If you were away on a trip or not paying close attention you might think that Apple single-handedly punctured the stock market with less-than-expected financial results last week. ‘Say it ain’t so, Jeffrey.‘ OK, it ain’t so.
The market, especially the tech side, had a few holes in the balloon already and Apple’s earnings didn’t help stem the tide against more losses. But let me examine what I think is being missed by the charlatan market analysts when it comes to Apple.
First, the tech industry is down a bit right now, economies here and there are softening, and that harms anyone who sells anything except the likes of Costco, Sam’s Club, and expensive jewelry. Apple sells gadgets and gadget sales soften when the economy changes a goes south. But that’s how economies work; there is constant motion up and down.
Second, fundamentals haven’t changed much. Google, Microsoft, Samsung, and others also missed expectations, but their impact on the market is far less than Apple which has been the golden boy for 13 years. One reason why iPhone sales took such a hit can also be attributed to the raging success of iPhone 6. Not the iPhone 6s. The 6 and 6 plus, both of which were outliers; Apple’s first big screen phones and there was plenty of pent up demand and the company satisfied that demand in a big way. Record sales and profits.
Third, count the numbers. Apple’s horrible quarter ended with $13-billion in profits which just happens to be more than Microsoft, Google, Facebook, and Amazon combined. So, why all the Chicken Little ‘Sky is falling?’
Too many investors and most market analysts are myopic about how to invest, and what to invest in. Today’s mantra is simple and compelling. Growth. Companies that grow are worth more than companies that own market segments and are profitable. It’s all about growth.
Here’s the paradox. That growth must be immediate. It’s ‘grow now or else.’
Apple has a number of Fortune 500 business segments. iPhone, iPad, Mac, and services. Wait. What? Services? What’s that.
Services is kind of storage shed of everything else that Apple builds into and around the product business. And services at Apple are growing at nearly 30-percent even while product sales have dropped (all of them, and I’m betting Watch, too). Why? Services are embedded into the ecosystem so even when a Mac user delays an upgrade for a year, or an iPhone user decides to wait until iPhone 7 before ditching the 5s, services keeps going.
Services. iTunes, App Stores, Apple Music, and everything else that isn’t an electric gadget flows into services and that business alone is a Fortune 500 business. It’s not as if customers are going to stop buying iPhones, iPads, and Macs. If they do, then they’ve also stopped buying competitor products and the world’s economy just found a deep dumpster to jump in. The recent financials are speed bump. They happen. Even to to Apple. What worries me more than the market’s irresponsible reaction is Apple’s seeming nonchalance at bringing new products to market, or even buying into new markets. Sure, that methodology– limited product line, smaller acquisitions– has worked well in the 21st century, so why complain?
Because the market is about growth and Apple just stopped growing.