It’s been a tough quarter for tech operators. Just ask IBM (IBM), Yahoo (YHOO) and Microsoft (MSFT).
Still, a Street-beating earnings report from Apple (AAPL) should’ve been enough to conquer Big Tech’s post-earnings blues, right?
Wrong.
Apple earnings came and went on Tuesday afternoon, and AAPL stock is off big-time in after-hours trading, down 7% as of this writing.
Apple beat on both the top and bottom lines for its fiscal Q3 — barely. Revenues for AAPL came to $49.6 billion vs. estimates of $49.4 billion, while earnings came to $1.85 per share, just above a consensus expectation for $1.81 billion.
The “problem”? Despite a year-over-year increase of 35%, iPhone sales of 47.5 million still came in under the consensus estimate for 48.8 million (and certainly under high-end estimates of 50 million).
Granted, the fiscal third quarter is typically soft for AAPL, but Apple’s woes might linger on beyond Q3. Consider that Apple’s current-quarter forecast isn’t that great, with revenues expected to come in a range of $49 billion to $51 billion.
The Street was hoping for $51.1 billion.
Yes, the newest iPhone included a larger form factor, which customers have been demanding, and which spurred initial sales. However, the question has now become whether it’ll be enough to sustain major gains in shipments. So far, the answer appears to be “not enough for Wall Street,” and worse, there’s not much buzz about the upcoming iPhone models for the Christmas season either.
Moreover, the larger iPhone is likely putting downward pressure on iPad sales, which slumped 18% in the quarter for their sixth consecutive quarterly fall.
Even China — once Apple’s great savior — might be an issue. The country’s stock markets have rattled confidence and could put a damper on consumer spending. Couple that with a plunge in commodities, which is likely to wreak havoc on emerging and developing nations, and you’ve got more potential headwinds for Apple products.
And considering China accounts for $13.2 billion in revenues, a slackening there certainly would make a dent.
There’s not much to report on the Apple Watch front, as AAPL did not provide any details on sales. Still, by checking out the “Other Products” category of the income statement, we can get an idea. That category saw a $952 million increase in the quarter. Even if that’s mostly Apple Watch revenue, AAPL has a demand issue on its hands, as most estimates pegged Apple Watch sales at $1.8 billion or more in revenues.
Bottom Line
Apple’s dip is coming off all-time highs, so it’s not like AAPL stock has suddenly become a flaming wreck. But problems are starting to emerge, which should give investors pause.
Moreover, Apple still isn’t exactly cheap, trading at 16 times earnings – around the midpoint of its five-year average P/E – after clocking nearly 40% gains in the past year.
So while AAPL stock is on the dip, this might not be a buy-the-dip situation.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
