Apple Stock Tanks Despite Record-Busting Sales
It's not where Apple's been -- it's where it appears to be going that has investors in a dither. Based on its guidance, it looks like Apple is headed for an uncertain period of standing still. While the sky isn't falling, it's an uncomfortable and unfamiliar state for Apple to be in. With $137 billion in its back pocket, though, it's safe to assume the company can spin some iMagic once again.
Apple's stock fell after the company released its most recent quarterly report, despite record revenue, iPad and iPhone sales. It posted US$13.1 billion, or $13.81 per share, in net income for its first fiscal quarter on revenue of $54.5 billion. Net income was flat compared with the same period a year earlier, but revenue was up 18 percent from the $46.3 billion it earned in the year-ago quarter.
Apple sold 47.8 million iPhones, up from 37 million during the same time last year. The company sold 22.9 million iPads during the holiday season, an increase from 15.4 million in the year-earlier quarter.
Apple did not reveal how many of those tablet sales were iPad minis, the smaller model it released last fall. In a conference call following the earnings, though, Apple said the mini was a hit, and that iPad sales probably could have been higher if suppliers had been able to keep up with mini demand.
Although the iPad and iPhone had record-setting sales quarters, that wasn't the case for Macs. Apple sold 4.1 million, down from the 5.2 million it sold a year ago.
CEO Tim Cook acknowledged the lower PC sales during the conference call, saying that tablet cannibalization was probably partly to blame for the decline.
However, that cannibalization represented a huge opportunity for iPad growth, he maintained, repeating his oft-made prediction that the tablet market will eventually be bigger than the PC market.
Apple's philosophy is to embrace rather than fear the cannibalization trend, Cook said.
The company expects $41-$43 billion in revenue in its upcoming quarter. Going forward, it will offer a range of guidance rather than point estimates.
Apple did not respond to our request for further details.
The earnings report did not impress investors. Apple's stock sank by as much as 11 percent after the announcement, dipping to about $461 during after-hours trading. It continued to trade around $460 going into Thursday afternoon, but dropped to as low as $450.66 after the day's opening. Overall, the share price has dropped by about 34 percent since its peak at just over $700 from last September following the iPhone 5 launch.
Those $700 per share days might be over, at least in the short-term, said tech analyst Jeff Kagan -- but not for lack of sales.
"Apple sold an incredible number of units this past quarter," Kagan told the E-Commerce Times. "It would be enough to make any other company really excited. But Wall Street is a different animal. It's been watching this rocket shoot across the sky for several years, but that wasn't going to last forever. It's started to stall, and the numbers are still incredible -- but for some reason Wall Street says 'I'm outta here' and goes to look for the next shooting star."
It's unclear whether the company will be able to be that star again in the future, he said.
"Apple could kind of be a one-company recreation of the 90s," Kagan suggested. "The huge growth wasn't going to last forever, and the question now becomes if it can recapture that magic or if it's going to be a more ordinary company. They were first with the iPod, iPhone and iPad, but they haven't had a real first lately, and there are a lot more competitors out there now."
Ramp Up Investment
One way to rekindle some of that magic would be putting its $137 billion cash pile to use in ways other than issuing dividends, said Trip Chowdhry, senior analyst for Global Equities Research. Instead, the company could use the money to bolster investments to its ecosystem.
"They have the cash to ramp up big time on investments into their ecosystem. It shouldn't just be sitting there," Chowdhry told the E-Commerce Times. "Apple needs to put that $130 billion towards state-of-the-art manufacturing equipment on the supply side in the USA and building out cloud equipment for suppliers."
The company is building new data centers, and Cook announced recently that Apple was planning on building one of its Mac lines in the U.S.
That's a start, Chowdhry acknowledged -- but he maintained that if Apple has the resources to ramp up investments in research and development, manufacturing and overall efficiency more than any company in the industry, it should pursue those commitments much more aggressively.
"Putting more money into the Apple ecosystem is what will really help the company going forward and help its revenue skyrocket," he said. "When investors don't see investments with that kind of cash, they run. When Apple stops giving out dividends and starts cranking up investments at a much higher velocity, that's when investors will end their anxiety and come back."