Jul 22, 2015 — by: Mark Reschke
Categories: Financial Results, iPhone, iWatch, Tim Cook, Apple Watch

Dumb_analysts

You can forget yesterday’s record shattering numbers Apple CEO, Tim Cook, proudly revealed for Apple’s 3rd quarter of 2015. Ignore the fact that iPhone sales grew 35% year-over-year, or that Apple now has over $200 billion in cash for the first time in history. This is all irrelevant. None of this matters. Why? Because analysts guessed that Apple would sell between 50 - 55 million iPhones in the quarter, when in reality Apple only sold a record breaking 47.53 million iPhones. Apple did not achieve the conjured up sales figures the “experts” spewed forth, and therefore the result was Apple’s stock price must be punished. No offense to the political naive who do not understand history, but in the investment world, this makes about as much sense as, say, cutting a nuclear deal with Iran trusting they will do the right thing. The sad reality is, this vapid illogic is how the stock market largely operates each and every day. Companies stocks rise when they beat the expert guesstimates. Stocks prices fall when companies do not meet the expert expectations. It does not matter how the company actually preformed. It is all about the experts guessing game. Reason and logic need not apply.

It is odd that analysts, who have a decades long track record of being wrong with their predictions more than 50% of the time, are treated by large investors as holding the holy grail to what companies should, or should not, achieve. The entire engine of investment is run on predictions, not on how a company truly preforms. Apple could have a quarter that did not even meet their worst guidance, yet if Cook proclaimed the following quarter would achieve sales beyond analysts predictions, the stock would climb. Just think about that for a moment...

Ironically, Apple beat their own guidance range, along with Forbes institutional investors average for both earnings per share and revenue, despite missing the mythical iPhone sales figures. Apple made their overall revenue and EPS figures by gaining ground with Apple Watch and service sales. Beyond record iPhone sales and 35% year-over-year iPhone sales growth missing expectations, worse yet for Apple's stock price came in their Q4 2015 guidance, again lower than what analysts were predicting. Time to punish Apple yet again.

The areas of factual concrete concern should be revolving around iPad and Mac sales. iPad sales did not quite reach the 11 million sales mark, down 18% from the year ago quarter. Mac sales, which saw 4.4 million sold a year ago, achieved 4.7 million. While Mac sales continue to grow, neither it nor other areas are coming close to keeping pace with iPhone growth. Apple’s smartphone juggernaut continues to march forward at breakneck speed, while Apple’s other pillars slowly fade, or tread water. It is the imbalance in sales and the overweight reliance on iPhone sales investors should be worried about, rather than devaluing Apple some $50 billion, due to analysts guessing record iPhone sales figures incorrectly.

This coming quarter should see the release of new iPhones, followed closely with an all-new 12-inch iPad. Apple is clearly anticipating a draw down in iPhone 6 sales with the arrival of new models about to be launched, giving financial guidance to reflect that move. Evidently analysts did not figure that out, and view Apple’s guidance as weak. The question is, weaker than what? The sad answer: Weaker than their own dreamed up version of reality.

The core reason investors follow analyst's guidance and recommendations is due to the simple fact there is safety in numbers. Group-think reigns supreme on Wall Street. Thank goodness Apple doesn't operate by the beat of their insanity. Here is to Apple executing their own path successfully, no matter what the sheep decide to do, say or guess.

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