The recent slide in Apple (AAPL) shares can be attributed to one thing: Steve Job’s playing games with expectations.
For too long Steve jobs has played games with the guidance he offers investors and analysts. Now it is coming back to haunt shareholders. Here is how it typically goes. Jobs give guidance that he knows is too low and then Apple blows it away and the stock surges. Analysts have relied on those expectations to make their estimates and have traditionally been too low.
Not being idiots, they caught on to the game and have ratcheted their expectations higher than they expect Jobs to “guide them”.
A funny thing happened this week. Apple guided analysts lower than what they thought the “low ball” expectation would be. Now, Apple was trading at almost 50 times earnings on Jan. 1 and have lost over 20% in the 23 days since then and look to get slashed about another 10% at the open today. The problem is that people just do not believe what Jobs is telling them.
What if he is finally telling the truth and the guidance is right on? What if iPod sales which are basically flat, despite new products stay that way or decline? iPhone sales in both France and the UK have been disappointing, is there a larger issue? Is this the reason for the lower estimate? What if the analysts have over estimated the expected “beat” Apple will produce next quarter and earnings growth is indeed going to slow? Does Apple expect the consumer slowdown to take a bigger chunk out of sales?
In the current environment, indecision equates to fear and shareholders are suffering.
If you are going to give guidance, conservative is one thing but playing games like Jobs has with it is just wrong because eventually it comes back to bite you. No one can doubt his genius or showmanship, it was hubris that was his downfall once and is hurting him again now.
Does this mean Apple will not beat the lower expectations? No. It does mean that because of Jobs’s actions shareholders are in for a real unnecessarily rocky ride..
Disclosure (“none” means no position): Sold July $280 2008 calls on Apple when shares were at $166
7 replies on “Apple: Playing Games is Hurting Shareholders”
The U.S. is not at the leading edge of mobile phone technology, which means much stronger competition for Apple in Europe and Asia. China Mobile doesn’t even care about the iPhone.
matt,
great point, had not thought of that…
Hello Mr. Sullivan,
I have to say I am a little disappointed in your article. I have been following AAPL for the last 4 years now and am in shock and disbelief every time quarterly postings come out. Apple has posted incredible gains EVERY SINGLE TIME over the last 4 years and every single time their stock takes a dip. We both know this has noting to do with Apple, it has everything to do with the so called “savvy” investor trying to make a buck. Why would you blame Steve? From my perspective he is caught in a “damned if you do, damned if you don’t” scenario. He just can’t win. Jim Cramer thinks rather highly of AAPL… why don’t you? Or are you trying to make that buck too? In the investing marketplace there is no one that you can truly trust. Who is trying to make the buck? Maybe you have a personal interest in selling or buying AAPL? I apologize if this comes off as sarcastic in any way. I am just sick and tired of the way the market keeps jostling the stock around. Apple keeps improving, they have over 18 billion in the bank, and an endless supply of new and innovative products coming out. Yet we still see them being treated as if they are about to go out of business.
Thank You for the opportunity to give back my opinion.
Adam
anon,
1- ignore cramer. He loves it now. another 20 point drop and he will call it “broken”.
2- my “interest” in apple is disclosed on the post
3- of course they are improving, i said that in the post. it comes down to expectations.
4- apple is down what 35% since Jan.1, the is much more than a dip.
5- jobs has played games too long with expectation and in a hesitant market, people do not want to hear that..
Hi Todd,
I promised I’d come back and gloat when the iPhone wasn’t a flop like you claimed it would be (http://www.valueplays.blogspot.com/2007/05/doug-better-apple-aapl-begins-selling.html), so here I am. And lo and behold, I didn’t have to scroll down the page very far to find your latest comedic Apple-related posting. You really seem to have a hard on for Apple.
iPod sales were basically flat? Despite lower unit sales growth, Apple’s revenue growth has remained steady at ~17%. Once again, Apple has introduced products in the iPhone and iPod Touch that competitors will find hard to emulate. How are LG Voyager sales? The reviews have not been kind. In the meantime, Apple’s sold 4 MILLION iPhones in only six months and AT&T just posted record subscriber growth. You still think they’ll have trouble selling 10 million by year’s end, especially with the 3G model coming mid-year?
You made a very bad call, though I’m sure you won’t admit it.
Anon,
let’s see….
i just love folks who insult as “anon”… awfully big of you
according to my calendar, 2008 is not over yet so lets just hold off gloating on the 10m phones.. especially with RIMM’s and Google’s offerings coming out
i also said “a $599 phone will not sell”. it didn’t, that is why you can get it for $399 today.
i also said “lower it to $299 and you’ll have something”. correct me if i am wrong but isn’t that the price of the 4G phone?
i also AT&T would be the big winner of the whole thing, it appears they are?
UK and France sales suck, below the low ball estimates…
did you ever hear something about “counting chickens”?
Not sure that my previous post can really be called an insult, Todd. If you’re going to post your opinions online, you better be damn well ready to taken to task when you turn out to be so very wrong.
You said lower it to $299? Genius! They probably would have sold 8 million by now. Hey now, how about $5? I’ll bet they would sell even more. Oh, but I guess there’s that darn thing called profit to think about. You also suggested they sell a 2GB model. If Steve Jobs ever announced that, he would be laughed off the stage.
Hey, speaking of counting chickens, weren’t you the one who claimed Apple wouldn’t meet its 10 million goal based on when they announced their first million sold? You’d have to be a fool to think that they won’t be able to meet that goal now. Not sure if your disdain for Apple has prevented you from actually using an iPhone, but it’s an amazing device. I’ve literally had two people I know head to the Apple Store to buy one immediately after using mine for a few minutes. It’s that good. That’s why it outsold all Windows smartphones COMBINED last quarter. And it’s also why you sure don’t hear much about lame imitations like the LG Voyager anymore. Verizon missed a golden opportunity to snatch the top spot from AT&T when it didn’t close the iPhone deal.