculating.” Apple management is expert at manipulating the market for its products.

Nevertheless, the importance of the iPhone to Apple cannot be overstated, as it accounts for 46% of revenues.

One wonders what Facebook will report tomorrow and whether its commentary will enable investors to justify its astronomical valuation. Now that it is public, Facebook will be subjected to intense analysis and high expectations. If it disappoints, look out.

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Sal Bommarito

I spend most of my time writing a screenplay based on three of my published novels.

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