It’s been an interesting week for those who spend their time paying attention to Apple’s third quarter earnings. The fun started last week with an analysis from Slice Intelligence that claimed a 90% drop in the sales of the Apple Watch since the launch. Never mind the fact that Slice’s data was based on nonsense, the announcement the Apple Watch was dying received vast coverage and, oddly enough, considerable belief throughout the industry.
Those whose interest was deeper then got a much more serious study by my colleague Ben Bajarin who, along with Wristly, discovered Watch sales were doing quite well, thank you. Suddenly, Apple was expected to do very well come July 21.
But when the announcement came, it was suddenly a dramatic failure. Actually, there was nothing whatever wrong with the Apple announcement. The company had never given out predictions on what to expect. The category results were reasonable: strong sales of phones, weaknesses of iPads, Macs doing OK, Watches who knows how many, and predictable difficult profitability of international exchanges.
In other words, profit. Apple announced $49.6 billion of sales and net profit of $10.7 billion, up from $37.4 billion and $7.7 billion profit in the third quarter of last year. Reasonable strong gains are expected in the next year. Another normal Apple success.
And what was the response: “Apple shares tumble after third-quarter results,” Tech blog.
“Apple iPhones sales up 35%, disappoint,” Wall Street Journal
“Apple’s iPhones sales, weak forecast investor confidence,” CNET.
Some of the coverage was downright silly. In The Washington Post’s Apple shares plummet after lower than expected iPhone sales, Hayley Tsukayama used analysis from Gene Munster of Piper Jaffray. What he had to say was pretty much down the middle, but Munster has made a fool of himself for quarters by forecasting the imminent announcement of an Apple Television. He has usefully dropped it, but it leaves him as one of the most pointless voices in the world of analysts.
Of course, there’s the odd interpretation. Time’s Kevin Kelleher argued:
Here’s the thing. The headline numbers on earnings reports often tell only part of the story, especially with a company like Apple that is so obsessively tracked by analysts, investors, fanboys and bloggers. So yes, Apple beat expectations, but it really just kind of squeaked past them, whereas it typically leaps over them with a substantial margin. In other words, beating the numbers isn’t enough. Investors expect Apple to thrash them.
And again, that didn’t happen. But all of this disappointment is centered around the iPhone. The selloff late July 21 wasn’t driven as much by Apple missing a target set by analysts. It came from a much deeper concern about Apple’s ability to keep dazzling–eight years after it introduced the iPhone–with its technology and design.
Needless to say, actual results that were a strong gain but weaker than unreasonable predictions, made the market very unhappy with Apple. Shares quickly dropped 8% before partially recovering. When all was done, the stock price ended up very close to where it was a month ago:
The fact is, Apple is doing well. Considering the amount of money it is earning is vast, growth is bound to slow over time. The company has significant improvements coming out this fall, including updated iPhones and iPads and updates to iOS and OX X El Capitan. And new products will boost sales.
If you want to watch development, you’ll do a lot better in the next couple of months where change may really make difference. That’s the release of Windows 10 and it is a lot more significant to change for Microsoft than anything at Apple.