Apple falls as pundits scatter ever wider

Somehow, with its holiday-quarter earnings fireworks show this week, Apple somehow tied itself into a double-jointed pretzel, managing to both put up jaw-dropping numbers of revenue and sales while simultaneously disappointing many analysts, prompting investors to run as fast as they can from the company’s stock.

Thursday, as shares of Apple plunged 11 percent, analysts started to crank out a running litany of explanations for the weaker-than-expected performance, weaving in calls for calm among the stock-selling stampede, big-picture takeaways, ardent defenses of the Cupertino tech king, while desperately trying  to infuse a bit of cleverness and even comedy into their correspondence.

Our personal favorite came from Colin W. Gillis, who follows technology for BGC Financial. He used his group email to softly deliver a haiku:

When the party ends, everyone rushes to leave, without saying thanks.

Nice touch.

Gillis then summed up what many observers saw as a big red flag over Apple’s future: first-fiscal quarterly sales of the iPhone, the lead ox in Apple’s revenue-generating oxen train, had come up short:

 While the company sold a record 47.7M (+29% YoY) units in the quarter, the number did not break the 50 million units that we viewed was needed to be a positive catalyst to the stock.

Gillis then launched in on the much-talked-about policy change inserted into Apple’s earnings announcement: from now on, the company would report a two-number estimate range for earnings targets, no longer  just a single number (and a number that Apple would traditionally conservatively low-ball and then blow past with the subsequent earnings report:

The company indicated a change in its stance regarding guidance, by providing a range that the company expects its results should land in, as opposed to a baseline that could be exceeded. While this caused a reset in expectations, driving the selling pressure, longer term we view that reduced expectations of monster upside from Apple may help reduce volatility around earnings.

Next up was Mark Moskowitz with J.P. Morgan. The subject line on his quick-take email was fun, or least as fun as a stock analyst can be these days:

 Apple Inc. : Apples andOranges: Fundamentals and Investor Expectations Continue to Diverge

Unlike Gillis who maintained his HOLD rating on Apple and trimmed his price target to $550 from $575,  Moskowitz was more bullish, holding steady with his Dec. 13 target of $725, light years away from his friends over at BGC.

And why? Because Moskowitz, like others, thinks that panicked investors are exaggerating  Apple’s problems while  under-estimating the company’s prowess for mind-blowing innovation:

 We are surprised by the sharp correction in shares of Apple in last night’s after-hours trading. At one point, the stock declined 10%, as the company tried to explain its new guidance approach. Without splitting hairs too much, we think the new guidance commentary is not much of a change and could restore beat-and-raise potential to the model.

Quick take: the stock’s sharp decline last night was driven by a widening chasm between Apple’s fundamentals and investor expectations. The new guidance commentary did not help either. Investors are fearful that iPhone growth has peaked and consolidated gross margin is going to collapse.

But hold your oxen, said Moskowitz:

In contrast, we believe a still-ramping iPhone 5 can drive reaccelerating revenue growth, particularly as more wireless networks roll out LTE. While increasing sales of iPad mini could drag on gross margin, improving yields on iPhone 5 should provide a partial offset.

Finally, there was Amit Daryanani, the soft-spoken guru from RBC Capital Markets, with this simple teaser in his subject line:

AAPL- Bent Not Broken

While the earnings news was classic half-empty-half-full stuff,  Daryanani made clear where he stood on what’s really happening with that finely beveled, retina-displayed glass:

There was enough in the print for both bulls and bears. As the bulls will point to 1) Strong ramp of iPhones and iPads 2) 260 bps upside to gross-margins, 3) Conservative March-qtr guide and 4) Multiple upcoming catalyst (new products, capital allocation, potential china mobile). The bears will focus on 1) cannibalization will hurt revenues and margins, 2) Change in commentary around guide, 3) Lack of new innovative products. We view the results as a sign that AAPL is executing well as they shift to a more normal growth company.

And, wrote Daryanani, the sky over Cupertino is not yet falling:

In our view, while the guidance was softer than expected the eco-system remains and Apple has maintains a strong product portfolio that should continue growing revenue at double digits on a y/y basis.


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