Apple Stocks Price Drop by 12%

We noticed that Apple has gone a little sour lately and we wanted to share our thoughts. Since our last update, Apple reported their quarterly earnings (their 1st quarter, or 4th calendar quarter) on the evening of Wednesday, January 23rd.  Apparently the report was not what investors wanted to see as Apple’s stock price dropped about 12% the next day.  This is a little confusing because they reported earnings that were better than expected (as measured by the average analyst estimates) and revenues that were in line with expectations.

We believe that this has a lot to do with the expectations of investors being too high.  In recent years, Apple has been able to beat the “earnings expectations” consistently and by a wide margin.  So when investors look at the average earnings estimate for Apple, they are typically thinking (or hoping) Apple will report a number 20 to 30% higher than the average estimate.  If they don’t get that big number, then some will choose to sell their shares, especially if they are traders and not long-term investors.

But to gain a little perspective, let’s take a look at a few of the highlights from Apple’s report:

  • Apple’s quarterly earnings were $13.81/share, ahead of the average estimate of $13.47.
  • Their revenue was $54.5 billion, slightly less than the average estimate of $54.9 billion.
  • During the same quarter last year, Apple averaged $3.3 billion in revenue per week and this year they averaged a record $4.2 billion per week, up by about 27%.
  • Cash & Marketable securities grew to over $137 billion, up from about $121 billion last quarter and $98 billion last year…they increased their cash by about $40 billion in one year, and they have No Debt.
  • Sales in China were $7.3 billion in the quarter, up about 63% over same quarter last year.

As you can see, Apple’s business is very healthy, but for investors it’s more of a question of how fast it will grow from here, or will sales start to decline.   We think that Apple will continue to innovate and continue to expand into other countries, and if so it is likely that they will continue to grow.

We look forward to talking to you soon.

Best,
Brian and Abby