Apple’s quarterly earnings fell short of expectations today. Apple’s earnings per share came in at $8.67, compared with Wall Street’s estimate for $8.75 a share. Apple’s stock fell in after market trading. However, Apple generated $36.2 billion in revenue this quarter, beating revenue expectations of $35.8 billion.
Apple fanboys are calling today’s results a mixed bag, and saying not to worry. Are they too drunk on the cool aid to be credible? Is the roof starting to cave? Is this the start of a broader trend? Does the market see something? Apple’s trading at a PE of 14. Why isn’t it higher, like 25 times? Or, is this the quiet before the storm?
This is what I see – Apple still managed to post an $8.2 billion profit this quarter. The company never posted a profit this large under Steve Jobs. And this was done in a quarter leading up to one of the biggest batches of product refreshes Apple has ever done.
Most importantly, the holiday shopping season is a couple weeks out, and Apple just refreshed the majority of its consumer product line. I see the iPad mini being one of the hit products of the holiday season, and helping to drive revenue past $52 billion for the quarter.
Interestingly though, the iPad mini is one of the reasons the stock could take a hit, as well. No one knows for sure how the mini will sell, but if it sells as many as expected, it will contribute to lowering Apple’s margins and analysts don’t like that. Apple was able to maintain a 40% gross margin this quarter, but large mini sales could lower that number to 36%, if numbers come in as expected.
The iPhone is really the key product in the quest for $50 billion next quarter, and along with iTunes, I expect the iPhone 5 to do very well this holiday season.
The investing world has set a high bar for Apple. The stock may be punished in the short run, but I am a long term fan of the company. This may very well just be the calm before the storm.