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Apple's (NASDAQ: AAPL ) Wednesday earnings report was one of the most anticipated for the company in recent memory. The quarter included several key product launches and a push into China that may significantly define the immediate future for Apple. The release of worse-than-expected results led to a 10% drop in after-hours trading, but it is important to keep in mind how strong these numbers are relative to other options, not just relative to what analysts had "hoped" for (by which I mean "predicted"). To that end, the following five numbers help to really put the announcement in perspective and should give you some insight by which to analyze the stock.
iPhone 5 sales
This may be the single most important number included in the release -- even more important than the earnings per share. Projections had ranged from 30 million units to as high as 60 million in a few cases, with 50 million being considered the average expectation. With a reported 47.8 million iPhone sales for the quarter, most were disappointed in the result, which ignores the fact that this represents a 29% increase from a year ago. It is important to note that devices that run Google's (NASDAQ: GOOGL ) Android turn over regularly, in part because they are made by so many different manufacturers. As the numbers shake out over the next few days, the possibility of a faster product cycle is likely to be addressed. I would also think that current iPhone 5 sales may be driving factor as the company considers the possibility of a cheaper iPhone.
With the release of the smaller iPad Mini, many Apple watchers, myself included, believed that the company was making an important, and potentially dangerous, course correction from market leader to reactionary. The Google Nexus 7, for example, poses a real threat to the iPad Mini, and with a significant price differential, there is some cause for concern over time. The most recent report from IDC shows that while Android tablets do not have the same market share as iOS -- 53.8% versus 42.7% -- Android's market share is being encroached upon by competitors slower than iOS. Apple reported iPad sales of 22.9 million relative to 15.4 million a year ago . This sales figure is important in sending a message to the market that consumers are willing to pay up for Apple products. You should watch this figure, but also where sales go from here; if the initial "wow" factor fades, Google may up the stakes in this arena. In the post-release conference call, Apple CFO Peter Oppenheimer pointed out that sales figured represented "an average increase of 60% per week, ahead of IDC's latest published estimate of 56% growth for the tablet market."
This was arguably the real bright spot of the earnings release, with Oppenheimer explaining that iPhone sales in "Greater China" had more than doubled from a year ago. The company vowed to not only focus on the area as a major growth driver, but said that moving forward it will begin breaking out China when it reports financial figures. Revenue from the region came in at $7.3 billion, a 60% increase from a year ago. Overall, China will likely be a critical area for Apple moving forward and you should watch if the company decides to try to compete with Google on the lower end of the price spectrum, or remains solely on the premium end of the spectrum.
While there had been significant consternation over Apple's ability to maintain its margins, the company's reported gross margin of 38.6% should quiet many of those fears. In a recent Bloomberg report, contributing editor Paul Kedrosky suggested that 37% was the tipping point for Apple in terms of the margin that investors need to see in order to stay positive. While he does not see a cheap iPhone as likely, he believes that Apple will focus on a "family of products" across a range of sizes. Ultimately, while Apple expects margins to contract by as much as 1.1% moving forward, its margins are solid.
As much as it really should not matter, the $500 share price had an important psychological meaning. Despite the after-hours sell-off, if the stock can rebound quickly, it will be an important show of strength. It is not uncommon for Apple shares to get hammered in the extended session, only to roar much of the way back in the following days. Shareholders and potential shareholders alike should pay careful attention to how the stock trades from here.
While the sum total of Apple earnings are more complex than any five numbers, these five stats are critical. Over the medium and long term, I remain bullish on Apple at current levels, but this is largely driven by the fact that excluding cash, the stock has a P/E around 7. With Apple this cheap, it is hard not to buy right here.
There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.