Apple: No Perfect Quarter

by Tom Taulli | July 24, 2012 5:42 pm

[1]Investors have been spoiled with Apple (NASDAQ:AAPL[2]). Its amazing products have made it a no-brainer to buy its stock. But expectations have become so lofty that it has been almost impossible to keep up the momentum. Just look at Apple’s fiscal third-quarter results, which just had a big-time miss.

Revenues came to $35 billion, and earnings per share were $9.32. That’s against Street forecasts of revenues at $37.25 billion and earnings at $10.35. In Tuesday after-hours trading, the stock is off about 5%.

Apple’s future guidance is also a major disappointment. For the fourth quarter, the company is looking for revenues of $34 billion and earnings of $6.65 per share. This compares to the consensus of $38 billion and $10.22.

Keep in mind that Apple always provides low-ball guidance, so its forecast should be taken as a worst-case scenario.

But then again, why did Apple whiff on the third-quarter? Basically, investors failed to adequately factor in consumers’ willingness to wait until the launch of the new iPhone, which is expected in October. Apple sold “only” 26 million units in the quarter, down 26% from the prior quarter.

Funny thing, there were warning signs of the fall-off. Earnings from Verizon (NYSE:VZ[3]) and AT&T (NYSE:T[4]) indicated weakness in phone sales.

Of course, there was still good news in the quarter. For example, the iPad continues to get traction. Sales surged by 84% over the past year, to 17 million. Don’t forget that Apple launched its newest iPad in March.

It also sold 4 million Macs, up about 2% from a year ago. This is in sharp contrast to many other PC makers, which have suffered declines. Apple will also release the newest version of its Mountain Lion operating system on Wednesday.

Despite all this, the company’s fortunes mainly ride on the success of the iPhone. And investors will have to wait until the fourth quarter to see the benefit. But if anything, the delay in purchases could mean huge pent-up demand. So the current drop in Apple’s stock may be another opportunity to get some shares[5], which are trading at an attractive price-to-earnings ratio of 14.

This approach has been spot-on in the past — and there seems to be no reason this time will be any different.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of the upcoming book How to Create the Next Facebook: Seeing Your Startup Through, from Idea to [6]IPO[7].  Follow him on Twitter at @ttaulli[8] or reach him via email[9]. As of this writing, he did not own a position in any of the aforementioned securities.

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