Apple (AAPL) has gone from Wall Street hero to zero more times than I can remember. One minute, pundits say AAPL stock has limitless potential because of the company’s new products, such as wearable computers. The chattering class, though, can just as easily bemoan what they consider to be the Apple’s inability to develop products that will blow people’s minds.
But Wall Street is a funny place. People who hate a stock look for reasons to hate it further. Conversely, bulls on AAPL stock and other momentum issues look for reasons to deepen their ardor for their favorite shares.
So, we took a closer look at some of the major takeaways from the latest AAPL earnings to determine whether the shareholder swoon — which pushed shares up 8% — will last:
Has the bottom fallen out of the tablet market? That’s the impression one might get from reading some of Apple commentary.
While the 16% dropoff in iPad sales is not good, it isn’t a surprise, either. Market researcher Gartner noted that tablets running Google’s (GOOG) Android operating system outsold the iPad line by about twofold last year. Apple, though, has always marketed itself as an aspirational brand where quality was more important than mass acceptance.
CEO Tim Cook argued that the iPad decline was the result of lower inventory and tough comparison to a year ago when pent-up demand for the iPad Mini was unleashed to the beginning of the year. He noted that iPad sales came in at the higher end of the company’s internal expectations.
“We continue to believe that the tablet market will surpass the PC market in size within the next few years and we believe that Apple will be a major beneficiary of this trend,” Cook said during the earnings conference call.
The Verdict: Cook’s explanation of the iPad sales drop seems credible, which is good news for AAPL stock. As the economy continues to rebound, many consumers who put off discretionary purchases such as iPads will jump back into the fray. Although Android continues to pose a competitive threat, Apple has plenty of tricks up its sleeve. Indeed, the newest iPad is due to be released later this year.
Remember how consumers hated the iPhone 5c? And wasn’t Android’s lead over the iPhone insurmountable? Well, Cook had the last laugh on the haters.
Not only did iPhone sales post a better-than-expected 17% gain, but AAPL gained market share in plethora of both developed and developing countries including the U.S., France, Vietnam and China. Total iPhone sales set a new all-time record in the BRIC (Brazil, Russia, India and China). Overall, Apple sold almost 44 million iPhones in the March quarter, a record.
The Verdict: Apple has apparently sold loads of iPhones in China and a fair number in the U.S. Since Apple is an aspirational brand, as consumers get more confident about their financial futures, they might be even more apt to buy an iPhone rather than a cheaper Android model. Good news, and possibly better news looking forward.
Apple’s gargantuan cash horde of $150.6 billion was down slightly from $158.8 million in the prior quarter, the first sequential decline since 2006. This isn’t bad news since every AAPL expert with broadband access has argued for months that Apple needed to do something about its cash pile.
Well, it’s doing “something” … though it should be doing more.
Apple added $30 billion to its share repurchase program and has gone an acquisition spree, adding 24 companies over the past 18 months. Apple’s secrecy fetish prevented it from providing any names. Cook hinted that Apple wasn’t adverse to making a huge acquisition. Apple also raised its dividend by 8%, but anyone who is buying AAPL shares for its payout is crazy. As Tradevester noted on Seeking Alpha, a plethora of tech companies such as Intel (INTC), Microsoft (MSFT) and Cisco (CSCO) offer better yields.
The Verdict: Until Apple makes a huge, game-changing acquisition, Apple’s cash pile — which is larger than the gross domestic product of many small countries — will remain an issue. Increasing the stock buyback and increasing the dividend isn’t going to be enough to excite most investors.
Apple’s highly unusual 7-for-1 stock split is clearly designed to win entry into the Dow Jones Industrial Average. The overseers of the broad market index don’t want their widely followed metric to be weighted toward one stock. A stock with a $525 price would do precisely that.
The Verdict: Stock splits make a shares more affordable, which excites investors briefly. A cheaper stock price increase the odds that Apple will join the Dow, which of course is a good thing. Over the long-run, however, it won’t make much of a difference to AAPL shares and isn’t a good enough reason to buy the stock. On the flip side, Alcoa (AA) got dumped from the Dow last year and has seen its shares surge ever since.
As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.