Apple’s Earnings Report: It’s Hurt Time Again

| Analysis

Apple will host its second quarter earnings report on Tuesday, April 23, and analysts aren't optimistic about what the company will announce. Analysts are expecting the iPhone and iPad maker to report its first drop in profit since 2003 with an 18 percent decrease in net income, and an 8 percent revenue increase, yet no matter what Apple announces it's a safe bet someone will be disappointed.

Analysts and investors aren't all that happy with Apple's performanceAnalysts and investors aren't all that happy with Apple's performance

Part of the concern investors have stems from the fact that Apple hasn't rolled out any new products or big updates since it revamped nearly its entire product lineup about six months ago. "The market needs to see some evidence that the future looks bright because that candle is flickering," said Oracle Investment Research analyst Laurence Balter, according to Bloomberg.

Apple hasn't updated any of its products since lsat fall, the company's annual World Wide Developer Conference dates haven't been announced yet, and the stock is down to about half of its all-time high. Analysts and investors are used to Apple rolling out big announcements quarterly, and without that happening they seem to be losing faith in CEO Tim Cook's ability to lead the company.

Analysts Katy Huberty from Morgan Stanley and Toni Sacconaghi from Sanford C. Bernstein expect Apple will announce a stock dividend increase, or possibly an increase to its share buyback plan, to please investors. If the company does go with a dividend increase, analysts predict it could jump up to 17 percent.

While analysts and investors talk about their fear that Apple has lost its luster and ability to innovate under Tim Cook's leadership, they seem to have forgotten how they complained that Apple has lost its ability to innovate under Steve Jobs as well. Before Mr. Jobs stepped down at CEO, investors would complain that Apple's steady product updates weren't innovative enough.

JMP Securities analyst Alex Gauna is echoing now what analysts and investors have been saying for the past couple years: "Things have changed for Apple. The competition is more intense."

One issue Apple has to deal with is that while the company is successful, and continues to grow and show a healthy profit, it isn't enough for investors. Apple is expected to show block buster numbers every quarter and wow consumers with magical new products every couple of months.

Apple and investors share some blame in setting unrealistic expectations, and the secretive nature of the company has helped boost the hype that led to the current situation. Just like consumers, analysts and investors are basing part of their expectations on rumors -- and those rumors often times don't pan out.

Analysts have expected an Apple branded television to launch almost every quarter for a couple years, and now they've added an Apple smartwatch to their it's-almost-here list. They're also talking about an iTunes music streaming service set to launch this summer -- which is a prediction that's come up before.

What's likely for tomorrow is that Apple announces strong device sales along with strong revenue and profit, but not as high as investors want. We'll hear disappointment about the company's performance and predictions of doom. Yet when Apple finally does release the next iPhone or iPad, consumers will still line up to get theirs and competitors will rush to copy its features.

This, apparently, is the cycle of life at Apple: Doubt and uncertainty, successful product launches, investor disappointment. Apple has a pretty dysfunctional family.

Comments

skipaq

How true! This is the likely scenario for tomorrow.

vpndev

Perhaps not as high as investors *want*, but I suspect that if they are in line with projections then investors will be satisfied. After all, disaster has already been baked into the stock price, with P/E below 9.

mrmwebmax

+

On a related note, there’s a rumor circulating the web that Apple is looking for a Tim Cook replacement:

http://www.informationweek.com/hardware/apple-macintosh/is-apple-looking-for-tim-cook-replacemen/240153327

Polimon

“Apple is expected to show block buster numbers every quarter and wow consumers with magical new products every couple of months.”

By who, exactly? Especially the new products every couple of months. Apple has never moved that fast. Game changers aren’t even launched every year or 2. More like 3+.

nealg

Part of the problem for Apple may be the share price. People may look at Apple and say how expensive it is, not realizing the financials they have to back those numbers up. So people say Apple at $400, still expensive and they have to outperform everybody else to get recognized.

Even at $700, when there was some hope that Apple could still grow fast and maintain margins, Apple wasn’t fully valued based on the expectations at the time.

Google and Amazon are interesting companies in this regard. They have had a high share price for quite a while and maybe others/investors/speculators think differently about these companies. Google at $800 may be fairly valued here, depending on whether they can maintain a growth rate of 25%. Amazon’s share price must be because everybody orders from them, investors must think that things will eventually work out but Amazon is very overvalued in my opinion.

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