M.G Siegler on Apple’s earnings call:
The results are in. Actually, they’re not in. And that was a major problem yesterday for Apple.
You see, the company had to do something they almost never do. They had to revise their earnings guidance.¹ Downward. The stock was halted. Yikes.
Today, the stock is down nearly 10%. Tens of billions of dollars have been shaved off of Apple’s market cap, literally overnight.
The company is now the 4th most valuable corporation in the world. That sounds like a great thing until you remember that until recently, it was the most valuable company in the world — and for much of the past several years, this was the case by far.
Yesterday was a nightmare scenario for any public company. But it’s almost unfathomable that this happened with Apple. For years and years, this is the company that not only beat their earnings guidance (not to mention Wall Street’s expectations) quarter after quarter, they crushed them.
I mean, this is the company which celebrated becoming the first trillion dollar company just this past August. What a difference a few months makes.
Tim Cook’s letter to shareholders on the matter is fascinating. On one hand, he makes a very simple case: chalk it up to China.
A bad economic situation exacerbated by a trade war has created a perfect storm of sorts, undoubtedly for many companies operating in the country. Yet many U.S. companies don’t operate in China the way that Apple does. It’s their third-largest market. So yeah, this was always going to hurt.
On the other hand, all of that could have been explained in one or two paragraphs. Cook’s letter is nearly 1,500 words long.
But it’s worth diving a bit deeper into what’s going on. Or actually, just zooming out a bit, to summarize. Because to me, the interesting bits are about what’s going on with Apple beyond the China situation.
While the bad miss on the quarterly revenue and the revised statement surprised me, the underlying issues that Cook hints at do not. They point to something we’ve known for years: it was always inevitable that the law of large numbers would catch up with Apple. More specifically, with the iPhone — perhaps the greatest product from a business perspective in history. And that appears to have happened. Finally.
Two paragraphs in Cook’s statement stand out to me:
In addition, these and other factors resulted in fewer iPhone upgrades than we had anticipated.
This is a big deal. Almost mentioned as an aside; love it. And:
While Greater China and other emerging markets accounted for the vast majority of the year-over-year iPhone revenue decline, in some developed markets, iPhone upgrades also were not as strong as we thought they would be. While macroeconomic challenges in some markets were a key contributor to this trend, we believe there are other factors broadly impacting our iPhone performance, including consumers adapting to a world with fewer carrier subsidies, US dollar strength-related price increases, and some customers taking advantage of significantly reduced pricing for iPhone battery replacements.
Again, there’s the weaker-than-expected iPhone upgrades data point. But with a bit more detail this time.
The iPhone has simply been too good of a business. And it’s hard to see what tops it. Certainly in the near term. If Services is to carry Apple in the future, it will likely be only after years of relatively stagnant iPhone revenue growth mixed with a rising overall market. In other words, time and the broader world will have to catch up. And then Apple can have their “Microsoft Moment” — a services-based resurrection of growth.
Read the rest of the article, M.G is spot on with every point he makes.