Is Street overreacting to Apple's miss?

Though the tech giant made nearly $9 billion in profit last quarter, it fell short of projections and grumbling investors are dragging the stock down.

By Jul 26, 2012 12:26PM

AppleHas Wall Street gone bonkers? This week, Apple (AAPL) reported a hefty $9 billion profit for the third quarter of its fiscal year, up 21% from the same quarter in 2011, thanks to rising sales of its iPhone and iPad. However, analysts had expected an even more dazzling hike of 33%, and Apple's share price stumbled about 4% the day after the earnings report was released.

Investors appeared to be primarily concerned that iPhone sales, while strong, are slowing down, with many prospective buyers waiting until a new iteration of the iPhone is unveiled in the fall. 

Is the stock market overreacting to Apple's earnings report?

No. Apple is facing a leadership crisis: Investors aren't sure there will be "smashing iPhone 5 sales come the holiday shopping season," says Rocco Pendola at The Street. That's because CEO Tim Cook is no Steve Jobs. Apple rarely missed earnings estimates on Jobs' watch, because the late visionary was able "to deliver new products to the public that sell as well as, if not better than, all the products that came before them." Apple's stock is sinking because the "gap between Apple and everybody else continues to close in the Tim Cook era." 

Yes. The stock market is out of its mind: Apparently, "it doesn't matter how well Apple or any other company may have done in absolute terms" -- what matters is whether they meet Wall Street's absurd expectations, says Zachary Karabell at The Daily Beast. "The financial world is currently gripped by the pathology of quarterly earnings, short-termism, and fear," which is the only reason why a thriving company with $35 billion in quarterly sales is being "treated as deficient and faltering."

And it's hurting American businesses: Fans are already breathless over the iPhone 5, and Apple's future earnings are bound to be solid, says Robert A. Levine at The Moderate Voice. Yet "long-term growth prospects of many companies are considered secondarily, if at all, with quarterly earnings and revenues driving the stock's price." And that's skewing corporate strategy: "If American businesses are to remain world leaders and continue their history of innovation and growth, companies should be thinking long term instead of scrambling each quarter to reach Wall Street's estimates." After all, it was the short-term dynamic that sank risk-taking investment banks during the financial crisis.

 More from The Week

Tags: AAPL
Jul 26, 2012 1:13PM

Profits rise 21% and the stock value plummets?  Really?  In this economy?  Really?  If an "expert" told you that some company, who's selling a new product with not-so-much new features, but "enhancements" such as improved video, but they expected profits to rise 33% what would you think.  Probably that the expert was an idiot.  It's not the stock that failed.  It's the Wall Street Analysts.


Bottom line:  Profits (not revenue) rose 21% over the previous year.  That should make the stock rise.

This just proves to me that Wall Street is manipulating stock for themselves and their best wealthist clients.  The little guy should just accept the fact that he just doesn't stand a chance in the market anymore.  I've been thinking of completely pulling out.  Two of my associates have already done so.


Why do analysts have such ridiculous expectations of AAPL  and such low expectations of bank earnings for the quarter?

Why do we have to compare Steve Jobs to Tim Cooks?


Silly!  We can't compare different personalities. Perspective!  No one has to live up to someone else's expectations.

I believe AAPL  is a very good company and I'll stick with them. I don't put too much value in short term results. Don't try to influence the crowd with your low expectations.  Be fair!

Jul 27, 2012 9:35AM
Apple is not going up forever. They have more competition in the smart phone space every month and lastly and probably most importantly, Steve Jobs is gone.
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