A Surprise Earnings Miss for Apple -- Will You Sell?

Anyone who's followed Apple (Nasdaq: AAPL  ) for a meaningful period of time can tell you the Mac maker has a history of punking Wall Street.

Don't take my word for it. Just look at the numbers. Apple's fiscal Q3 profit beat estimates by 33%. Both the second- and first-quarter reports came in 19% higher than expectations, while last year's Q4 topped the consensus by 14%. Each quarter has put more distance between the iEmpire's real performance and what analysts had expected to see.

Until now, anyway.

Apple's $7.05 in fourth-quarter earnings per share fell well short of the $7.28 analysts were expecting. Revenue came in at $28.3 billion -- up 39% over last year's Q4, but also short of estimates. The stock is down more than 8% in after-hours trading.

Digging further into the numbers:

  • iPhone. Apple sold 17.1 million handsets in Q4, down sharply from last quarter's 20.3 million though up 21% year over year. Analysts were hoping to see Apple sell at least another 20 million units of its iconic smartphone.
  • iPad. Another disappointment. Apple sold just 11.12 million tabs during the quarter, as Google (Nasdaq: GOOG  ) prepped the new Ice Cream Sandwich update to boost the usefulness of Android alternatives. Analysts were expecting at least 11.5 million iPads sold, with optimists calling for 13.1 million units.
  • Mac. The bright spot. Apple sold 4.89 million Macs during the quarter, a 26% increase and comfortably above all estimates.
  • The future. And the really bright spot: Apple is now guiding to $37 billion in revenue and $9.30 a share in profit. Both figures beat Wall Street's already-optimistic fiscal first-quarter forecast.

Still, we've known for a while that Apple's iPhone was taking share from Nokia (NYSE: NOK  ) and Research In Motion (Nasdaq: RIMM  ) , and that was before a new distribution deal with Sprint Nextel (NYSE: S  ) helped boost interest for the record-setting 4s handset. How could Apple not blow away estimates with the wind so clearly at its back?

Maybe it doesn't matter. Sure, Apple came short of hyped-up expectations, but CEO Tim Cook and team are aiming for a holiday quarter that could very well set all sorts of new company records. Do you believe it'll happen? Or were Q4 results bad enough that you're ready to duck and cover?

Seriously, I'm asking. Please vote in the poll below, and then leave a comment to let us know where you stand on Apple in the post-Jobs era. You can also add Apple to your Foolish Watchlist for ongoing coverage.

If you're looking for more investing ideas, check out The Motley Fool's special report "5 Stocks The Motley Fool Owns – And You Should Too." Access your free copy now.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Apple and Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services have recommended buying shares of Apple and Google and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (27) | Recommend This Article (18)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 18, 2011, at 6:28 PM, realMikecart1 wrote:

    The three million missing unit sales were clearly people that delayed their purchase for the iPhone 4S and became part of the four million unit frenzy in October. It is the simplest explanation for why last quarter would miss and next quarter would be raised, and it also happens to be supported by data.

    How is this not an obvious explanation, not to mention a signal to buy on the knee-jerk dip?

    Thompson

  • Report this Comment On October 18, 2011, at 6:29 PM, SimpleEcon wrote:

    BUY,BUY,BUY! Apple will be back, and the answer to when, I will add,is almost immediately. The earnings expectations in Q4 were unrealistic given the fact that many true Apple fans were waiting for the release of the iPhone 4S (which sold over 20M units in it's first 4 days) and that year after year after year August-October remain the slowest sales seasons for tech (seasonality is the real deal here). With these strong upcoming sales and the holiday season upcoming on this reasonably priced product, Apple will reclaim its perch at the top of the tech investing world and as the Market Cap leader in the NYSE before you know it. Don't regret cutting your "losses" now; be smart, trust in the foundation of the company, and lower your average price at the bottom of this dip.

  • Report this Comment On October 18, 2011, at 6:32 PM, ironyworks wrote:

    Inflow up 54% and the stock goes down!!!?

    Tisk!

    Guess i'm just a contrarian...more please.

  • Report this Comment On October 18, 2011, at 7:01 PM, smartin619 wrote:

    My only disappointment is that I don't have a lot of cash to pick up more.

  • Report this Comment On October 18, 2011, at 8:25 PM, punyhuman wrote:

    Your poll is missing an option for AAPL stockholders who are not selling, but are not buying either.

  • Report this Comment On October 18, 2011, at 8:29 PM, Pratiken wrote:

    Puny is right. I'm sure we're not the only ones going to simply wait out the storm with what we have. I still see it bumping to $500 in the not so distant future.

  • Report this Comment On October 18, 2011, at 8:33 PM, PostScience wrote:

    Apple guided $5.50 per share. They reported $7.28.

    For Q1 they are guiding $9.30. What will they report? $11 per share? More?

    Anyone who has followed the iPhone 4S knows that Apple is poised for a ridiculous quarter in 3 months.

    Please sell. I'd like to buy more shares below $400.

  • Report this Comment On October 18, 2011, at 8:43 PM, Merton123 wrote:

    General Electric Market Capitalization is 177 Billion. Apple Computer is 391 Billion Dollars. The nimble rule breaker is becoming dangerously large. Can Apple continue growing its market capitalization at the same pace as it has in the past? Or will Apple earning growth slow down to a more dignified pace? Who knows?

  • Report this Comment On October 18, 2011, at 9:16 PM, mcintorb wrote:

    Could it be that the analysts got sick of being punked? I suppose it's the theory of the wisdom of crowds that leads us to place such stock in the analysts (grossly misnamed) consensus, but just once I'd like to see an analyst fess up to the inadequacy of his or her crystal ball, tea leaves, tarot cards, or even logic.

  • Report this Comment On October 18, 2011, at 9:22 PM, lukascranac wrote:

    @Merton123

    Market capitalization has been growing in spite of the rapidly shrinking p/e multiple.

    In the future p/e will meet industry average around 12. At that point Apple does not have to post 50% EPS growth to grow market cap. 10% - 20% will be enough.

    However given the nature of their products and the size of the potential global market I expect 50% EPS growth for at least a year more and at the same time getting the multiple lower.

  • Report this Comment On October 18, 2011, at 9:38 PM, HectorLemans wrote:

    Hmmmm...seems like quite a coincidence that after all these years, Apple misses earnings expectations shortly after Steve Jobs passes on. Me thinks they might have been "pulling forward" some income for at least a little while to make upper management happy and are now ready to fess up. Kind of like GE under Jack Welch's leadership in the 90's...not that him and Jobs weren't spectacular CEO's. I just don't trust companies that seem to enjoy playing Wall Street's quarterly numbers game.

  • Report this Comment On October 18, 2011, at 10:02 PM, CommonScents wrote:

    Echoing earlier sentiment....how can TMF not have a "I bought and I'm now holding" option for the poll? :-)

    Buy and hold is the name of the game around here, no???

  • Report this Comment On October 19, 2011, at 12:31 AM, Maraith wrote:

    No miss. Exceeded their own guidance. The analysts did their usual pisspoor job.

  • Report this Comment On October 19, 2011, at 1:28 AM, ifool100 wrote:

    AAPL is on sale. Anything below $450 is a huge discount to what they are worth. Siri - the S part of the 4S, is gonna be fun to watch. I have a feeling everyone else is going to be playing catchup in this area for a while. Thanks for the legacy Steve.

  • Report this Comment On October 19, 2011, at 1:29 AM, TXBui wrote:

    Traders are so short-sighted. If they were true investors, they would realize that beyond the reported 4Q numbers, those delayed sales made it to Apple's balance sheet on the coming quarter with those millions of 4S which were sold in the past week. It just means that the coming quarter will recover those delayed purchases and Apple still kept the customer base. Why such erratic short-term reactions because the sale did not take place in 4Q?

  • Report this Comment On October 19, 2011, at 1:33 AM, krista54 wrote:

    This isn't too much of a surprise. I sitll own AAPL and still think it is a buy and now view it currently as a great deal for those who aren't in it right now. Apple was bound to see a quarter that did not meet/exceed expectations. With the iPhone 5 and iPad 3 slated for a summer 2012 release these results will be long forgotten.

    Krista

    http://www.freetradesbabe.com/

  • Report this Comment On October 19, 2011, at 2:44 AM, daveandrae wrote:

    if you had 391 billion dollars, would you buy all of the apple computer company?

    If that answer is yes, than you should be buying as many shares as you can afford.

    If that answer is no, than why would you buy even one share of this stock?

    Some of us have been around the block enough times in this business to know that It doesn't matter how "hot" the products are, (think of Viagra for example) it still takes a TREMENDOUS amount of energy to double a 391 billion dollar market cap weighted stock. Just ask Cisco, GE, Pfizer, Merck, Wal-mart, Intel, Exxon and Microsoft.

    In my opinion, given the market cap, the absence of Steve Jobs, and the rise of Google and Amazon as competitors, the downside risk of this stock outweighs its upside potential.

    I can certainly think of better places to invest 400 dollars.

  • Report this Comment On October 19, 2011, at 6:24 AM, PauloJSantos wrote:

    It was predictable that this would happen.... For several reasons : wall streets analysts tender to pull the expectations when it refers to Apple (maybe they are mad to the fact Apple always make them look like fools...), but Apple always beats the best expectations. Instead of referring the (once more) great results of a top brand company with products not for the low-mid consumer because of it's prices. And don't forget the cool down in world economy !!!! If the economy was on fire, how would it be ????

    And for some time, we knew that a new iPhone was coming... But still they manage to sell the "old" one even more !!!!

  • Report this Comment On October 19, 2011, at 9:10 AM, JoeandChuckP wrote:

    I agree with Maraith - what miss? They beat their expectations by 13%, and the forecast for next quarter is humongous.

    The fundies are better than ever (less SJ) - Mac sales are off the charts, iPad is a bigger success than I could have imagined, and they are dirt cheap.

    For those with a buy today, sell later today mentality, good luck. I wish you well. For those of us that have held a long time (and will hold for a long time) this is noise. These folks know how to run a business.

    CP - owner since 1993

  • Report this Comment On October 19, 2011, at 10:34 AM, ourporch wrote:

    Where's the option to vote - I own shares but am not buying more? Not an accurate poll if that isn't included.

  • Report this Comment On October 19, 2011, at 11:21 AM, quiltdog wrote:

    You need two more options "own and holding" and "own and selling"

  • Report this Comment On October 19, 2011, at 11:47 AM, MatiasR wrote:

    I'm afraid the rock is getting too heavy to keep pushing it uphill, however cool it may be. I think it's time to call it a day and get done with it. Doesn't mean you have to sell all your positions just yet, but I think that to keep pumping the market cap up when there are so many compelling opportunities in the market of companies whose valuations have been beaten down unfairly with the recent sell off doesn't make sense. If you want to buy tech, get into companies that supply parts and services to Apple, Android and Windows OEMs (Corning, Visa and NXP jump in my head just now, to say a few). Remember: you don't need to love or hate Apple, you can just stay in the sidelines and watch other people fight about it.

    Disclosure: I have an open vertical bull put spread on Apple that will expire on Friday.

  • Report this Comment On October 19, 2011, at 1:06 PM, OutperformOrDie wrote:

    Asking if people will sell a stock because of an earnings miss is analogous to asking:

    "A Surprise Pothole In The Road -- Will You Stop Driving?"

    Long: AAPL

  • Report this Comment On October 19, 2011, at 1:58 PM, stevenbremer wrote:

    Late last night I was on the side of hold. This morning when it was below $400 I bought more. I see a huge upside going in to the holiday season.

  • Report this Comment On October 19, 2011, at 3:28 PM, DJDynamicNC wrote:

    To be honest, I'm holding off on Apple until I see where Tim Cook goes. Steve Jobs infused every aspect of that company with his vision and personality. That is not an easy thing to replicate, and in fact, I'd be disappointed to see Cook even try. Instead, I'm hoping he has his own brand of vision to impart - and that it's a vision with marketability.

    Until I have a bit more confidence, though, I'm not taking on a position. My fears are likely unfounded, but we'll see.

  • Report this Comment On October 19, 2011, at 3:54 PM, ikkyu2 wrote:

    AAPL is my largest position and I recently accumulated more at $363.

    If the company were valued like any other company in the world relative to its sales growth, earnings growth, or market share, it'd be priced at $2000 a share. I therefore think that it has a lot of room to appreciate even if growth slows.

  • Report this Comment On October 19, 2011, at 4:16 PM, lj2585 wrote:

    Like others, I own Apple and am waiting to decide whether to buy more...but in addition factor (mentioned on the conference call) that early rumors of the new iPhone launch decreased sales of the existing iPhone 4...I wondering whether anyone tracks the turnover rate for iPhone users...in other words...I bought the iPhone 4 last November (when the white version came out) and would have gladly bought the iPhone 4s now if it wasn't for the fact that my AT&T contract would have forced me to pay full retail (almost $750) for the 32GB version. Anyone else think this may have an effect on sales for this quarter...while people delay both to the contract and the potential iPhone 5 rumors?

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