Apple announced earnings Tuesday night and the jury is out on how to interpret the smoke and mirrors of the data. The stock opened near $392 down nearly 2.5%. It has proceeded to bounce to $415 on the high for the day and currently is near the $403 level. That tells me everyone is as confused as I am by the announcement(s).
You can read the earnings numbers yourself, but here is the take away… Earnings were down 18% quarter-over-quarter and that is the first time that has happened in 10 years. They beat Wall Street expectations on earnings, and revenue was in line with expectations. All said, it wasn’t as bad as some had anticipated. It wasn’t as good as it needed to be to push the buyers back into the stock. The disappointment in the earnings data was the drop in margin or profits on sales. That disrupted the ‘apple cart’ so to speak:) There was plenty of money ready to buy the stock if they beat or offered some good news relative to the fundamental data improving. That didn’t happen and we see the resulting volatility intraday in the stock price.
There guidance looking forward is where the problem begins for me. They lowered revenue projections and margin on sales. That is disturbing and shows the aging of the product line. Margins tend to erode as retail products age. There in lies the other issues with the company… nothing new released since the death of Steve Jobs. I don’t want to get into that issue as plenty has been written on the subject already. That puts investors in a wait and see mode as they don’t like the lowered data points going forward.
Then there was the issue of capital deployment. They raised the dividend and their stock buy-back program which will use part of the cash on the balance sheet as well as use of debt to make payments to shareholders. This is starting to sound like all the other old technology companies… Microsoft, Intel, Dell, etc. etc. etc. There is some obvious pluses to the use of capital for existing shareholders, but this does nothing to develop new business or expand existing revenue lines with a product refresh. I am not a fan of the action, but it was done to quite shareholders that have become restless as the stock has declined more than 40% over the last nine months. They will be quiet for now, but what happens next quarter when the reality of lowered revenue and margins hits the press.
Thus, I am not a fan currently, but I am not negative enough at this point to be short the stock. I am willing to watch and see how this all shakes out going forward. The best news Apple could offer is a strategic plan that will bring new products to market, like those that have changed the lives so many around the world. For now, I don’t own Apple, don’t want to own Apple and the volatility level currently is too high for any trading opportunities in Apple. But, I do like my iPhone!