Photo: Getty Images/Justin Sullivan
After reporting earnings, Apple’s stock cratered to $457.78, an 11% after hours drop.When earnings first hit, the stock fell 4.5% on worse than expected results.
The stock really started breaking down during the earnings call when CFO Peter Oppenheimer announced that Apple was changing its guidance method.
In the past, Apple would set comically low guidance, then annihilate it. Oppenheimer pretty much admitted as much, saying Apple was “conservative” in the past with a “single” data point for its guidance.
Going forward, Oppenheimer said Apple was going to produce a range of guidance that it felt it would be inside.
This is a radical change for investors. Although Apple had failed to destroy its own guidance in the last three quarters, analysts on the buy-side and sell-side still thought it was going to happen. When Apple basically came out and said, “We are not sandbagging any more,” investors got the message.
And it wasn’t a good message to receive.
The new sandbagless guidance is significantly below where people though it would be. In fact, it’s right in line with what people thought Apple would say if it was still sandbagging.
So, Apple’s real guidance is what people thought its fake guidance would be. And that means its growth is going to be worse than expected.
That’s why the stock broke down. At first glance, the holiday quarter looked bad, but at least there was reason for hope based on guidance. On the earnings call, Apple crushed that optimism.