Apple Beats the Street, the Street Bites Apple
Apple reported their 1st Quarter holiday sales and earnings on Monday and it was the strongest-ever quarter for Apple. They had $57.6 billion in revenue and turned a net profit of $13.1 Billion. They set records in sales of iPhones with 51 million iPhones sold and iPad sales, too, set a record with 26 million iPads sold. While most other computer manufacturers are seeing declines in their computer sales, Apple sold 4.8 million Macs which was about 3/4 of a million more than last year’s holiday season. The really astounding numbers that I saw in the report were that Apple as sold 472 million iPhones since it was introduced, and has sold 195 million iPads to boot!
Let’s put this earnings report into some perspective. Apple’s profit of $13.1 billion is the 4th highest quarterly profit ever reported by any company in any country. As I mentioned above, the other three positions are all oil companies, but Apple holds positions 4, 5, 6, 8 & 9 on this list with all of these record profits being posted from 2012 to present. This sure sounds like a company that is about to fail and you should immediately rush out to sell your Apple stock. NOT! Despite an aggressive stock buy-back program and dividend payments to shareholders, Apple finished the quarter with $158.8 billion in cash.
While 51 million iPhones is a boat-load of iPhones and a record for Apple, it was not enough for those guys on Wall Street that make their living by denigrating the most amazing American business success — Apple. They sort of put their heads (or perhaps some other part of their bodies) together and decided that Apple was going to sell 55 million iPhones. So, when the number was 51, they ran around like chickens with their heads cut off and started selling. They did not listen as Tim Cook calmly explained that the more expensive and profitable iPhone 5s turned out to be more popular than the iPhone 5c. This meant that Apple had to make a mid-course change in the numbers of each iPhone manufactured and there were shortages of iPhone 5s throughout the quarter.
There are a few other interesting side stories here. For years, Apple had tried to penetrate into the “enterprise” or business market with the Mac. They brought out models that gave them some success, however, it was not an overwhelming win. But now, with the iPhone and iPad, the penetration is “unbelievable” in the words of Tim Cook. The iPhone is used in 97% of Fortune 500 companies and 91% of the Global 500. The numbers are even better for the iPad with 98% for the Fortune 500 and 93% for Global 500.
Apple controls 59% of the US smartphone market and 54% of North American smartphone web traffic. Numbers for iPad are even better with a 78% market share and 78% of tablet web traffic. Sell now; this company is on the brink.
I will remind you of what a “brink” looks like. I was coming up with a trivia question for our Small Dog Speaks radio show on WDEV and looked up (and remembered) Apple’s worst quarterly financial performance where Apple posted sales of $2.2 billion and a loss of $740 million! That was the brink. Strangely, Apple’s stock went up a bit after that report.
One area where there was a true decline in sales was the iPod which fell 54% year-over-year. But that is natural, since your iPhone and iPad are the new iPods. I still use iPods in some cases but the iPod run is about over. Not all bad news on the iPod front because it was, in fact, the iPod that launched the iTunes Store, which in this quarter alone earned Apple $4.4 billion. The App store has over 1 million apps and the iOS App Store controls 67% of global revenue from apps.
Maybe these analysts were concerned about Apple’s guidance for the next three months. After all, the company predicted it would only sell about $44 billion of products and services, maintain high margins and probably not introduce new products before April. This flat, yet very profitable, prediction for this quarter had a lot of the Wall Streeters heading to the exit. But the fundamentals of the company are incredibly strong. These analyst expect a game-changing product every month and blame Apple for building a huge and commanding market share for their already great products.
Tim Cook said,
“Innovation is deeply embedded in everybody here. There’s so much of the world that is full of very complex products; we have zero issue coming up with things we want to do. We must focus on the very few that deserve all our energy. We’ve always done that and we continue to do that.”
I think that sums it up; it isn’t just “do any product” or “you have that stupid Samsung watch.” It means making extraordinary products.
At any rate, it might be time to take advantage of the analyst’s insanity as they punish Apple for its success. I think that Tim Cook and the Apple team deserve some “attaboys” and “attagirls” for another record-breaking and successful quarter. I look forward to that full pipeline of new products coming this year that will prove that Wall Street is inside out.