$AAPL Pummeled in After-Hours Trading, Here’s Why

| Analysis

LPAA$Shares of Apple Inc. were pummeled in after-hours trading Wednesday as investors expressed their displeasure over the company's December quarter results and conference call. Though Apple met estimates for sales and slightly beat estimates for earnings, the company's guidance for the March quarter was substantially below Wall Street's consensus expectations.

Apple reported sales of $54.5 billion for its first fiscal quarter, right at consensus. The company also reported earnings of $13.1 billion, or $13.81 in earnings per share (EPS). Wall Street was looking for EPS of $13.48, representing a beat.

Both earnings and revenue set new records for Apple, helped by record numbers of iPhone and iPad sales of 47.8 million and 22.9 million units, respectively. iPhone hit the lower range of consensus estimates of 47-50 million units, while iPad exceeded estimates of 22 million.

Sandbagging

What hurt Apple with after-hour traders was its guidance. Apple muddied the waters a little bit by announcing a change in the way it will offer guidance for the March quarter and going forward. Apple has typically offered "conservative" guidance, according to Apple CFO Peter Oppenheimer, but will begin to offer more realistic guidance.

"In recent years, our guidance reflected a conservative point estimate, or results every quarter that we have reasonable confidence in achieving," Mr. Oppenheimer said during the conference call. "Going forward, we plan to provide a range of guidance that reflect our belief of what we are likely to achieve."

Put another way, Apple has been sandbagging its guidance for years, a practice has caught up to the company as analysts and investors alike expected the company to have blowout numbers every quarter. That practice will change going forward. Apple will also present its guidance as a range, rather than a fixed number.

Accordingly, Apple offered guidance of revenue between $41 and $43 billion. Consensus estimates for revenue were sitting at 45.4 billion. In the old days, Apple's guidance of $41-$43 billion would have been perceived as being roughly in line with that consensus number, but in the new era of a "we're not sandbagging" Apple, that represents a guidance miss.

It's important to note that if we're taking Mr. Oppenheimer at his word, Apple would have guided lower, say $38ish billion if were still taking the conservative route. That would have also been seen as a miss.

Notably—and this could also be having an after-hours affect on $AAPL—Apple didn't offer guidance for earnings.

Be Like Everyone Else

Additionally, Apple CEO Tim Cook specifically poo-pooed analyst questions about Apple offering cheaper iPhones to address the explosion of cheap, low end Android devices. Instead, he emphasized Apple's goal of making products that customers love and said that he and his executives were very pleased with the results of the iPhone 5, iPhone 4S, and iPhone 4.

Mr. Cook said in his opening comments that part of his job is to preserve the culture of Apple, and he said, "The most important thing to us is that our customers love our products. Not just buy them, but love them."

In that many want Apple to do go after the cheap, unprofitable end of the market, Mr. Cook's refusal to do what other companies are doing was very likely to have not sat well with after-hours traders. There is a significant meme with a lot of weight behind it that Apple needs to do what Samsung does by offering more models at more price points.

Instead of indicating a switch to match this meme, Tim Cook emphasized that Apple would instead continue to focus on making great products that people love—i.e. focused products sold at a reasonable profit.

The Hammer

Which is why the stock is being hammered. As of this writing, $AAPL is trading at $460.15, a loss of $53.855 (-10.48 percent). After hours trading is usually exaggerated in either direction following an earnings report, but expect the stock to trade lower on Thursday.

*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.

Sign Up for the Newsletter

Join the TMO Express Daily Newsletter to get the latest Mac headlines in your e-mail every weekday.

Comments

Winski

PLEASE TIM - GET YOUR HEAD OUTTA YOUR AS* !!!

The Market for technology products is fickle, flighty, transparent, changes on a nano-turn, has mood swings that NO ONE can predict or explain, yet Tim Cook, as smart as he is, keeps trying to chop it up into manageable little, behaviorally consistent nuggets he can spin up a can of blinking lights, buttons and tightly wound antenna to keep them ‘stable’…… “[expletive deleted]”!!!

The last 6 or 7 weeks of press, speculation, lies, manna, arguments, rights and wrongs, strong and weak statements, and a lot of what ever it takes to settle the noise down, has managed to crash the value of Apple down by 40 %….. THAT’ s OVER $ 200 BILLION DOLLARS because people like to scream at each other and calm heads can’t scream as loud as morons. AND, because the morons that have been screaming for the last 6 or 7 weeks like lunatics straight out of the asylum, got EXACTLY WHAT THEY THOUGHT TODAY… A CRAPPY APPLE EARNINGS REPORT - FROM A HOLIDAY PERIOD !! W T F !!!

I don’t care if it was the law of big numbers (they got reduced by $ 200 BILLION over the last few weeks), I don’t care if it’s Klowns making up bad FUD halfway around the world that was a LIE the instant it hit a keyboard. It resulted in a BAD EARNINGS REPORT FROM APPLE TODAY and that’s NOT ACCEPTABLE. ESPECIALLY IN A STONG HOLIDAY QUARTER where they should have had a performance that just left global pundits stunned and speechless …. Instead, Apple got laughed off the stage and the stock went down ANOTHER $ 60 BILLION DOLLARS !!!

Unforgivable.

dswoodley

AMazing that a year ago this would have been a astronomically huge earnings report (and still is in my estimation).  But because of unrealistic hyper-inflated musings of know-nothin analysts and bloggers it’s a disappointment.

jeffff

I’ll be buying more AAPL ASAP. My thanks to the Traders for this great buying opportunity.

Bosco (Brad Hutchings)

So here’s my plan to fix Apple. First, Cookie has to go. He can get a defensive coordinator job somewhere. He is a technician, not a leader of men. That’s not an anti-gay swipe by any stretch. He’s just not a leader. There is nothing inspiring about him. He exudes zero passion.

Second, Apple is clearly a hardware company. Content and apps are rounding error with very low margins. They are probably necessary to support the hardware, though not all of it is. This is where Apple can look at the magnitude of difference between its hardware sales dollars and content/app dollars and revolutionize. Instead of taking a dollar here and a dollar there, buying Apple hardware should get users into a content/app club. Apple should come up with a downloads and usage formula for app developers and tell them that’s how it’s going to be, or give them the option of legitimately side-loading. Similarly with content, Apple should allow Apple devices to access all the movies and music they want from some Apple-DRM’d content bar, and build that cost explicitly into device pricing. These would be revolutionary moves that competitors could not really match. And Apple devices could still play Amazon and Google Play music, and Apple will let those apps on without being jerks.

Second and a half… Can the failures. Punt on Maps tomorrow. There is no good reason for Apple to undertake that effort. Punt on Safari, license Mozilla. That would pull Google’s pants down and light Google’s taint on fire, as Google would have to assume responsibility for WebKit. Keep the iApps, but put their teams on notice that they need to support all major desktop and mobile platforms, and are responsible for earning their way. Do offer them an Apple user subsidy, but don’t let them ignore the xplat mission.

Third, I don’t expect that Apple will ever license iOS or MacOS. So Apple needs to diversify within each of its product lines. The Mac is the model: laptops, iMacs, minis, and pros. Different sizes and shapes and price points. The iPhone needs to do the same. That doesn’t mean they have to go cheap. But they have to go big and they need to get over fear of fragmentation. With iPad, it means adding 16:9 or 16:10 aspect ratio models. They are for more than just watching wide-screen movies.

Diversifying within the product lines is even more important for making the statement that this company still has anything worth doing. They are sitting on a lot of cash, much of which needs to be repatriated if they can’t figure out anything else to do with it. And that’s a huge tax drain. The cash stash is a liability. It gives analysts an excuse to just give them a low multiple because the cash isn’t doing squat. Let’s say that adding 2 iPhone form factors would cost the company a few billion a year in ongoing development. That’s better use of the money than parking it on an ocean liner.

The goal of this plan is to make it so that intelligent people who are aware of what’s available in the market will want to mix some Apple in, and will have a good experience doing so. Unfortunately, fanboys, Apple has ridden you as hard and as far as it can. To get off this plateau, it needs to regain wider industry appeal.

That’s my plan. I’ll be sticking to it.

Constable Odo

Let’s not talk about Apple’s failings in hindsight.  Mostly everyone on Wall Street suspected Apple would come up short and it did.  End of story.  Apple is giving worse shareholder returns than RIM, Amazon, Google, Netflix, Intuitive Surgical, Priceline and dozens and dozens of other stocks.  With all the money Apple has it’s still just a very poor investment to shareholders.  Does it really matter?  No.  You should just sell your Apple shares and buy shares of some stock that will earn you some money.  Let Tim Cook screw around with someone else’s money.  Packed stores and lines around the block don’t count for anything.  Apple’s fundamentals and reserve cash are pretty much useless to investors and shareholders. 

Unfortunately for some recent investors, lessons have been learned the hard way.  Don’t trust Tim Cook or analysts telling you everything is fine with Apple.  They may be right, but you’re not going to get anything out of it.  Shareholders trying to get returns from Apple is like trying to get milk out of a dry coconut.  Apple lasted less than a year as a value stock and like Steve Jobs, the company is dead for long-term investors.

paikinho

So HTC post lower than expected losses and its stock sails upwards.
Apple posts record sales and profits and its stock drops.

I guess I don’t really understand wallstreet.
Time to buy up some more cheaper stock.

Bosco (Brad Hutchings)

Seriously paikinho, if you know that you don’t understand how the market works, the last thing you should be doing is buying individual stocks. This is not a test of how loyal a fan you are.

paikinho

Respectfully Mr. Hutchings, I’m joking. :-D

I have a rather diverse portfolio, but I do think that Apple is in an interesting position. Lots of negativity and bad feedback and yet the profits continue to rise and will continue to rise for the forseable future. The more the stock is driven downward at this point, the more inclined I am to pick up some more.

I like Apple products to some extent. iPhones are decent although maybe not groundbreaking, iPods are inferior to what I have had before. The OS is decent although I have always preferred to run Linux boxes over the last 15 years. The computers are pretty and well thought out, but not high on the DIY expansion grade.

What I have liked is all the money I have made on Apple stock even given the latest downward spiral. I see no reason not to buy it right now.

Do you have some other insight?

Ted T.

@Constable Odo: if you really think that Apple’s share price will remain immobile or go down as it’s P/E trends towards zero, keep this in mind—eventually that huge and constantly growing pile of cash will be good for something—taking the company private. 

Do you really think the market, as dumb as it is is right now, will just sit around and let that happen?  No—eventually AAPL will rocket right back up—Apple is after all making *much* more money than all of its competitors.  In 2012 Apple made more profit than any other public company in history. RIM, who you mention as a better investment may not be in business 12 months from now.  The only question is which share holders will have the patience to be there when the inevitable rocket ride back up happens, and which will have decamped to “greener pastures” (Ha!)  like RIM. 

“Mostly everyone on Wall Street suspected Apple would come up short and it did”  So beating the Wall St. consensus on EPS by 40 cents a share is now “com[ing] up short”?  Go ahead invest in Amazon: Amazon.com PE Ratio TTM:3830 for Jan. 23, 2013

Seriously?  If you think that’s a better investment than AAPL, I strongly suggest you go to Vegas and start playing roulette—your odds will improve considerably.

Bosco (Brad Hutchings)

Ted: Stock buybacks are the worst use of money imaginable, especially Apple levels of cash reserves, and especially because Apple would have to repatriate that money before buying back stock with it. The reason they are the worst is that they signal that nobody at the company has any better ideas of how to invest it. The more people believe that a significant buyback is the best use of that cash, the lower the P/E will go. See 1996ish when Apple’s market cap got very close to its cash reserves. The amount may be 100x bigger, but the issue is still the same.

Paikinho: You’re making the same argument RonMacGuy made at $540. Unless Apple significantly and visibly changes its game in a way that inspires investors and gives a strong signal for real growth, they are headed to some low multiple of cash on hand as iPhone and iPad lose ground to competition. Those are the bulk of business right now. The first mover advantage is long over.

paikinho

Mr. Hutchings,
And what of expansion into new markets?
It seems there is ample room for growth in many parts of the world. It seems to me like the sales of smartphone like devices and tablets are far from peaking over the next year or two at least.

And what of new products?
Do you assume that Apple will not be bringing any new products to market and if so why?

Do you think that Apple is at some sort of disadvantage to compete in whatever new market arises?
It seems to me that Apple is far from the innovator that everyone assumes it is. Quite the contrary in my estimation. They have copied, bought up technology, and redesigned things very well, but I have not known them to be the leading edge of any technology.

Japanese.
That is what Apple reminds me of. They don’t necessarily create anything new, but once there is a discernible market, they seem to make products in a way that entices people to buy lots of them who might have otherwise not thought about it.
The Japanese didn’t invent the TV, but they sure evolved what TV’s were and sold lots of them in the process.

nikster

Steve Jobs never cared about the stock price. And this is why. I hope Mr. Cook is as able to ignore the screaming hordes of speculators as Jobs was.

Apple is now officially the most profitable company in the history of the world. Clearly they’re doing everything wrong, should fire everybody, and devise a completely new product line. Right? They should be doing what all the other companies are doing, who are not even making 10% of what Apple makes. If they are profitable at all, that is. Of course!

Ignoring the stock price for a moment, what about products?

- iPhone and iPad continue to be the raging successes they were, but with lower margins. I have said this before - it’s a good thing. You can’t sustain 40%+ margins, and you can’t bet your business on being able to maintain 40%+ margins on hardware when everyone else is doing 5%. Apple is Apple and able to make more money off of hardware than anyone, but anytime they are above 30% they should lower the prices on that product. The only exception is when they can’t fulfill demand which is always an issue with Apple. Lowering prices when you can’t fill demand is akin to throwing money out the window after setting it on fire.

- Mac sales are down. I think they’re really flat, except that Apple was unable to deliver its iMac for 3 months or so. I am guessing they’d normally sell 1M+ units of a completely new iMac model in a quarter. But the product has been unavailable and so they “lost” these sales.
As history tells us, though, most of these sales are not actually lost. They’ll be recovered in the next quarter. People who want a new iMac are for the most part not going to turn around and get a Lenovo or Dell. For the most part, the hold off on the purchase until the iMac becomes available. Not all. But most. This has happened to Apple many times in the past.

- iPod. As expected, being replaced by phones. Also the things are too damn reliable, I have 2 iPods that are now both 5 years old and working perfectly. No reason to get another one.
- Apple TV is surprisingly successful. Still only a blip on the radar though

paikinho

nikster:
Personally, I am waiting to buy a new iMac until February anyway. I wouldn’t have bought it in November, December, or even this month. I have been looking at what exactly will meet my current requirements and that is what I finally settled upon after a couple of months consideration.

At least anecdotally for me your point about the delay hurting apple sales is accurate. I still plan to buy an iMac next month and it is a good thing they will have the 27” kind I plan to buy in stock.

ibuck

Bosco, I’m taking your comments with a grain of salt because you are not going to buy anything Apple. Why would any company listen to someone who will never be a customer? And who disparages the company, its customers, its officers, etc at every opportunity?

Bosco (Brad Hutchings)

iBuck: Pretend that someone you’d never heard of wrote that, and then tell me what you think about it wink. In the course of my work, I still have to buy some Apple stuff, so your perception is just plain wrong anyway. You woud be correct to conclude that I’m not a fan of what this company has turned into, from many angles. Anyway, the point of that wasn’t for Apple to listen to me. Jony Ive knows how to get in touch, so if they’re that desperate for direction, the could, but it wasn’t my point. The point was to tell you guys what to watch for strategically if this company recovers, or what to not watch for is it continues to stumble. Yes, they have record revenues and profits, BUT they have tied up a lot of capital to accomplish that. And that’s the reason Apple is a broken company and the stock has been taking a beating. The market is telling you that all this money would be better put to use somewhere else.

skipaq

Brad, your plan is not much more than a retread of your old ideas.

1) Fire Cook because he is not a leader of men and exudes zero passion. What personal interaction do you base that on? You are entitled to your opinion even if is based on nothing more than a view from a distance. But such is dung poor logic for the board to even consider.

2) Apple is clearly a hardware company. That assessment is so outdated. Apple has an integrated product strategy. It is the whole ecosystem that drives their profits. They have content deals that would preclude your club idea. The fact is Apple makes a profit from content/app sales. These numbers are transparent to the content/app providers; rather than buried in the price of hardware.

2.5) Can the failures. Better business practice is to learn from mistakes and make appropriate changes. At times that may be to drop a product; but that should be rare. I use Safari exclusively and millions of others do as we’ll. Don’t take away our choice on your whim. I have enjoyed using the Maps from Apple and thus far have had no issues. I believe it will get better and strengthen Apple versus their competition.

3) Diversifying is worth doing to a point. MacOS has a limited amount; but so does iOS. I would like to see a smaller iPhone at a lower price point. It doesn’t need to have all the bells and whistles. But I am very happy with the iPhone 5.

They do have a ton of cash. Not being privy to their business plans apart from what has been announced; far be it for me to tell them they are wrong. Having owned a business, one thing I do know. That cash gives them a tremendous amount of leverage. Their competition cannot fully anticipate what Apple can do. In this regard Apple stands alone in tech.

I am a 40 year member Apple fanboy who has enjoyed the ride. Don’t question the intelligence of the club members.

Lee Dronick

iMac sales are down, but so are “PC” sales. In the past many people used them mostly for the things that can be done on a tablet be it Android or iOS. True though that people who really need a Mac, content creators, are probably holding off for new models.

Opinion101

Nikster got it right : “Apple is now officially the most profitable company in the history of the world. Clearly they’re doing everything wrong, should fire everybody, and devise a completely new product line. Right?”  The Wall St buffoons are just causing havoc because they’ve never created anything that took any work or effort and they have to be seen as holier-than-thou in order to justify their worthlessness.  Tim Cook is the perfect CEO during this imaginary shitstorm and this will be proven in time.  Also, everyone seems to be acting like Apple is never going to invent anything new again… Fools.

ibuck

Bosco: “In the course of my work, I still have to buy some Apple stuff”

Do tell. What will you buy?

Bosco (Brad Hutchings)

Funny you should ask. I spent about $4K on new Apple branded stuff in 2012, and an additional $2K on third party stuff for the Apple branded stuff. Some of my customers have Apple stuff, so I support it the best I can. iPads get pulled out nearly everyday for web application testing. and MBPs are my everyday workhorse development computers.

aardman

Most everyone who is trashing Apple seems to be operating on the implicit assumption that there will be no new products anymore after iPad.  Just like everyone thought the Mac was it.  Then iPod was it.  Then iPhone was it.  Then iPad is it. 

The reason Apple has been so successful is that they dream up and deliver products that we mere mortals (including Microsoft, Samsung, Google, etc.) couldn’t even conceive of.  And the reason most people’s default mode about Apple is eternal pessimism is since they have no idea what Apple will do next product-wise, they assume that neither does Apple.

Look what all these hack recommendations for Apple:  Offer more varieties of existing products.  Offer more diverse price points.  Put more bells and whistles in.  These are all backward looking ideas.  This is what companies do when their innovation model is ‘Copy Apple’.

The ‘sell less expensive models’ is exceptionally stupid, too.  The Windows PC market has already demonstrated that in computers, the main differentiating feature is the platform/OS (not build quality, not component quality, not materials quality) and if you sell a low priced line, it will kill the high end business, which is the only really profitable end.  Apple knows this, people who understand Apple’s business model know this, but legions of analysts and self-proclaimed management experts seem to be oblivious to this.  Brand this on your foreheads geniuses:  If Apple goes after the low end smartphone and tablet markets, iPhone and iPad profits will DISAPPEAR.

Apple’s ‘recovery’ depends completely on what new ground breaking, category defining products it has in the pipeline.  If you think Steve’s demise has killed the innovation machine, don’t hold AAPL.  If you think the innovation machine is basically intact, then stay invested in AAPL.

aardman

Another incredibly simpleminded yet widespread assertion about Apple is that it is a hardware company.  If it were a hardware company, i.e. the foundation of its success and profitability is in the hardware it makes and sell, then they would be just as successful if they just sold Windows, Linux, or Android bricks and boxes, eh?

Apple is a ‘hardware company’ only to bean counters.  [Well, their revenues are overwhelmingly from sales of devices, so they must be a hardware company!]  In truth, hardware is merely the vehicle or package by which Apple delivers its main differentiating feature (i.e. the reason people buy your product instead of the other guy’s) which is the OS and the ecosystem built around it.  By selling its OS exclusively through their own hardware, AAPL is able to maximize its profits but make no mistake, when we buy Apple products, we’re buying it because of the software.

Bosco (Brad Hutchings)

@aardman: You appear to misunderstand what Apple being a hardware company means. It was explained to me in 1996. The software had to sell boxes. If it didn’t sell boxes, it wasn’t carrying its weight.

marvin

Its funny reading all these comments it really shows a lot about the apple consumers.

Don’t blame wall street because of apples lack of holding market share. Like.RIM apple has an os that’s old, and their hardware is lacking compared to other competitors. They need to innovate new ideas. The hype is gone and product life cycle is coming to an end. All these apple fan boys at each others throates screaming I spend this much money, I support them.this much. Lol just wow.

Log-in to comment