Apple’s stock has had a bumpy ride over the past few weeks leading to a lot of speculation about what will happen after Apple announces its financial results on Tuesday night.
Within the last month Apple’s stock has moved from $618.63 to $572.98 via a high of $636.23. It closed on Friday at $572.98, the lowest point since 13 March. So what has caused the rather remarkable rise and fall of the Apple stock, and does it really matter.
There are a lot of theories about what caused Apple’s stock to plummet on 16 April and 19 April, as well as theories about what caused it to rocket on 2 April and 17 April.
Back at the beginning of April two analysts predicted that Apple could see $1,001 a share within 12 months. Then a week later Apple saw its market cap top $600 billion in market value. Even on Friday some analysts were still betting on Apple’s stock continuing to soar: Henderson Global Investors analyst Stuart O’Gorman said: “Apple is becoming cheaper as earnings had been growing faster than its share price. Our target price for Apple is $1,200.”
But in the same month Apple's share price declined rapidly, from the height of $636.23 a share on Monday 9 April to $580.13 a share a week later on Monday 16 April. Various reasons were suggested for the apparent loss of confidence in the stock. BTIG analyst Walter Piecyk was one naysayer, who had referred to “inevitable bumps” and also highlighted concerns that wireless carriers would not continue to subsidise iPhone prices. Another was Wedge Partners analyst Brian Blair who had expressed his concerns that other analyst estimates were too high.
Others suggested the reason for the decline was Apple's row with the US Department of Justice. The US Department of Justice sued Apple and five major book publishers for colluding to raise ebook prices.
Others suggested the fall was natural, that Apple was collapsing under its own weight, or just due a “pause”. In International Strategy & Investment Group analyst Brian Marshall ‘s words: "We believe this could be a simple 'collapsing' on its own weight given the year-to-date move of Apple up approximately 45 per cent, while the S&P 500 has been up about 10 per cent."
A reason given for the latest decline is Verizon’s news on 19 April that iPhone sales were down during its Christmas quarter (compared to the same quarter a year before). Some suggested that this could indicate that Apple could miss expectations this Tuesday. However, Verizion’s financial results actually revealed that the iPhone was a real boost for the company, which saw the average monthly bill for subscribers increase from what it was a year ago, according to Business Week.
However, in the same report Business Week notes that: ”The high price of the iPhone means phone companies are struggling to make it pay - most of the profit from the iPhone is flowing to Apple Inc., not the phone companies,” some suggest that this is the reason for the decline in confidence in Apple.
Other reports also point to Apple's “souring relations” with network providers. The Independent published an article this weekend suggesting that: “In the US in particular, mobile carriers are trying to screw down the price they pay to handset makers. The iPhone has been heavily subsidised by the carriers in order to attract gadget-savvy customers to their network, but now the companies are trying to promote alternative phones that run on Android and Windows operating systems, where they pay less.”
The Independent points to BTIG analyst Walter Piecyk comments (referred to above) that: "Investors should take a breather and take a moment to consider the changing dynamics in the post-paid wireless industry, which has seen margins squeezed by the frequent upgrade activity of iPhone customers, and the sustainability of a $600 iPhone and possible need for a price cut."
Another potential share price downturn driver was news that Qualcomm was experiencing chip shortages. There were fears that these shortages could affect Apple, since Qualcomm provides baseband radio chips for the iPhone. However, Qualcomm was referring to the Snapdragon S4 CPU and that shouldn’t affect iPhone 5, because Apple uses CPUs built to its own design.
Both its not all bad news. Other reports point to China, suggesting that it’s the new markets that will give Apple the boost it needs. Seeking Alpha notes that Apple strategically released its iPhone4s in China on 1/13/12 coinciding with the beginning of the Chinese (Lunar) New Year, which is basically a two-week shopping extravaganza in a country where “having the latest luxury goods gives you visibility, credibility, and power”. Seeking Alpha asks: “If the USA can sell 11 million domestic units to a wide socioeconomic audience of 300 million, how many can China sell to a group of 70 million upper class elite?”
“The only thing can hold Apple back is Apple itself and not being able to keep up with demand. Enter Mr. Tim Cook, guru of supply chain economics. Steve Jobs almost certainly foresaw the supply issues ahead in endorsing Cook as his successor,” the report adds.
A downturn now may be great news for savvy Apple investors. Advice from Goldman Sachs last week was to buy Apple stock before financial results announcement.
Fortune has a round up of the analyst expectations for Apple’s results, according Thomson/First Call. The average is for earnings of $10.00 on sales of $36.63 billion.
Apple will announce its Q2 FY12 earnings on Tuesday 24 April. The company will host its usual conference call with analysts and shareholders at 9pm BST (2pm PT). The call will be streamed via Apple’s website, we will also run our usual analysis on the Macworld website during the call.