THE APPLE INVESTOR: The Fallout From Apple's Lackluster Results

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Tim Cook Apple WWDC 2012

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AAPL Off On Earnings 
Stocks are selling off after a brief bump at the start. Shares of AAPL are getting clobbered on the earnings miss. Investors remain focused on the iPhone 5 launch in the fall; iPad adoption and the rumoured launch of a smaller version; market share growth of the Mac business lines; the introduction of the anticipated Apple TV set and related products; and evolution of platforms such as Siri, iAd and iBooks. Shares of Apple trade at 9.9x Enterprise Value / Trailing Twelve Months Free Cash Flow (including long-term marketable securities). Check out our updated Apple model complete with charts and analysis.The Wall Street Run Down: What Analysts Think (Various)
June quarter revenues and EPS came in at $35.02 billion and $9.32. The heavy-weights chime in.

  • Goldman Sachs: Bill Shope says it’s a tough miss, but the bears have a very short window. He had expected some weakness as a result of a pause in iPhone demand ahead of the iPhone 5 refresh, but the impact was greater than he anticipated. In addition, Apple’s gross margin performance and macro commentary served as key sources of disappointment. Rating: America’s Conviction Buy List. Price-Target: Reduced to $790.
  • BofMAL: Scott Craig says that despite the rare miss (only 2nd in 9 years) and uncertain macro, he remains relatively positive on Apple given valuation, product trends, and gross margin upside though there could be near-term pressure on the stock. Rating: Buy. Price-Target: Reduced to $720.
  • Deutsche Bank: Chris Whitmore believes that although he had expect the September quarter to remain challenged by the iPhone product transition, he recommend investors to buy AAPL ahead of the iPhone 5 launch (expected October). Weakness in the stock is seen as an opportunity. Rating: Buy. Price-Target: $650.
  • Morgan Stanley: Katy Huberty says that this near-term pain will be offset by long-term gains. This is likely one of the last buying opportunities ahead of the iPhone 5 launch as she expect headwinds to reverse in the holiday quarter. Rating: Overweight. Price-Target: $720.
  • Credit Suisse: Kulbinder Garcha believes that the pullback represents buying opportunity. While he acknowledges that iPhone weakness will lead some to questions around growth potential, he remains of the view that with a significant product refresh in the second half, this will prove temporary. Rating: Outperform. Price-Target: $750.
  • Jefferies & Co.: Peter Misek says that results were light due to China inventory adjustments and European weakness. Guidance was below consensus as management implied an October iPhone 5 launch. He believe investors have been waiting for this bad guidance to be on the tape before buying the stock ahead of the iPhone 5, iPad Mini, and iTV product launches. Rating: Buy. Price-Target: $800.

The bulls are still at it.

Everything You Want To Know About Last Night (Business Insider)
Commentary galore.

  • Two Word Summary Of Apple’s Earnings Call: “Fall Transition”
  • Apple’s Most Recent Quarter (BI Intelligence): Every chart you can imagine.
  • Live Blog Of The Call And Results: Apple whiffs on iPhone estimates.
  • Apple Sold 1.3 Million Apple TVs: Still just a hobby.
  • Where Apple’s Revenue Comes From: It’s all about the iPhone.
  • Apple Sold 17 Million iPads: Its first quarter with the new iPad.

And Mountain Lion is officially released today.

Even Apple Is Getting Hammered By Europe, Or Is It A Deeper Mess? (Business Insider)
Henry Blodget points out that until recently, people in Europe seemed willing to go without food, water, and air for a while if it meant having enough money to buy the next Apple gadget. No longer. iPhone sales in Europe were flat year over year. Yikes! The main culprit here is presumably the lousy economy in these countries. That said, Apple also may be getting hit by two factors that are more worrisome: Samsung phones and carrier subsidy reductions.

Is Apple’s Biggest Risks Coming To Fruition? (Business Insider)
Henry Blodget says that one of the biggest risks to Apple’s stock price and profit growth, ironically, stems from one of the company’s most amazing strengths: Its shockingly high profit margin. We have just seen the first quarter in recent history in which Apple’s profit margin declined year over year, albeit very modestly. Overall, it seems as though big clouds are gathering with respect to the outlook for Apple’s future profit margins. And that risk will continue to weigh on the stock price. Because as much as the market loves expanding margins, it loathes contracting ones.

Apple From A Holistic Perspective (eMarketer)
eMarketer was gracious enough to send us some of their statistics on Apple usage. Check it out:

  • More than 11% of the U.S. population, or about 35.9 million people, will use an iPhone at least once per month this year, up from 8.9% in 2011. About 15% of the US population will use an Android device this year.
  • Apple’s share among U.S. smartphone users is expected to reach 31% in 2012, up from 30% in 2011. Google’s share will reach 41% this year.
  • More than 16% of the U.S. population will use an iPad at least once per month this year, up from just over 8% in 2011 and 3.7% in 2010.
  • Apple’s share of the U.S. tablet market will shrink only slightly in 2012, as more competitors enter the market. More than three-quarters of all tablet users in the country will continue to use iPads this year, compared to an 83% user share in 2011.
  • The number of iPad users in the U.S. will rise by over 90% this year to 53.2 million, as loyal users replace older models and new consumers purchase the device. That level of growth is down significantly from last year’s 143.9% jump, and will continue to decline; by 2015, the number of iPad users will rise by just under 12%. By then, more than one-third of all US internet users will have such a device.

eMarketer’s estimates of iPhone and iPad use are based on a meta-analysis of survey and traffic data from more than a dozen research firms and regulatory agencies, sales projections, historical trends, company-specific data, and demographic and socioeconomic factors.

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