Please ensure Javascript is enabled for purposes of website accessibility

Don’t Fall for Apple Inc.'s iPad Magic Trick

By Ashraf Eassa - Apr 28, 2016 at 8:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Product launch timing, not improved customer demand, is going to lead to better year-over-year comps for iPad.

Image credit: Apple. 

Apple's (AAPL 0.11%) struggling iPad family of tablets saw a significant decline in both revenue and units, with both falling 19% respectively over the results seen a year prior. The iPad and, indeed, the tablet market at large is being squeezed by thin-and-light personal computers on one side and by large-screen smartphones on the other.

Now, in a bid to assuage investor fears around this product category, Apple CEO Tim Cook told investors that the company expects to enjoy the "best iPad revenue compare in over two years."

This may seem as though Cook is signaling a fundamental improvement in the iPad business, but it's simply sleight of hand. Allow me to explain.

iPad Pro 9.7-inch revenue ramping up in FQ3
Apple indicated that it didn't recognize any sales revenue in fiscal Q2 for the iPhone SE, which launched on March 24 and began shipping to customers on March 31, with initial shipments recognized in fiscal Q3. The iPad Pro launched at the same time, so revenues for that product probably weren't recognized in fiscal Q2, either.

That means the initial "surge" of 9.7-inch iPad Pro sales will make a financial impact in fiscal Q3.

How this makes the year-over-year comparison worthless
In the year-ago quarter (Q3 of fiscal 2015), Apple didn't launch any new iPad products. Indeed, in the same quarter in 2015, Apple was well past the October 2014 launch of the iPad Air 2 and iPad Mini 3. So Apple is comparing a seasonally "peak" iPad quarter with a mid-product cycle quarter from a year ago.

To further fuel the fire, Apple will surely benefit from having the 9.7-inch iPad Pro sell at higher prices than the previous-generation iPad Air 2 products that were available for sale in the year prior. And, of course, Apple should benefit from the fresh price reductions on the iPad Air 2, which could help drive incremental volume in the quarter.

Yes, next quarter should be "as good as it gets" from a year-over-year comparison perspective, but that's much more a reflection of product launch timing dynamics than of fundamental demand trends.

Apple still has a question to answer
Apple has to find a way to get iPad sales to grow again on an apples-to-apples basis. It's not clear how the company will be able to achieve this goal, particularly given that -- at least with iPad -- the company doesn't have any real obvious "product issues."

The iPad is far and away the  best  tablet on the market, in my view, sporting state-of-the-art hardware, a large selection of apps tailored for the iPad, and an excellent operating system.

The problem is that people just aren't buying tablets like they used to. Perhaps Apple can introduce some fundamental game-changing innovations that will make the iPad a must-have, but even if it does, those features will shortly find their way into the iPhone -- the product category that Apple cares about the most -- and rightfully so. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$140.52 (0.11%) $0.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
322%
 
S&P 500 Returns
116%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.