Apple's Earnings Didn't Change Anything

Fellow Fool Evan Niu did an excellent job covering Apple's (NASDAQ: AAPL  )  latest earnings release. In it, he pointed out several moves that he said "changed everything." Among the details the company offered:

  • Apple beat on both top- and bottom-line expectations.
  • iPhone and iPad sales came in ahead of expectations, and Mac sales -- though down -- were much better than the steep decline in PC numbers.
  • China continues to play an increasingly important role.
  • The company has more than doubled its capital return program, devoting $60 billion to share buybacks and upping its dividend by 15%.

While I agree with Evan on the positivity of all of these points -- and as a shareholder, I'm glad to see money being returned -- there's still a central concern that's left unattended to, and because of it, Apple's earnings really haven't changed a thing for me.

It's all about innovation
Let's take off our bean-counting hats for a second and remember what made Apple's resurrection over the past decade make us all stop in our tracks and wonder in awe at their products: They were so simple, so useful, and so addictive that once we used them, we couldn't understand how we survived without them.

First it was the iPod, then the iPhone, and finally the iPad -- with upgrades to Macs all along the way. Sure, Steve Jobs cared about the numbers, too, but in the end, it was all about creating things that we connected with on a visceral level.

That's why Apple was able to so quickly unseat BlackBerry, and why Nokia -- once the king of cell phones -- has seen its market share slump so incredibly between 2007, when the first iPhone came out, and 2012.

I have heard, for quite some time now, that a new Apple product is just around the corner. I'll be holding Tim Cook to his word that there will be "surprises in the works" that will be "released this fall."  

When I originally invested in Apple, it was because the company was so clearly light-years ahead of the competition in terms of innovation. That simply isn't the case anymore. The competition has caught up, and over time, that's going to create some serious margin contraction.

Is it really that bad?
To be clear, I still own quite a bit of Apple shares, and intend on holding them for the time being. I'm trying to temper my impatience for proof of innovation in the post-Jobs era, and can't deny that the capital moves are nice (at least in the short term).

In the long term, what we could be seeing is Apple moving into a category Microsoft (NASDAQ: MSFT  )  investors had to endure a decade ago. The stock moved from being a growth stock, to an income and value stock. That's not necessarily a bad thing, as dividends do make quite a difference -- doubling the return of the investment.

MSFT Chart

MSFT data by YCharts.

One things Microsoft has, however, that Apple doesn't, is a more sustainable competitive advantage in terms of its Office Suite, which is far stickier than the iOS ecosystem.

So, for me, what it all comes down to is this: Without evidence of continued innovation at Apple, it's simply not the same company that I bought into a few years ago. That doesn't mean it's a bad investment per se, but it needs to be re-evaluated (as all stocks do) based on the fact that it's more of a good stock than a good company.

I've already begun my re-evaluation, so stay tuned if you'd like to see how it plays out.

If a breakthrough comes, you'll want access to this
Clearly, 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 reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.  By getting access, you'll also be receiving a year's worth of up-to-the-minute updates on any important developments within the company.  Don't pass the opportunity up.

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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 April 24, 2013, at 9:53 PM, lakawak wrote:

    Of course it didn't. It only "beat" estimates because those estiamtes have been lowered at least twice in January. And the forecast for this quarter were terrible. The buyback was just a bandaid and the investors didn't fall for it. All it did was stop the huge sell off that would have occurred today had they not announced that. So in a way, it saved the price abut 40-50 points because that is what would have happened today with just the earnings and next quarter estiamtes. But there is noting to suggest that the stock will do anything but what it has been doing for the last 7 months until something major happens. Which means until at least August, it is likely to keep falling.

  • Report this Comment On April 24, 2013, at 10:37 PM, Scooter2010 wrote:

    My huge issue is everyone is claiming that apple has lost it's innovative edge, but I see no innovation from Samsung or anyone else. They are just copying what apple originally innovated? Who is out innovating Apple? What better camera? More memory? Faster processor? That is innovating?

  • Report this Comment On April 24, 2013, at 10:50 PM, JHawkinTexas wrote:

    What a whiner! How many years between the iPod and iPhone, then the iPad? The only thing I can pin on Apple is that they've set the bar too high. They've set expectations so high it's tough for even them to beat. What has Samsung done in the way of innovative products? A larger screen phone? Eye tracking? Popular UI on Android? Pleeeeease! Incremental evolution. Maybe. Innovation? Not even close.

    As for MS Office being sticky...only because it is ubiquituos...sort of like Adobe pdf. However, did MS Office cause me to stick with Windows? Nope. It's also on Mac and now I'm using Pages, Keynote, and Numbers more all the time.

    As my old Grand Pappy used to tell me, "Don't sell short someone with $144B in the bank." :)

  • Report this Comment On April 25, 2013, at 12:10 AM, Seabiscuit5 wrote:

    I continue to believe that the coming years will bring tremendous innovations in conumser and enterprise communication and entertainment technology and that no company is positioned better than Apple to be the spearhead.

  • Report this Comment On April 25, 2013, at 9:57 AM, TMFCheesehead wrote:

    <<They are just copying what apple originally innovated?>>

    That's true to some extent. But even so, if someone has the opportunity to choose between an Apple product and a Samsung one with the same features, and Samsung's is cheaper, that's a huge edge for Samsung.

    It's not that anyone else is out-innovating Apple right now, but more than--given the difficult dynamics of the industry--if you aren't the one innovating head and shoulders above the rest--you don't have a huge competitive advantage.

    Brian Stoffel

  • Report this Comment On April 25, 2013, at 10:58 AM, verces wrote:

    APPL will be suppressed for considerable amount of time for now - unless they can come up with another jaw dropping products. I would suggest that BBRY and NOK would be a good catalyst for income potential from the gains that APPL had produced so far.

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