Apple a victim of its own success

The company's quarterly results were not good enough for Wall Street, and its shares took a beating Thursday.

By Jonathan Berr Jan 24, 2013 1:45PM
Credit: 2012 Apple Inc
Caption: iPadMiniUpdated 4:45 p.m. ET

(AAPL) has the toughest act for any company to follow -- itself.

The company, which has routinely smashed Wall Street earnings expectations for years, saw shares tumble more than 12% Thursday to close at $450.50 after quarterly results that seemed to confirm investors' worst fears about slowing growth. Hope is fading that the situation will improve soon.

The iPad, iPhone and MacBook producer earned $13.08 billion, or $13.81 per share, in the latest quarter -- little changed from $13.06 billion, or $13.87 per share, a year earlier. That was the weakest quarterly profit performance since 2003. Revenue rose 18% to $54.5 billion, the slowest rate since 2009.

But there was brighter news in the quarter. Apple sold a record 47.8 million iPhones and a record 22.9 million iPads. Apple also generated record cash flow from operations of more than $23 billion. Sales of Macs and iPods, however, fell, underscoring investor worries about the lack of a new blockbuster product. 

About 18 brokerages have slashed price targets on Apple shares in the wake of the earnings report, according to the Associated Press. Others, such as Jefferies & Co., cut their ratings to "hold" from "buy." This represents a sea change from last year, when it was tough to find any analyst who wasn't incredibly bullish on the stock.

"We don't think the Apple growth story is over, but shares will likely languish until confidence is restored," writes Stern Agee analyst Shaw Wu in a note to clients quoted by the Wall Street Journal.

One bright spot was China, which had previously concerned some investors following media reports that consumers were indifferent to the launch of the newest iPad. Revenue in the world's most populous country rose 67%.

Apple's stock is being punished harshly by Wall Street in part because it changed its approach to earnings guidance. In the past, the company gave conservative figures that were so low that Apple would regularly blow away its own estimates along with those of Wall Street. Under Apple's old approach, its results beat Wall Street expectations by an average of 26% for years, according to Bloomberg News. Apple now expects to give more accurate earnings guidance.

That new policy is already disappointing analysts. Apple forecast revenue in the current quarter of between $41 billion and $43 billion, below the $45.5 billion analysts had expected.

Wall Street is hardly throwing the towel in on Apple, however. The average 52-week price target on the stock is $713.32, more than 50% higher than where it currently trades. Apple, though, faces a long road ahead to get to that lofty theoretical valuation.

Jonathan Berr does not own shares of the listed stocks.  Follow him on Twitter @jdberr

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Jan 24, 2013 6:21PM
Nothing worse then an Apple cult member (Eve).  I take comfort that Steve is working his Foxconn job in hell for eternity.
 I've said it once and I'll say it again, things come full circle.  All those middle class parents/people who lost their jobs cannot afford to keep up with the 'Apples' any longer.  Plus, of the 7.4 million jobs lost, the bulk at 'middle class' salary, are now replaced with 3.2 million jobs of which fully 70% are LOW PAYING (under 30,000 per year) including the ones 'Stevie' has generated.  We all love technology but between outsourcing of services and technology replacing millions of jobs, how many can afford the latest Apple product?  With only 30% making enough to purchase the 'latest and greatest' Apple product, are they enough to sustain the profits?  Nope, nope, nope.   This is where the rubber meets the road and without decent wages for 70% of the population to CONSUME and keep things moving, the standstill will continue.
What really grips me is Apple using our American Justice System to promote Patent Lawsuits when their Patents are held in the Cayman Islands and Apple offshores the profits for their 'I' products to these shell companies and then takes hundreds of millions in Tax Refunds every year.  

Jan 24, 2013 5:58PM

Market Saturation ...

The age-old paradigm of "everybody has to have one" has now been met ... in spades. Let's face it, the stagnation in Apple's stock, and their stock-in-trade, the venerable iPhone, have hit the wall. The product line has literally saturated the world wide market to the point that almost everyone who wanted an "i-product" now has one... and the cost of upgrading to a new, (but largely unchanged phone or tablet) has become a very cost-conscious decison. Market saturation, and the dynamics of continously expecting ever-newer innovation have now come home to roost, and the branch is bending. Look for the stock to flatline until they launch something incredibly new like the recently intimated wrist-worn product with 'flexible screen' technology incorporating LED TV, or something similar.

Peace to all ~

Jan 24, 2013 5:46PM
A really simple improvement like compatability with other pc software would open markets worldwide. Parents would no longer have to endure their siblings coming home from school and not being able to perform school projects on the family computer.
Jan 24, 2013 6:50PM
They should redo a partnership with google... Removal of google applications such as google maps or google streetview partly generated these poor predictions... Furthermore, the fourth iPad came too early, some people felt scammed.
Sorry if my english isn't perfect, I learn english
Jan 24, 2013 7:46PM
I don't have any of their products and do not plan to own one, they sold their expensive image, with low quality products. they won their ridiculous law suit against Samsung and now they got what they deserve.
Jan 24, 2013 6:29PM
There's only so many people who can afford their products, and not everyone can afford to ditch their old iphone for the latest and greatest. Just unsustainable growth. The sorriest thing they have now is iTunes 11. I wish I would have never upgraded.
Jan 24, 2013 7:10PM
The problem is that Apple is not comping out with anything above & beyond average. Also, they keep releasing upgraded (same old stuff) every 6 months which also kills the market.  Apple will continue to loose market share to Droid phones.  A personal bitch is why won't Apple modify their software so you can block/black list a phone number?  You have to jailbreak the i-phone to do that.  Can do it on Droids.  Apple needs some real innovation for i-pads & i-phones if they are going to prosper.  Like why didn't they use a retina display on the mini-pad?  Also, if the ywant more sales they are going to have to lower their prices...people can no longer afford the premium they charge.  I like their products but I'm not willing to pay the extra premium, rather do without or even upgrade.
Jan 24, 2013 7:52PM
Well, it had to happen eventually.  After all, what goes up must come down.  Even Isaac Newton knew that, as he gazed up an apple tree to see one of the fruits plummet to the ground and give him the idea for gravity.  And in Apple's case, stock prices tied to actual product sales had risen through the roof into the stratosphere.  So, those stock prices were bound to fall eventually.  How long could people be duped into buying new iPhones and iPads year after year with little to show for those brightest, shiniest, newest models?  Even P. T. Barnum knew that "there's a sucker born every minute," and Apple seemed to be able to target every one for so long it was laughable.  Yet, in a few weeks when the stock price settles will the time to buy Apple stock, and watch the Apple fortunes rise again as more'n more suckers continue to beg for new products they don't really need but desire so much to keep up with their "sucker" friends. 
Jan 24, 2013 7:55PM
They sell phones and computers and stuff.  No business being the world's highest valued company.  
Jan 24, 2013 6:00PM
Chines junk is catching up to them plus their stupidity in choosing at&t which is no more than the worst com company in the world SBC which bought the name cause thiers was so bad.
Jan 25, 2013 10:52AM
You're all hypocrats. Buy an expensive phone that you can hardly afford. either buy a share of apple stock or boycott china. Bill Gates should have brought Apple when loaned steve Jobs 150 million dollars years back. Maybe it would be i windows now.
Jan 24, 2013 7:59PM
The price dropped last night, Wednesday January 23 not Thursday!
Jan 24, 2013 6:23PM

That Apple stock would 'tank' has been on my web page for approximately six months, before Steve Jobs died.  The writing is and has been on the wall for financial economists to see.  The public at large is getting a glimpse currently.  The situation is political at the highest levels of federal government in the USA.  The reduction in value of Apple stock evolves around the desire for our federal government to pull another Government Motors move, is a significant PART (only) of my analysis.


Tom Coyne

Jan 24, 2013 8:11PM

It was only a matter of time when Apple would peak. But I do find it amusing that even the business media can't resist kicking a great company when it's down. FBN, WSJ, CNN, CNBC etc... are all on the band wagon in beating the company down. I always knew that our mainstream and sports media were on board with the statists but business media? Holy crap.

The Obama regime will not tolerate any praise of good capitalism and successful companies. Simply won't be tolerated.

"Show well thank twice 'bout listinin' to that little brunette midget on the FBN every mornin'. Think she works with that old fool of a cowboy.

Jan 24, 2013 8:19PM
What no "Magic Crystal Ball" readings of Apple hitting 600? Fools and their money are soon departed.
Jan 24, 2013 8:28PM

To put it plain and simple,  I like peaches better than apples.


On a much more important subject,  I believe Sam Snead was and always will be the best and greatest golfer ever.  Sam won over 140 touraments world wide,  about twice what the next closest golfer won.


And,  you may not believe this,  but,  Sam's lifetine winnings for all those touraments was less than 1/2 million,  yes,  for all thiose first place winnings including his 2nd, 3rd and etc.,was less than half million dollars.  And, recently one single first place winnings was almost 12 million,  yes,  almost twelve million dollars for one single tourament first place win.


And,  we wonder what is wrong with the economy,  we wonder why the country is broke.  Sad, very sad,  but true.

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