Six Reasons Apple Closed 2015 With a Whimper

Fortune ^ | January 1, 2016 | by Philip Elmer-DeWitt

[Swordmaker]

Judging by the fundamentals--things like revenue, earnings, assets, cash flow, profit margins, and growth--Apple had a very good year.

However shares in the world’s most valuable company finished 2015 down 4% from the beginning of the year and off nearly 22% from their 52-week high.

Why the disconnect?

In my comment stream yesterday, a longtime reader who calls himself Merckel spoke for many frustrated shareholders when he boiled it down to six reasons:

• Heavy option activity. Institutions are content with making bank off of selling lotto tickets (options) to weekly gamblers. Approximately 90% of all Apple AAPL options expired worthless in 2015. The pattern is so reliable that it acts as a talisman for stock direction. Thankfully, the option activity is beginning to moderate, which is promising for Apple shareholders. At least in Las Vegas, one knows the odds of losing one’s shirt; Apple gamblers are reduced to wearing only their shorts.
• Journalism’s broken business model. Clickbait headlines about Apple dominate and are mostly negative. Do not underestimate the power of advertising dollars as the root of much of Apple’s negative press.
• CNBC. Retail investors are served a regular diet of fear, uncertainty, and doubt (see above). I give business news network CNBC its own slot for good reason: There are more than 40 analysts covering Apple. Most of those still working (heh) are bullish and have price targets well above today’s stock price, though a viewer of CNBC would never know it because the network’s version of “balance” is to give equal time to Apple bulls and Apple bears. That's not balanced reporting. If CNBC covered man’s landing on the moon, they would no doubt find someone who claimed a hoax for “equal time.”
• Ignorance. The average retail investor doesn’t know a P/E ratio from a gym class. Accordingly, they listen to CNBC talking heads, many of whom rely on “channel checks” to divine iPhone sales despite Apple CEO Tim Cook’s warning that suppliers are a bad proxy for actual results.
• Wall Street myopia. Currently, Wall Street believes Microsoft MSFT has three times better prospects than Apple (based on relative P/E ratios). On what planet can anyone defend this conclusion? Microsoft has failed in mobile, is giving away Windows and new versions of Office have long ceased to be meaningful. The cloud business is a race to the bottom, and I’d hate to compete with Amazon’s cloud service since Amazon AMZN doesn’t have to make any profits.
• Perception. Apple’s iPhone business is winning spectacularly. But for the Street, it’s a Wall of Worry. Apple’s worldwide market share for the iPhone is approximately 14%. As Daniel Eran Dilger pointed out, Google’s GOOG Android is a feeding tube for new Apple customers. If Apple is too concentrated in iPhones, so is Starbucks SBUX selling coffee, Boeing BA selling planes, General Motors GM selling cars, etc. (the list is very long). Really now, has everyone purchased their most recent smartphone? Has everyone purchased their last car? The replacement cycle for smartphones would be the envy of the car business, an industry populated by over 20 brands competing for the same customer. By contrast, Apple has never been in a stronger position and its competitors have never been weaker. Yet, some auto manufacturers have a higher P/E ratio than Apple. More Alice in Wonderland in the stock market.

“Any one of the above suggests the stock market is inefficient as hell,” Merckel concludes. “That all of the above apply produces a truly asinine Apple stock price.”

[ImJustAnotherOkie]

Instead of making excuses for piss poor product introduction cycle in 2015 and an even poorer one expected in 2016 it would be best to focus on the facts. Any Company with 700bil net worth and 200bil cash on hand and looses 200bil in the same year is grossly mismanaged. In effect the PE is based on 500bil and nearly half the future of apple disappeared this year. They have all the cash they need but they just can’t seem to find anything to invest in. Or is that 200bil gone?

[GilGil]

The number one reason is that Steve Jobs is no longer running things and Apple has no direction.

[lacrew]

Read carefully - I said this latest round of phones is high quality...ie the S6.

[dennisw]

This stock AAPL is about to change from a turkey into a turd....a sinking turd.

[lacrew]

Software companies abuse their companies like this all the time. I’ve heard about this lawsuit but not followed it closely. I wonder if some third party can provide a bootleg operating system.

[adorno]

Problem with your P/E ratios is that, most investors don’t buy a stock because of the earnings they’ll be getting from their investments. Most people who invest will be looking to ‘get rich’ via expectations of a stocks price going up.

Earnings at Apple are great and fantastic, but, the stock and the market cap are what people (investors) get excited about.

So, if the stock is what gets people excited, then the excitement subsides when it’s very noticeable that Apple is mostly a one-trick pony when it comes to sales and earnings. If the iPhone were to lose its appeal (which will happen sooner or later) and just became another good smartphone, then, Apple would be in deep ‘sheet’ when it comes to its market cap and company value, which is what is worrying market analysts. Right now, besides the Macs computers, Apple diversification can be spelled with on letter of the alphabet, that being ‘i’, or the iDevices. Not a great prospect.

[dayglored]

> Thimmy Cook actually said "homos are God's special people".

Well, what I'm aware of him saying was, "Being gay is among the greatest gifts God has given me", which is a personal observation, and it's between him and whatever God he's talking about.

I am unable to find a sourced reference for the quote you posted. Could you please send me a link to it, as I'd like to reference it in the future.

Thanks, and Happy New Year!

[Swordmaker]

Instead of making excuses for piss poor product introduction cycle in 2015 and an even poorer one expected in 2016 it would be best to focus on the facts. Any Company with 700bil net worth and 200bil cash on hand and looses 200bil in the same year is grossly mismanaged. In effect the PE is based on 500bil and nearly half the future of apple disappeared this year. They have all the cash they need but they just can't seem to find anything to invest in. Or is that 200bil gone?

Can you demonstrate where Apple "lost $200 billion in the same year?"

You cannot because Apple did not lose any money and in fact made a pot of money in 2015 and in fact INCREASED their holdings in 2015.

Apple Inc is not even involved in the speculations in the pieces of paper being traded around on the NASDAQ. . . except for the fact that they often buy back some of the shares when they are at bargain prices to retire those equities.

PE is NOT based on $700 Billion, or $500 Billion or anything like what you seem to think it's based on, Okie. PE is Price of a share of common stock compared to how much the company Earned decided by the number of outstanding shares. Thus if a share of common stock is $100 and the earnings of the company result in each share's earning being $10, then that company's PE is 10. The company's stock is selling for TEN TIMES EARNINGS. Right now, AAPL is selling for 11.75 times the earnings the company is making. That is phenomenally LOW for a stock. Netflix's share price is an amazing 305 times it'e ability to earn money. . . while Amazon's stock is selling at an astronomical and insane almost one thousand times its ability to earn money. . . and in the past has not even been able to have a PE because it has not posted a profit!

In other words, Okie, MARKET CAP, which is the price of the stock TIMES the number of outstanding shares, which gives the total value of the company ON THE STOCK MARKET, has nothing to do with the PE, but it should. The price of AAPL is totally irrational and in fact the people who sell it are irrational because they sell for emotional reasons, disconnected to sanity or facts or normal stock analysis. None of the predictions these mavins of negativity stock anal-cyst have predicted for AAPL have ever come to past but lots of people have lost money following their predictions and claims. It is THEM who have caused people to lose money speculating on AAPL, not Tim Cook and Apple's ability to produce profits which have been working quite nicely all along. . . without faltering, turning in record quarters after record quarters not only for Apple, but record quarters for ALL businesses everywhere!

You are continuing to prove you don't know what you are talking about in economics, finance, stock valuation, Market value, Price/Earnings ratios, and practically everything else you post on Apple and Stocks. As I said, you should not post when it makes everyone absolutely certain you are a fool. This one has been just a case in point. In fact, you are the poster child for such posts.

[Swordmaker]

The number one reason is that Steve Jobs is no longer running things and Apple has no direction.

Steve Jobs ignored the stock market and what was happening with AAPL. He thought it was a crap shoot. . . and chasing the valuation of AAPL was a worthless pastime for the Board of Directors.

[Jim Noble]

Apple (again) has too many products that are too similar to each other.

The glorious pro/consumer desktop/laptop matrix is in the trash. I’ve had Macs since 1987, and my upgrade/replacement path was totally clear - until last year.

[Swordmaker]

. . . apparently the recent iPhone OS update degraded the functionality of the 4s. So the hardware and battery might be just fine but the phone will be unsupported.

The iPhone 4s IS supported under iOS 9 and later versions of iOS 9. My girlfriend's employer supplied iPhone 4s was upgraded to iOS 9.2 and works just fine. It is no speed demon like her personal iPhone 6, but its hardware is eight times slower than the iPhone 6's hardware and sixteen times slower than the iPhone 6S's hardware. It still works but it is hardly a brick.

This class action lawsuit, like the previous ones based on the same argument, will be tossed out for lack of evidence. The plaintiffs cannot prove their contention that Apple deliberately made iOS 9 to obsolete the iPhone 4s. . . because it still works on the iPhone 4s.

[TXnMA]

Behold: Advertising dollars at work...

~~~~~~~~~~~

The Article: "Do not underestimate the power of advertising dollars as the root of much of Apple's negative press."

dumb@$$w: "This stock AAPL is about to change from a turkey into a turd....a sinking turd."

~~~~~~~~~~~

Yep: Advertising dollars at work...

[Swordmaker]

If the iPhone were to lose its appeal (which will happen sooner or later) and just became another good smartphone, then, Apple would be in deep 'sheet' when it comes to its market cap and company value, which is what is worrying market analysts.

Did you read the article? Apparently not:

"There are more than 40 analysts covering Apple. Most of those still working (heh) are bullish and have price targets well above today’s stock price, though a viewer of CNBC would never know it because the network’s version of 'balance' is to give equal time to Apple bulls and Apple bears. That's not balanced reporting. If CNBC covered man’s landing on the moon, they would no doubt find someone who claimed a hoax for 'equal time.'"

Where are these "worried" anal-cysts except for a very small minority of bloggers who are basically in the pay of the competition spewing astroturfed talking points? The analysts are all predicting larger prices for AAPL not lower and the drop is irrational, based on know-nothing anal-cysts who are using single point-source data which is not backed by other data.

[ImJustAnotherOkie]

It’s a reflection of confidence. Apparently there isn’t much confidence.

[Swordmaker]

You haven't answered the question. Where has Apple lost $200 billion? You contend Apple has somehow lost $200 Billion of the cash they have on hand. Where is your proof?

Put up or shut up, Okie.

[doug6352]

I think that Tim Cook damaged Apple’s reputation with his March 29, 2015 announcement that Apple was opposing the Indiana religious liberty law. It may be a coincidence, but Apple stock topped out on April 28, 2015, and has been declining ever since then. Since Tim Cook wrote that he was expressing the opinion of Apple Inc., and not his own personal opinion as a private citizen, I, and perhaps other people, decided that it is appropriate to boycott Apple products. When my wife and I purchased cell phones later in 2015 we did not consider buying iphones.

[ImJustAnotherOkie]

I simply pointed out that they lost 200bil in value and what a coincidence it was that happens to be the same as cash on hand. Miss the question mark?

[Swordmaker]

I think that Tim Cook damaged Apple’s reputation with his March 29, 2015 announcement that Apple was opposing the Indiana religious liberty law. It may be a coincidence, but Apple stock topped out on April 28, 2015, and has been declining ever since then.

Not true:

As you can see there were peaks as high in May and July as high as the peak in April. Then there are other peaks at the beginning of November. . . and then mid November. So your claim that Apple has been declining ever since is just wrong.

These are just the vagaries of the market. Apple has had drops and climbs before. The responses of the market for AAPL are irrational. Apple reports an historical record quarter and the stock drops drastically in the following week. . . all based on a completely bogus LIE in Yahoo! Financial news that Apple missed meeting the Street's Revenue projection Whisper Number. . . but Yahoo! impermissibly CHANGED the Whisper number between when they had reported at 8:30AM the morning of the announcement, raising the Whisper number by over $2 billion, and when they proclaimed Apple had missed it at 2:00PM in a banner headline (!) which precipitated an after-hours sell off.

[Swordmaker]

I simply pointed out that they lost 200bil in value and what a coincidence it was that happens to be the same as cash on hand. Miss the question mark?

And I told you Apple lost NOTHING. Nor has anyone holding Apple stock who has not SOLD their stock. The Stock valuation is ALL smoke and mirrors until someone takes their profits, Okie, and you demonstrate in spades that you don't know the difference.

Apple made REAL money. Any potential losses on the stock market are not realized until the holders of the stock sell. Nor did they lose anything close to that amount unless they ALL bought the stock at the PEAK price of 134 and they did not. Very few people did that. The vast majority of AAPL stock holders are way up in positive valuation. GET REAL! Quit living in LA LA Land, Okie, learn something before you open your ignorant mouth.

[ImJustAnotherOkie]

It’s not quite that simple. Anyone leveraging investments using apple.stock lost. Who cares anyway