Apple – The Numbers

AppleApparently not only a new iPhone will set you back financially, Apple’s shares (AAPL) will do the job too. The value of the shares have been plunging faster than the resale value of an iPad and it seems that they don’t have an app to stop it.

The shares are in free fall after last quarter’s numbers. Shares are down 10% following the results of the holiday quarter and more disappointing; the stock is trading for about $450, down from the $700 high back in September. On the company’s conference call, Tim Cook, the CEO, described Apple’s results as “extraordinary”. And he is right, they were extraordinary.

Revenue: $54.5 billion
Profit: $13.1 billion, compared to $13.06 billion last year
iPhone: 47.8 million, compared to 37.04 million in Q1 last year
iPad: 22.9 million, compared to 15.43 million in Q1 last year.

Of course they are extraordinary, they just had a record $54 billion in sales in one quarter. Any company that achieves that kind of number is excellent. And they have monster record profits. And they have $137 billion cash sitting in their bank account. And they have cool products that people wait in line for day to buy. They sold 10 devices per second last quarter. They sold more products last quarter than they ever sold before.

Apple1

So what’s the matter? Why are the shares crashing? How can investors not be happy with these kind of numbers?

Investing is a game of expectations. The company grew less than analysts expected. That’s it folks. Every quarter you have to match or beat the analyst’s numbers or you take a beating. Why? Because a stock is price in functions of future expected earnings. After all you are investing your money for a future stream of earnings. If it wasn’t for expectations Wall-Street would be honoring Apple right now because of record sales and profits. For comparison, Netflix crushed the analyst’s expectations and the shares went up 30%. To use a football analogy, imagine a receive just caught a super important pass and he is one inch out of bound. It nullify everything. Same with expectations.

So what’s next? After madness is gone their might be some opportunities. Investors need to stop being so emotional about Apple and need to treat it and value it like any other company. Apple is trading at 10x earnings, relatively cheap for a premier technology company. It has $137 billion and counting in cash on the balance sheet. They are paying some dividend and started a $45 billion share repurchase program. And their earnings are monstrous. They will not have hyperbolic growth they had last decade but they remain profitable. This time valuation might be on your side.

Photo credits: Reuters and Forbes

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