The weird thing about the Great Apple Miss of October 2011 wasn’t so much that Apple (NASDAQ:AAPL), known for its conservative guidance, fell short of its revenue estimates for the first time in three years. The weird thing is this: that so many smart people scrutinizing the most analyzed company in the history of the stock market could miss the obvious.
The obvious being the arrival of the iPhone 4S in October, too late to have any positive impact on Apple’s fiscal fourth quarter, which ended Sept. 30. Did the analysts miss all the speculation and anticipation around of the latest-generation iPhone? And didn’t they see people putting off buying a new smartphone because of that speculation?
For most of the year, everyone was expecting an iPhone 5, not an iPhone 4S. And the rumors about this supposed iPhone 5 were tantalizing: It would have a 4-inch screen, not the 3.5-inch screen on older iPhones; it would work on superfast 4G LTE networks; it would teleport you to an alternative universe where everyone lives in blissful harmony forever.
It turns out the iPhone 4S wasn’t any of that – it was just the best smartphone on the market. But the rumors of what it could be were ubiquitous and unavaoidable, so, of course, many people held off for a few months to wait for the launch of this new iPhone. And most analysts, it seems, failed to take that important bit of anecdotal information to heart when they were calculating their estimates.
And the result was that Apple’s stock fell 6% Wednesday to $398.62 even though its revenue grew by nearly 40% from the year-ago quarter and its net income grew by 54%. (In early Thursday trading, the stock was essentially flat at $398.)
Apple being Apple, this naturally led to a brand new round of speculation. Some people took it as evidence that Apple was already coming apart at the seams only a couple of weeks after the passing of its CEO. But Steve Jobs spent much of his final days planning for Apple’s next iPhone, likely due out in mid-2012, as well as charting a broader coarse for the company’s next several years. And the current management has been steering the company ahead for several years.
Almost as absurd were the calls for Apple to start paying a 4% dividend because of the miss. Apple may not have grown last quarter as fast as many people were expecting, but a 40% annual growth rate means Apple is still very much a growth story. Dividends are paid by companies with low revenue growth and low valuations.
The flip side of the revenue miss is that Apple is likely to make up for it in the current quarter. The iPhone 4S may not be the iPhone 5 everyone wanted, but it’s proving to be wildly popular, with 4 million of them sold in its first three days. On Wednesday, as investors were dumping Apple’s stock, consumers were lining up in front of Apple stores to see if new iPhone 4S’s were arriving.
Apple said it expects revenue in the current quarter to come in at $37 billion – above the $36.6 billion analysts had been expecting – and earnings per share would reach $8.98. Both estimates put Apple’s revenue and earnings growth close to 40% once again. But if the company is being conservative in its guidance, growth could surpass 40%.
If there’s a cautionary tale in Apple’s latest earnings report, it’s a reminder that things won’t always be working as well at the company as it is today. Apple has set the standards in PC, tablet and smartphone innovation. It may become harder for the company to keep holding that standard now that Steve Jobs is gone. But it will take a couple of years at least before things start falling apart, if they do.
I suspect that in a few months this quarter’s disappointment will be seen as a mere speed bump. Apple is, for now, still ascendant, as can be seen in a factoid that was overlooked in Apple’s earnings report: Apple’s fiscal-year revenue ($108 billion) is now one and a half times as large as Microsoft’s (NASDAQ:MSFT) ($70 billion).
Microsoft’s revenue, of course, is growing by 10% a year. But it pays a dividend.