Apple Inc. (AAPL) hasn’t been in a situation like this in a long time. After breaking out its fiscal second-quarter numbers yesterday, the truth is staring investors in the face: Apple is a company in decline. Wall Street didn’t hesitate to react, and AAPL stock plunged on the news.
Shares are down more than 8% in morning trading.
For the first time since 2003, Apple posted a quarter-over-quarter revenue decline. It failed to meet both revenue and earnings expectations. iPhone sales, AAPL stock’s core driver for nearly a decade, fell for the first time ever, and guidance for fiscal Q3 (the current quarter) was also horrendous.
The Enormous Pressure on AAPL Stock
Every time AAPL earnings come out, the company tries to write a really impressive headline above a synopsis of its results. Last quarter it was “iPhone, Apple Watch, Services & Apple TV Drive All-time Record Revenue.” What the headline didn’t say was that revenue was up just 2% year-over-year.
This time, there was no record revenue to tout. The headline ominously made no mention of growth of any sort: “Capital Return Program Expanding to $250 Billion.”
I’m sure Carl Icahn will be elated the AAPL stock buyback program increased from $140 billion to $175 billion, and the quarterly dividend is going up 10%, from 52 cents to 57 cents.
But to focus on that is to ignore the elephant in the room: The iPhone is faltering.
Q2 revenue fell 13% to $50.56 billion, missing the $51.97 billion analysts called for. AAPL earnings per share of $1.90 also missed the $2 consensus pretty handily … and then there was the guidance.
Oh, the guidance!
Apple forecast fiscal third-quarter revenue between $41 billion and $43 billion, which was miles away from the consensus Street figure of $47.4 billion. This was where AAPL stock really did itself in: That’s a crushing miss, and at the midpoint of $42 billion, suggests a year-over-year revenue decline of 15%.
The takeaway for Apple stock owners? The iPhone 7, when it comes out later this year (likely September), better be mind-numbingly awesome. It needs to blow away the competition from Samsung (SSNLF), it needs to convert consumers using Alphabet Inc‘s (GOOG, GOOGL) Android phones … and it needs to sell like crazy.
Demand for the iPhone 6 and iPhone 6s is obviously drying up, and optimists will point out that there are likely millions of people out there waiting for the latest and greatest from Apple this fall; the pent-up demand, they argue, will drive AAPL stock higher later this year as consumers gobble up the iPhone 7 this holiday season.
But personally, I thought the surprise release of the 4-inch iPhone SE in March — Apple’s first 4-inch smartphone since 2013 — would also suck up a meaningful amount of latent demand from people not so enamored with massive screens that make typing awkward.
Given AAPL’s results yesterday — and its projections for the current quarter — that wasn’t the case.
Unless Tim Cook magically becomes a creative genius and drops a groundbreaking Jobs-esque new product line on us later this year, AAPL stock’s only hope of revival is the iPhone 7. Even then, there’s no guarantee it’ll fly off the shelves.
Apple is cash-rich, sure. But unless the iPhone 7 can put up some big growth numbers, Apple shares probably won’t make you cash rich.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
