No matter how many iPhones and iPads Apple CEO Tim Cook sells, it’s not enough for Wall Street. Photo: Alex Washburn/WIRED
Apple is kind of like a wildfire. It burns so hot, it creates its own weather.
How else to explain Wall Street’s rats-off-a-sinking-ship reaction to another quarter of stratospheric sales and profits from the cash machine that Jobs built? The only rule with Apple is: No matter how well it does, a whole different school of stock market physics seems to apply.
On Monday, after the markets closed, Apple reported its most recent quarterly earnings, and investors responded by dumping their shares. The company’s stock price dropped as much as 9 percent in after-hours trading. With most companies, such a sell-off comes after a big loss, tepid projections for the future, or quarterly numbers that failed to meet the expectations of Wall Street analysts. But in Apple’s case, it arrived after the company reported $13.1 billion in profits on sales of $57.6 billion, beating the Street’s consensus.
The company said it sold a record number of iPhones for the quarter (51 million), as well as a record number of iPads (26 million). And big profits and sales are predicted to continue. For casual students of capitalism, all this sounds like everything is going right.
Instead, the big drop in Apple’s stock price has become something of a ritual purge every time the company announces big news. See, for example, here, here, and here. Similar disappointment greeted CEO Tim Cook’s announcement of the iPhone 5s and 5c back in September. The 5s looked especially great — best in class, even — but for Apple, sometimes even great isn’t enough. The same holds true for sales and profits. It’s not about how big they are. It’s about how much bigger they could be, but aren’t.
Too Big Not to Fail
During the first decade or so of the new century, Apple went from a company that made a device that transformed the music industry to a company that made a device that transformed every industry. And its revenue growth reflects that trend. As the iPhone went from coveted status symbol to ubiquitous tool of the mobile age, sales began to rise. Once the iPad was introduced, Apple’s growth rocketed, setting the standard that has been nearly impossible to match as the market for smartphones and tablets has matured — a dreaded word. While iPhones and iPads are still setting new records, overall growth is flat, and this past quarter’s iPhone sales came in below expectations for the holiday season by 5 to 6 million units. Apple’s numbers represent a healthy consistency but not that next level of nose bleed-inducing altitudes .
It’s possible Apple could once again reach those heights with the release of a category-creating wearable gadget or smart device, and some of the pessimism around Apple arises from the reality that the company has yet to do this. Rumors of such Apple hardware have been around for ages. Apple poaching former Burberry CEO Angela Ahrendts was seen as the surest sign yet that the company is getting into the wearables game. The trouble is that Wall Street wants an Apple smartwatch now, and it hasn’t seen one yet.
Meanwhile, activist investor Carl Icahn sees other deficiencies in the Apple machine. Icahn’s version of “not good enough” is Apple’s $100 billion stock buyback plan, which he believes the company should hike up to $150 billion. So he’s using Twitter to badger Cook and company almost constantly.
In a sense, the problem with Apple is that all the numbers have become so large, they can’t get any larger. Then again, a majority of the world’s people still don’t own smartphones. If Apple can figure out how to get its devices into even a fraction of those hands — which it has struggled to do in emerging markets, compared to Google Android — maybe it could finally add enough billions to its balance sheet to make everyone happy.
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