Apple beat its own profit forecast by a massive 70 per cent on Wednesday, but it would seem that investors were not impressed with the news, nor were they excited by Apple's conservative guidance for the third quarter - the stock sank 10 per cent on the following day.
Analysts suggest that the reason for the decline is that Apple has been priced for perfection - expectations are too high.
Immediately following the results announcement, Piper Jaffray analyst Eugene Munster told CNBC that despite the relatively good fiscal second quarter figures "with Apple expectations always so high, nothing is going to make the Street happy today."
Needham & Co. analyst Charles Wolf told clients: "The risks in the Apple story have more to do with investors' expectations than fundamentals", citing "unrealistically embedded exponential projections".
Reuters suggests that Apple's stock trades on the idea that Apple will handily surpass its own forecasts. It would seem that investors have stopped placing as much stock in Apple's financial forecasts as they have in the past, choosing to make their own predictions for Apple - and possibly setting the bar too high.
Apple's tendency to publish unremarkable expectations may be another reason why Apple's results didn't excite despite beating the companies expectations.
Investors may be have tired of Apple's low sales predictions. "Investors do not believe Apple's guidance and have much higher unpublished expectations," wrote American Technology Research analyst Shaw Wu in a note to clients on Thursday, reports Reuters.
Analysts are suggesting that Apple is underplaying expected sales when it makes its predictions. Gartner researcher Martin Reynolds doesn't believe that Apple can't see into its own business: "They could've been a little more aggressive in their forecast in light of the success of the iPod," he said, according to Reuters.
Booz Allen Hamilton partner Barry Jaruzelski indicated that Apple's financial conservatism could be wise considering the difficulty of accurately predicting sales of a fad consumer electronics product. Jaruzelski explained: "Apple now has some of the dynamics of the toy business, or retail, which are both incredibly spiky and have faddish aspects to them. It's inherently less predictable."
Apple may find it harder to keep up the momentum, constantly breaking its financial results records as it has done in recent quarters. Wu said: "The big blowout surprise results may be tougher for Apple to sustain if its business gets tougher. We also believe the likelihood of these big upside surprises will decrease with tough comparisons and operating leverage approaching its peak."
So much is riding on the continued success of the iPod that if the device failed to become a phenomenal success, "the subsequent disappointment could hurt the highflying stock price," he said.
Similarly, Munster warned that the company needs to quickly "get some exciting products out there or else the Street's appetite is going to wane."
Wu did maintain however that Apple remains best positioned to benefit from the growing digital music industry.