Apple Inc. (AAPL) CEO Tim Cook Needs a Hug

Cook's boast about Apple Watch sales is irrelevant to AAPL stock, but it sure comforts his ego

Source: Apple

Apple Inc. (NASDAQ:AAPL) CEO Tim Cook threw a little shade at Apple bears on Dec. 5 with an e-mail saying the Apple Watch just had its best week ever.

Apple Watch sales in dispute
Source: Apple

In the email, Cook called Watch sales growth “off the charts,” and predicted this will be the best quarter ever for the product, which debuted a year ago and has generally been considered a loser.

Cook was responding to an IDC report that third-quarter shipments for the Watch were down 71% year-over-year. He was trying to reassure potential AAPL stock buyers that the Watch remains a hit and that Apple will keep supporting it.

What analysts and investors want to know today is whether Cook was being straight with them. (He wasn’t.) But what you need to understand is something more basic: namely that it doesn’t matter.

Here’s why.

Apple Watch Numbers Don’t Matter

The Apple Watch is a pimple on the company’s total results, and has been since it debuted in September 2015.

IDC says the company shipped 3.9 million watches during that quarter, but only 1 million during the third quarter of this year — hence the 71% drop.

The truth may be quite different. Apple may have made its Christmas shipments this year during the fourth quarter, making the Q3 drop irrelevant. If it shipped 5 million units in October, and sold them all, the Watch might be a monster hit. We won’t know until AAPL reports earnings next month.

In fact, we may not know even then, because the Apple Watch is not material to Apple’s results, and aren’t broken out separately in its financial reports. Assuming Apple got the full retail price of its $300 watches last Christmas (which it didn’t) it would represent $1.17 billion in revenue. During the fourth quarter of 2015 Apple revenue exceeded $75 billion.

Now, Apple didn’t get the full retail price on 3.9 million watches. It may not have gotten the full $300 on the 1 million watches. Regardless, none of this is material on a $75 billion quarter. What should matter there is whether iPhones are still selling briskly and how Apple service revenues do.

What is the real issue?

Ego and Reputation

The Watch is the only new Apple product designed and rolled-out under Cook. The iPod, the iPad, and the iPhone were all done under the late Steve Jobs. It’s Cook’s reputation that is on the line with the Watch.

Cook’s reputation matters to Apple shareholders. Under Cook, AAPL stock has become undervalued, selling at just 13 times earnings, no better than International Business Machines Inc. (NYSE:IBM). Cook is considered a competent manager, but it is said the genius has gone out of the company.

If the Watch is a failure, it confirms this and keeps Apple stock down. If the Watch becomes a hit, especially in its new version where the apps are no longer tied to the iPhone, that’s different. In that case Cook looks brilliant and the stock price will rise.

The dollars don’t count. The image counts.

Cook’s image is wound up in the Apple Watch. That’s why he responded to the reports of low shipments by claiming sell-through is great. We won’t know whether that’s true until next month, but meanwhile his statement is keeping the stock price hovering around $110 per share.

If you want to know where the stock goes from here, however, look to see how the iPhone 7 Plus does, not how the Watch does. Follow the money, not the media.

Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2016/12/apple-inc-aapl-ceo-tim-cook-watch/.

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