Tech superstar Apple Inc. (NASDAQ: AAPL) is going to be joining the earnings parade tomorrow afternoon when it reports is fiscal second quarter numbers following the market close.
The last time Apple reported earnings was back on January 22, when it reported its fiscal first quarter numbers. The company blew away analyst estimates by posting earnings of $1.76 a share, well above the $1.62 that Wall Street had been expecting to see. This led to a huge jump in Apple stock, right? Wrong. Instead, the company's stock went into a tail spin, falling over 40 points, and erasing around $36.5 billion from the company's market cap.
After the collapse, the stock did rebound nicely, and is once again trading above the $160 mark, so it will be interesting to see just how the market reacts to the company's numbers this time around.
What really spooked investors following its last earnings report was the guidance that it issued for its second quarter. The company stated that it expected to see 94 cents a share for the second quarter. This was well below the $1.09 that Wall Street was looking for, and hence the steep sell off of the stock.
Historically, Apple has been pretty conservative in its estimates, so it would not surprise me at all to see the company come in higher than the 94 cents it has forecast. Will it match the $1.07 that Wall Street is now predicting? That remains to be seen. And even if it does, what will it predict for its third quarter? Your guess is as good as anyone else's on that topic, and as we noted above, what the company expects for its third quarter will probably be the driving force behind which way the stock moves come Thursday morning.
By all accounts, the company's MacBooks had a great quarter. While the overall computer sales slowed to around 3% growth in the quarter, analysts have reported that the MacBook saw an increase of anywhere between 25.1% and 32.5%. Not too shabby.
The iPod could disappoint. The iPod was one of the driving forces that revitalized the company over the past few years, but the once explosive growth in iPod sales has faltered as of late, and this year analysts are predicting that iPod sales will increase by "only 10%."
The final product that traders will be looking to hear more about is the new iPhone. The iPhone was launched to much fanfare, and the company has predicted that it will sell 10 million phones in 2008. That's a pretty hefty number, and would require 2.5 million units sold each quarter, on average. The numbers should be helped in the latter part of the year after the company releases a new three gig 3G iPhone, and if the numbers in the second quarter are too far below 2.5 million units sold, it could mean that the new iPhone will be rolling out much sooner than anyone expects. Currently investors expect the new model to be out sometime in June. If we see weak sales in Q2, they are expecting that the new iPhone will be coming sooner than that.
So, all in all, there are a lot of factors that will determine how investors react to this week's earnings release. Will see another sharp sell off, or can we expect to see the stock march towards the $200 mark? I wish I knew the answer to that one, but unfortunately we will just have to wait and see what the company has in store for us tomorrow afternoon. Should be an interesting ride!
For a better idea of just how crazy the past three months have been since its last earnings report, let's close by looking at a three month chart for the stock:
Disclosure: Mr. Fowlkes holds a long position in AAPL
Michael Fowlkes has worked as a stock trader for seven years and spent the last four years working as an analyst for the online investment advisory service Investor's Observer.
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Reader Comments (Page 1 of 1)
4-22-2008 @ 2:23PM
Austin said...
3G is a type of cell phone based broadband connection. It is faster than the current EDGE connection that the iPhone currently uses. It does not mean 3 gig. The iPhone already comes in 8 and 16 gigabyte versions. Just so you know...
4-22-2008 @ 2:29PM
Michael.Fowlkes said...
Austin,
thank you for pointing that out. I have corrected the typo in the post.
thank you,
Michael
4-22-2008 @ 11:53PM
Beltway Greg said...
The call on Apple tomorrow is difficult specifically because there is such a range of earnings estimates
and such a wide spectrum of product lines to consider. Apple could beat with the Mac but miss with targets on the IPod and the implied IPhone targets and still drop. Apple guided .94 in Jan. If they reported $1.01 it would be stellar in terms of their guidance but a big miss in regard to what the Street expects. A couple of weeks ago a single analyst reported that Mosaic could conceivably miss earnings. This was perhaps the dumbest call I've ever seen given that we're in the midst of a Malthusian food shortage in developing countries and the great ethanol ramp-up every place else. Folks flipped out and the stock fell to $95. After earnings the stock soared to $135. Apple experienced a somewhat similar trend today. I say similar because Apple has been on a bit of a roll recently and is no longer the undiscovered darling it was at this time last year. My best guess is that Apple will rise to $166 by COB tomorrow. The fun starts after numbers are released. If Apple simply falls into the range defined by the analysts we could see a bounce to $170 and then a mild sell-off bottoming in the mid $150s. If Apple really, really beats and provides frothy guidance $175-$180 in after-hours is conceivable and $200 in the next month or two isn't out of the question. My guess is that the numbers will raise as many questions as they answer. As I've posted in the past, Apple isn't participating in markets but creating them. Long-term I fell quite confident that Apple will leave $200 far behind. Short term I'm not so sure. If you can afford to ride a down stock for a while you'll be rewarded in the fall all things being equal.
If you can't then don't; one has to be rational about these things. If the overall market were healthy I'd mortgage my mama to buy some shares. As things stand I won't make-up my mind until 2:00 p.m. EST tomorrow before the announcement.
Beltway Greg
4-23-2008 @ 9:01AM
Dale said...
I believe apple said they would sell 10 million iphones between June 29, 2007 and the end of 2008 - not 10 million iphones sold in 2008 as the article states.
4-30-2008 @ 10:23AM
RICH BRULATO said...
Even with a monster quarter, the Apple hater came out of the woodwork to downplay the enormous success of the Mac's and the iPhone...why is it the people hate success so much?