Yahoo Finance Apple Inc. (AAPL) Stock Falters on Q4 Earnings
Apple Inc. (ticker: AAPL) stock stumbled in after-hours trading on Tuesday on the heels of its fiscal fourth-quarter earnings report. The company reported roughly in-line revenue, but barely beat on earnings and issued much higher-than-expected Q1 revenue guidance. AAPL stock was down 2 percent in late afternoon trading. IPhone sales, at 45.5 million, were higher than the 45 million forecast.
Before the report, AAPL stock was up more than 12 percent in 2016.
Apple reported earnings per share of $1.67 on revenue of $46.9 billion; Analysts expected the company to post EPS of $1.65, down about 16 percent from $1.96 per share a year ago. Wall Street expected revenue to fall 8.9 percent to $46.89 billion.
Guidance, however, is where Apple shone: AAPL projects revenue of $76 billion to 78 billion in fiscal Q1, easily exceeding the consensus view of $74.98 billion. Apple doesn't issue EPS guidance, but analysts see EPS of $3.19 in the first quarter.
[Read: 8 Things to Look For in a Quarterly Report.]
Despite the positive forward-looking numbers, investors were unimpressed, sending the stock down in after-hours trading.
"Apple is not the growth tech stock it has been in the past and it probably will never return to that high growth mode, but it is still a leader in innovation, technology, and culture," says Matthew Granski, financial analyst for Miracle Mile Advisors in Los Angeles.
Q4 by the numbers. IPhone sales fell 13 percent, to $28.2 billion, down from $32.2 billion a year ago. Unit sales of 45.5 million managed to beat analyst estimates by 500,000.
IPhone revenue was expected to fall 13.8 percent, according to FactSet.
[See: High-Tech Investing: 7 Sectors to Watch.]
Revenue in Greater China, once Apple's second-largest market, fell 30 percent to $8.8 billion. China's slowing growth has weighed heavily on Apple's own growth. Revenue in the Americas, the largest region by revenue, fell 7 percent. The only region of double-digit revenue growth for AAPL was Japan, which grew at a 10 percent clip.
As for product categories, only Services revenue grew; the iPhone, iPad, Mac, and Other Products categories all fell or went sideways.
iPhone. The fall marked the third straight quarter of slumping iPhone sales, which first began falling in fiscal Q2. In fact, that was the first time that iPhone sales ever fell, and the first time Apple as a whole reported declining revenue since 2003.
In other words, AAPL is now three quarters deep in a nasty streak of slumping sales. Fiscal 2016 was a lousy year.
Apple tries its best to be a diversified consumer technology company, offering both software and hardware and products and services. In reality, however, AAPL is still largely a one-trick pony, with 60 percent of its revenue coming from the iPhone last quarter.
The fiscal fourth quarter includes the first few weeks of sales for the iPhone 7, the latest and greatest product in Apple's smash-hit smartphone product line.
The iPhone 7 was roundly criticized at launch for doing away with the 3.5-mm headphone jack, something the company insists is an innovative, bold move towards a more wireless future. Skeptical consumers, on the other hand, think it may simply be a ruse to milk more money from accessories like wireless headphones.
Despite the criticism, early sales numbers out of the gate were better than expected, giving AAPL stock a nice boost. Going into Tuesday's earnings report, Apple shares were up about 10 percent from the Sept. 7 iPhone 7 debut date.
"Apple is forecasting stronger holiday sales than it saw a year ago, likely because of the iPhone 7," says Jeremy Kaplan, editor-in-chief of Digital Trends. "This is a very good phone, headphone jack or no. The company also anticipates strong sales from a revamped Macbook lineup, something fans have been clamoring for years for. Watch sales were very weak, but the new Nike Watch 2 has real promise. It may be the first smartwatch that offers consumers a real reason for its existence."
One factor that certainly should have buoyed iPhone 7 sales last quarter was the historically bad product flop from Samsung, which had to recall its Galaxy Note 7 phone due to a battery that was prone to catch fire and explode.
The snafu could cost the Apple competitor about $3 billion over the next two quarters alone, which is to say nothing of the brand damage and enormous opportunity costs the Korean electronics company will suffer. While that's good news for Apple, a familiar rival is re-emerging in Alphabet ( GOOG, GOOGL), which is re-entering the smartphone market with its Google-branded Pixel and Pixel XL phones.
AAPL needs to diversify. If there's one intangible about AAPL that needs to change, it's vision. CEO Tim Cook needs to get more creative; Apple desperately needs a new blockbuster product to supplant eroding iPhone sales. As mentioned above, 60 percent of revenue came from the iPhone, a legacy product that seems to get minor, uninspiring updates once a year.
A multi-year push into programming via the Apple TV, once thought to be an exciting opportunity for growth and diversification in coming years, has yielded nothing.
Perhaps more disappointing for long-term investors, the company's plans to produce a car, famously dubbed "Project Titan," appear to have been scrapped as well. Details of Apple's automotive ambitions first began to leak in 2015, and soon it became apparent that AAPL was aiming to produce an all-electric vehicle, potentially autonomous, to compete with the likes of Tesla Motors ( TSLA). Apple even began to poach some of Tesla's talent, and Project Titan was expected to produce a vehicle by 2019 or 2020.
The Apple Watch was once heralded as the next blockbuster hit for AAPL, but has been a supreme disappointment on that grading scale. The Apple Watch Series 2 was introduced in September with the iPhone 7, so there's a chance that could sell more materially -- but little chance it can make up for slumping iPhone sales. The Watch is still being lumped into the "Other Products" category in earnings reports.
Capital return. Apple returned $9.3 billion to shareholders via dividends and buybacks in the fiscal fourth quarter, noting that it has now completed $186 billion of its capital return program.
[See: Artificial Intelligence Stocks: 10 Companies Betting on AI.]
While dividend payments and share buybacks are all well and good, they're an awfully unimaginative way to boost shareholder returns, and not quite aligned with Apple's own mandate to "think different."
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