As almost every one of you know by now
What many investors might be currently overlooking is the fact that were it not for currency headwinds which affected the top and bottom line by 800 basis points, the company would have reported revenues north of $53 billion and earnings per share would have also been ahead of the reported numbers by at least 25 cents per share. Numbers that would have had the shares flying rather than sinking today.
However, that did not happen and the fact is that the numbers the company did report were not good enough as one can see from the reaction to the report at the moment. So was it worries about ongoing Chinese demand as result of the negative wealth effect created from the three week flash crash in the Chinese markets? Was it lower than expected iPhone unit sales? Or can we blame the miss on the iPad numbers? Or is it disappointing Apple Watch numbers which were not publicly revealed by the company? Is it continued worries about currency headwinds? More than likely it is a combination of all the above and then some.
In my opinion, the fundamental reason why Apple's shares were received with boos and hisses the moment they were out is the following:
Last week, we had outstanding numbers from two internet companies, Netflix and Google, both of which blew away estimates and each of them provided investors an absolute and tangible reason to buy the shares despite the impressive appreciation prior to and post their respective earnings report. In the case of Google, the most important reason was a far better than expected earnings number as a result of terrific expense control and management by Ruth Porat, the new CFO of Google. As far as Netflix was concerned, it was the blow-the-doors-down subscriber additions that they reported which exceeded even the most optimistic Wall Street estimates.
In my opinion, it was the fact that Apple failed to provide investors, current or potential, an absolutely solid and irrefutable reason to buy the shares last night in post market trading or today in regular market trade, that has the shares trading down by over 5% right now. All of us were looking for that one reason to buy or add to our Apple holdings. Apple totally failed to give us that one solid reason to do so. Without that one solid reason, you have the hot money, the traders and the short term investors headed for the exits and deploying capital elsewhere which is how it has to be if your investment objective falls into one of those categories.
Now Apple is in the show-me category. They need to prove the critics wrong. They need to show investors that demand in China is not affecting them as much as feared. They need to find a way to convince the Street that the Apple Watch is a hit and not hide by the flimsy excuse of not revealing the numbers due to competitive concerns. Even if its not an excuse and a legitimate concern, there has to be a way for the company to allay the fear in investors minds. Anecdotally, I can tell you that I absolutely love my Apple Watch. Everyone I have spoken to says the same thing as I do.
Having said that, what does one do if one is already an existing Apple shareholder? Well, if you are a long term shareholder, you are okay although maybe you are a bit disappointed today. If you are a trader, you more than likely have already have moved on. If you are considering an investment or wanting to add to your position, consider current prices a gift. One thing if you are adding that you might want to be on the look out for is another downgrade or so in the next couple of days as a bearish sellsider or two will more than likely wait till the dust clears and then issue a downgrade or justify their existing bearish thesis when the coast is clear so as to maximize the potential negative effect and maybe get some face time on television.
