Apple’s stunning results hurt by lack of guidance

On Wednesday, Apple reported that its stunning 2020 holiday quarter (fiscal Q121) broke nearly every one of its financial records, but the company did not offer guidance for Q221 due to COVID-19 lockdown uncertainties. Revenue of $111.4 billion, up 21% from last year and $8 billion more than analysts had expected, was a record. Profits of $28.8 billion, up 29%, was also a record, as were the sales totals in every geographic region and in most product categories. And, yet, Apple’s stock price dropped.

Apple Park in Cupertino, California
Apple Park in Cupertino, California

Mott Capital Management:

The market failed to rally around the stock because of the company’s lack of guidance.

There really was not much not to like from the quarter. Earnings were much better than expected, coming at $1.68 per share vs. estimates for $1.41. The better revenue and better earnings should lead to analysts boosting their revenue and earnings estimates for all of fiscal 2021 for the company. This should help with Apple’s overall valuation, bringing it lower.

As earnings estimates for this year and next rise, the PE ratio should fall, as long as the stock doesn’t rise faster than analysts’ adjustments to earnings, helping to make the stock’s valuation more manageable and sustainable. Perhaps more importantly, giving the fundamentals a chance or the fundamentals to catch up to the stock’s big advance.

Today, the stock weakness stems from the company not providing guidance again and its lack of clarity around its outlook. This is something the company has chosen not to do since the pandemic has started, and while it hurts the stock around the release of the earnings, over the past year, the stock big advance suggests it doesn’t have a longer-term impact. Perhaps it is something Apple should do permanently.

MacDailyNews Take: Apple eliminating guidance going forward is an intriguing idea that analysts would be sure to hate (even eliminating unit sales numbers, caused a collective conniption fit among analysts as they were forced to actually attempt to do some work).

Hey, Mr. Market, if you want to irrationally put Apple on sale, smart investors will gladly partake. Can we see sub-$130, pretty please?

[Thanks to MacDailyNews Reader “Fred Mertz” for the heads up.]

6 Comments

  1. Apple dumps 8 out of 10 times on earnings announcements, for profit taking and ‘sell on the news’ reasons and then days later starts its run up. It’s rare when it actually gets a pop on earnings. Anyone that watches this is not surprised.

    All these analysts are making bs up finding faces in the clouds.

    1. And yet MSFT / GOOG / etc. go up on pre / post earning report – I’m a long term Apple shareholder and still don’t fully comprehend even though we’ve all seen this before, I completely understand your explanation, however this still doesn’t sit well with me. Plus this quarter knocked the cover off the ball even with the analysts lofty revised expectations – show us some love for the 111+ B quarter ! ❣️ 🍎

  2. Offering conservative guidance each quarter helps reduce expectations. Sometimes Apple beats by a lot, sometimes a little, but offering nothing gets expectations too high.

  3. Fred Mertz is a true Amertzican. Fred is so good at finding great stories, it Hertz. MDN could lose its shirts if it wasn’t for Mertz. Right, said Fred. Applecynic – off with ya head!

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