Here’s Why Apple Bears Need to Hibernate
It wasn’t the first time someone said something outlandish on Twitter, nor will it be the last, but coming just before Apple (NASDAQ:AAPL) earnings, Matthew Panzarino’s ironic tweet asking that Tim Cook be fired is perhaps one of the more interesting this week.
On Monday, Panzarino, of tech news site The Next Web, tweeted the message “Fire Tim Cook!” Here’s where the irony comes in: Panzarino included a link in his tweet to a couple charts showing the steady upward momentum of Apple’s revenue and profit over the last few years, for most of which the company was led by none other than Tim Cook.
Panzarino’s comment, whether he meant it or not, is the perfect satire of bearish arguments against Apple and its leader. Apple shares have been tumbling ahead of earnings on rumors, among other concerns, that the company may have to push back the launch of the anticipated iPhone 5S from June to July, and the iPhone 6, which was originally slated for later this year, until 2014.
Apple watchers have a tendency to make mountains out of molehills, and can’t seem to see past them. Panzarino’s tweet and accompanying charts paint a pretty clear picture of this problem. Apple’s stock movements tend to be based entirely on rumors and expected catalysts, rather than company performance, and as a result, minor setbacks can result in major sell-offs. However, until recently, shares have tended to bounce back rather quickly. Now it seems the bears have gotten their footing, and Apple shares are trading at their lowest levels since 2011.
But that doesn’t mean the bears are right. Apple still has the most popular smartphone and the most popular tablet on the market — period. Global demographics may be shifting as emerging markets tend toward lower-cost smartphones, but Apple is unlikely to see any decline in overall sales figures. And according to a recent analysis, despite selling only a small fraction of the world’s PCs — about 5 percent — Apple rakes in roughly 45 percent of the industry’s profits, significantly more than any other PC manufacturer.
Since Cook officially became CEO in August 2011, the company’s annual revenue has grown 45 percent, to $156.51 billion, while profits have soared 61 percent, to $41.73 billion. And yet, shares rocketed to upwards of $700 in September 2012, only to slip back down to below $400 last week.
Of course, Apple’s sell-off isn’t completely unjustified — the company did warn Wall Street in January that it expected profits to decline about 20 percent during its fiscal second quarter, the results for which the company will report later today. The success of the iPad mini is also of some concern, as it’s cannibalizing sales of the full-size iPad, and carries a lower profit margin than its big brother. A perceived lull in new product launches also has some investors backtracking, thinking they were perhaps overly-enthusiastic about Apple’s prospects and ability to stay ahead of the pack with innovative new products.
However, Apple could easily turn things around with a successful product launch and the stronger quarterly earnings that tend to accompany successful launches. Whether investors will take the bait after being burned remains to be seen, but June will bring the Worldwide Developers’ Conference, where Apple tends to present exciting new technologies, and the iPhone 5S is expected some time soon, either June or July, depending on whether you believe recent supply chain rumors.
Despite what’s happening in the short-term, there’s no reason to believe it’s anything other than temporary. Apple still has the brand recognition and popularity that made it one of the most valuable companies in the world. And until Apple starts reporting declining sales over multiple quarters, there’s no reason to believe the strategy that has worked so well in the past won’t continue to do so.
One need only look at the Panzarino’s charts (below) to recognize that Apple’s revenue and profits don’t always increase from quarter to quarter. In fact, Apple’s best quarterly report ever, for the last three months of 2012, came following three depressed quarters in which revenue and profit were down significantly below those reported for the three months ending 2011.