Expo Update #3: Wall Street Isn’t Impressed

January 17th, 2008

One of the biggest dangers of the pre-Expo feeding frenzy that surrounds Apple Inc. more and more these days is that it’s nearly impossible for the company to fulfill the financial community’s hopes and dreams.

No matter what the company does, some people way just say it’s just not enough. Now last year was an exception, because, with the unveiling of the iPhone, Apple introduced a whole new platform, or at least new for the company. The looks and interface were striking enough to impress both analysts and regular folk alike, and that contributed to the unexpectedly high sales figures out of the starting gate and throughout the rest of the year.

Sure, there are a few less truthful tech writers who claimed that Apple cut the price by some $200 because sales hadn’t met internal expectations, but that’s clearly untrue since the magic one million sales figure was reached just a few days later. And those alleged journalists still haven’t apologized for their gross misstatements, which is quite typical.

Already there are claims that Apple may not have met expectations for Mac sales during the December quarter, although preliminary reports indicate they are up 30% over last year. That, may I remind you, is way ahead of the industry average.

I suppose they want Apple to always walk on water, and if they end up taking a boat instead, something is wrong in Cupertino and the stock market price must tank appropriately.

Now it’s perfectly true that the shaky state of the U.S. economy, partly the result of problems with sub-prime mortgages and insanely high oil prices, is enough to cause the bear market. So perhaps the drop in Apple’s stock price from its historic high of $200 was to be expected regardless of the outcome of the Steve Jobs keynote. There was, perhaps, little Apple could do to pop up its stock price.

Of course next week, when they reveal their actual quarterly financials, you may see the stock reverberate appropriately, depending on the nature of the information. Apple had an optimistic guidance, and Wall Street has added to the figures, so it may be a blowout quarter regardless. How much of a blowout is anyone’s guess, and only Apple knows for sure right now. If it’s perceived as not quite enough, well, the stock price will remain stagnant or renew a downward trend.

Or maybe it’ll just happen for no reason at all.

In fairness to Apple, too much romanticism and expectation is invested in the company. If every single new product isn’t an absolute home run, well, they are losing their mojo. At least that’s the theory.

However, it’s a theory seems absurd on its face. Whether the products are perceived as classy or dull isn’t as important as how they actually sell. Certainly the Cube was thought of as something trend-setting because of its unusual shape and carefully delineated molded plastics. But it was overpriced and sales were mediocre.

It’s not that Steve Jobs won’t admit when a product isn’t succeeding. Take the Apple TV, which had a tepid reception in 2007. He got his crew to reinvigorate the gadget with new software and the ability to mate with a TV and let you buy and rent movies and music without the need of a PC. To drive the point home, they are making the new features available as a free update for existing users and also cut the price by $70.

Then again, most anything Apple produces can be controversial. The iPhone was faulted because there was no initial support for third-party software, a status quo that’ll be remedied next month. Now the MacBook Air is being faulted because it has a sealed battery, limited peripheral ports and no internal optical drive, let alone Ethernet.

The question that should be asked about Apple’s thin and light note-book, however, is whether it’s suited to the market for which it is designed, and that’s probably the committed road warrior, plus folks who just want to make a fashion statement. A product of this sort requires certain design tradeoffs. By providing external support for an optical drive and wired networking, Apple is allowing you to have it both ways but still have something that’s slim and light.

The real concern, though, is whether such a thin design is breakable in the field. After all, note-book computers are guaranteed a rough life. How will the delicate-looking MacBook Air sustain daily use and abuse. I have no idea, but it doesn’t hurt to buy an extended warranty with any note-book.

Personally, I think that Wall Street ought to be pleased that Apple is moving along nicely, thank you. What do you readers think?

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10 Responses to “Expo Update #3: Wall Street Isn’t Impressed”

  1. Dana Sutton says:

    In the first place, Wall Street is indeed very pleased with Apple, if you go by the the yardstick of what investment house analysts are saying. Even as its current value is dropping, AAPL is almost uniformly given a Buy rating, with its eventual price point pegged at anything from $215 to $250, depending on whom you listen to (and historically, these forecasts have often proven way too conservative). Even though some of these very same analysts are less than wholly impressed by MacBook Air and the movie-rental scheme, they are not budging from their Buy recommendation. In the second place, this phenomenon of a temporary sag in AAPL value after a Steve keynote is nothing new. As Gene says, anticipation builds up to such a fever pitch that nothing he could possibly say can satisfy it, so a feeling of let-down is inevitable (“whattya mean the iPhone has sold only four million units, I thought it should have sold five???”) In the third, if a rising tide raises all the boats, then a falling tide does the opposite, and you have to face the reality that in view of the current economic situation all stocks on the NYSE and NASDAQ are on a downturn. I wouldn’t buy AAPL in the expectation of a quick killing, but if you don’t mind hanging onto it a while, this is in fact a great opportunity to pick up some shares at a bargain-basement price which isn’t going to last forever. The quarterly report due out later this month presumably will be chock-full of good news about unit sales (especially figuring in sales of Leopard), and ever-expanding market share, ought to help bring it back up.

  2. DaveD says:

    With regards to the “free” AppleTV software upgrade, like the iPhone, Apple is accounting for AppleTV sales over 24 months, so all software upgrades should be free. (Unlike the iPod Touch, which you must pay $20 to add 5 new apps.)

    With regards to the stock price? Apple’s had an incredible ride over the last 5 years.

    I’ve been long since 2004 and have watched it double in value in under a year – THREE times. Last year the price went up 135%. As late as September I still was carrying a personal target of ending the year at $160, so I’m not too bothered by where it stands now.

    Were there outlandish expectations of product announcements for the keynote this year? Sure. A 3G iPhone in particular. Were there realistic things that were disappointments? Sure. No 10.5.2, no real sub-notebook, and no hardware changes with the AppleTV. How much did this impact the stock price? Considering Apple’s beta of 1.85 and the overall bearish market, it doesn’t look like the impact was that much.

    Don’t get fooled into thinking that stellar earnings will result in any “pop” next week either. It might. But it sure didn’t last January, when they announced record sales of iPods, great Macs sales, and beat even the whisper number EPS by 30%. For Apple it seems, it’s always about guidance.

    I’ll be quite happy if they finish the week above $170. But then, I’ve always been conservative in my expectations!

  3. Tom B says:

    As a long term investor with 100% faith in the company, the stock blip does not concern me. In fact, I used it to buy more AAPL. Mac sales are said to have been huge during the holidays*. iPhone sales top 4 million; well on theway to achieving the 10 M by the end of ’08 goal Jobs set for the product. Movie downloads is a market in its infancy, but Apple has the only credible solution right now– and more support from the studios than the rumors sites would have had us believe.

    I like to believe that when my 6 year is big, everybody will be using Macs and Windows will be a bad memory, like leisure suits. That may be optimistic, since the Enterprise market always seems decades behind the times in terms of technology adoption. We may need to see more of the DOS-bred move into retirement to see more progress in business. But, with Intel machines dual-booting, it seems clear buying a single OS machine– a Dell or an HP or whatever– just to “save” a couple of bucks is just plain asinine.

    The Mac has something like 8% domestic computer share. They might not reach 100% soon– or ever. But can they double their share? You bet they can; no doubt about it. What other tech company holds the same promise? I can’t think of any. I hold some Google, but they really are a “one trick pony”

    *One cloud on the horizon is that Gartner is reporting much lower holiday Mac sales than Jaffrey. But, Gartner has a HORRENDOUS accuracy record, and I don’t know what methodology they used to get their data. Another cloud is the recession, but I figure you need a computer, you need a computer.

  4. Al says:

    I don’t know if it is the day traders or professional fund managers but stock prices are driven by very very short term considerations. Rather then basing their investment decisions on how they think the company will do, they base it on what they think other short horizon investors will do right now. Fund managers especially have this stupid notion that if they’re not actually trading stocks every minute they’re at work then they’re not doing their job well. Warren Buffett didn’t get fantastically rich by focusing on the very short term.

    I view every dip in AAPL as a buying opportunity.

  5. Steve Lang says:

    Every MacWorld is a selling opportunity, because regardless of what comes out the stock drops, and then is a good buying opportunity.

    Buy on the rumor (and there are tons of Apple rumors pre-MacWorld), sell on the news. The stock has dropped a lot in recent days, but there was also quite a run-up immediately preceding it. Obviously the general trend for AAPL has been upwards in the last couple of years.

    I would say that this MacWorld was slightly underwhelming compared to previous ones, if only because Apple didn’t introduce some totally brand new, revolutionary product. I wasn’t expecting anything big myself so wasn’t disappointed. But because of that, I’m kicking myself a bit for not buying some put options before the show, they’d be 40 points in the black right now (I’m not a bear on Apple overall, and had previously owned Apple stock for a couple of very good years.)

  6. gopher says:

    Apple’s innovations with Macworld were nice, but the I think they should have done more to:

    1. Ensure the Time Capsule was ready when Macworld keynote was finished. I was all ready to buy it as my girlfriend needed a new network router, and I could have given her my base station, while adding a Time Capsule to my network.

    2. Incorporate existing ports into the MacBook Air. They could have at least made a USB-Firewire dongle, a Firewire port, changed the audio to SPDIF compatible audio out, added a second independent bus USB port, or even an Express/34 slot. Even Front Row isn’t supported again.

    3. Offered more rental options such as a month subscription fee such as Netflix with timeouts of a month.

    4. Offer cheaper prices on existing displays, and offer larger displays. The Display lineup is getting old.

    5. Make the AppleTV update available immediately.

  7. Dana Sutton says:

    I am very surprised that Steve didn’t at least announce dramatic price cuts on the existing Display lineup. Over the past couple of years, manufacturing costs for LCD screens have gone way down, Apple simply isn’t passing them on to consumers, you can pick up decent displays from Dell, HP, etc. etc. for much much less. Cinema Displays can’t be selling much at all these days. And to gopher’s list I would add one more item: it was a bad mistake to release the new MacPro line so casually just before MacWorld, Apple should have showcased it as one of the new jewels in their crown. It would have added an important element to Steve’s presentation: “hey, professionals and content producers, we haven’t forgotten you, you’re still important to us.” Steve’s relentless hammering on the Mac as an entertainment device sends just the opposite message, and I can’t imagine it’s doing Apple a world of good in those markets. And the Keynote might have produced a more favorable reaction from the computer press, investment analysts, etc. etc. I haven’t read or heard a full transcript of Steve’s keynote, did he even give a passing mention to the new MacPro? It was also very conspicuous that Steve had no new software announcement of any kind. Was he bending over backward not to steal the limelight from Office 2008 on the day it was released?

  8. javaholic says:

    Some good updates this year but for me, nothing game changing I’ll be investing in straight away.

    The iTMS rental deal finally gaining some traction is good news, although for now it’s US centric so in my country, I’m still hiring from the local DVD store (pretty antiquated eh?) 😉 . Also, oddly enough, the AppleTV 2 is still the same price as the previous model. No price drop here.

    Time Capsule looks interesting but we haven’t bothered upgrading to Leopard – yet.

    With regard to the MacBook Air, the new form factor isn’t enough to sway me into buying one over a MacBook or Pro. Too higher price point and tradeoffs in design for my needs. Actually, the thing I’m really curious about is Apples market positioning for it. It’ll be interesting to watch how it goes. The ‘Pro pricing’ will potentially push it beyond the reach of many households, yet it’s not a pro product. The design makes it a great mobile solution, yet Apples fixation with non-replaceable batteries could make it less appealing for mobile users. However I can understand for some people, the form factor alone would be worth the extra $$.

    Agree with Dana – the display line is long in the tooth and needs a pricing overhaul. Dells line gets more attractive everyday.

    As for Wall Street, well, we all have our wish lists and expectations that we anticipate will be met at these events. While there’s been some controversial product releases and company decisions made over the years, looking back there’s also plenty to be happy about if you’re a customer, a shareholder or both. Today’s Apple is not just about the products. It’s the Brand. The Marketing. The hype. The company’s ‘rock star’ status. All these things go hand in hand and can affect our ‘buy in’ as customers and Wall Streets ‘buy’ price.

  9. Bill says:

    The MacBook Air is for the poser showing off at Starbuck’s, not for a true road warrior.

    The battery is an anemic 37 W-h, roughly a third less capacity than the Macbook’s.

    No chance will that give you the 5 hours of runtime Apple claims.

    In real-world use, 3 hours if you’re lucky (and the battery is brand new)

    And remember you can’t swap batteries easily, as you can with any 2lb. PC sub-notebook.

  10. Dana Sutton says:

    “The MacBook Air is for the poser showing off at Starbuck’s.” Yes, but isn’t that a pretty large market?

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