CNBC interview. Munster thinks it's time to buy AAPL. In fact, he imagined lines that will extend around "every major mall in America once this thing
iPhone 5 comes out." He also let us know that his firm's analysis of "tweets per minute" of iPhone 5 mentions shows that they have "just gone up vertically" in recent weeks. Munster couldn't decide if we should blame the quarter on macro pressure or something more specific like the gap between smartphones. Maybe the tweets-per-minute meter will help him make that determination in the coming days.
What Went WrongAs for the company, it provided a whole host of reasons why it missed earnings expectations and offered, even by Apple standards, weak fourth-quarter guidance. China is slow. iPhone revenue in Europe was flat year-over-year. The fall transition and the strong dollar will drag on margins, but, rest assured, the product pipeline is stronger than ever. Bulls like Tim Cook latched onto strong iPad sales in the quarter for comfort. Others, such as Ina Fried at All Things D, referred to "the bright side" as the declaration of Apple's $2.65 per share dividend. When the dividend becomes a bright side, you know something is amiss. Let's review some of the carnage: A Q3 EPS miss that comes in $1.06 less than the Capital IQ consensus, according to my Briefing.com feed. Q3 revenue off by more than $2 billion. Q4 EPS guidance for $7.65 vs. the $10.23 Capital IQ estimate, which, again, is low even for the traditionally conservative Apple. A Q4 revenue projection nearly $4 billion below consensus. And there's more. Apple sold 3 million fewer iPhones than Wall Street anticipated, and a half a million fewer Macs (it blamed that on an Intel ( INTC) chip delay). And for Q4, it expects margins to decrease to 38.5%, compared to a consensus estimate of 43.1%. No matter how bulls try to spin it, this is not good. AAPL longs make a huge and incredibly dangerous assumption as they blow off this quarter's miss and take for granted smashing iPhone 5 sales come the holiday shopping season. Munster cited a survey his firm conducted that shows more than 90% of current iPhone owners intend to buy another. I'll spare you the lecture, but if you've studied statistics and survey research at all, you know you cannot trust the unscientific data investment analysts produce. It's almost always poorly gathered.
Last week, in 3 Stocks to Sell If They Crash on Earnings, I urged caution ahead of Apple's report, in part because of the iPhone transition, however, I added:
But strong sales of reiterations of existing product lines only tell part of the story. If iTV does not knock the public's socks off, it will plant the seed that Apple's future might not be so bright. And at day's end, isn't that the reason why AAPL has stagnated? There are concerns about the company's ability to out-innovate going forward.Simply put, AAPL bulls, for months, have underestimated the loss of Steve Jobs. I know they're sick of hearing that, but it's the elephant in the room. It has been for some time. That became apparent when Tim Cook caved on the dividend and rumors began to swirl that Apple might, against Jobs's better judgment, release a mini version of iPad. Consider the trend here. Don't discount it. Don't ignore it. While still superior to the competition, the gap between Apple and everybody else continues to close in the Tim Cook era.
Cook Isn't JobsUnder Steve Jobs, Apple did not play by the rules that govern everybody else. It should scare AAPL bulls that, all of a sudden, China -- which, just three months ago, was supposed to be the clear difference maker according to so many -- contributed to a weak Q3 and expectations of a soft Q4. Are the Chinese sitting back and just waiting for iPhone 5? Please. Macro pressures that Apple once skirted now hurt them enough to produce an earnings miss of epic proportion. And let's be clear, these macro (and company-specific) issues are real; it's just that, for quite some time now, Apple has been above it all. As a few analysts said after yesterday's report, "Apple is no longer immune" to macro headwinds. For the record, I have never and would never argue that Apple the company will die. Instead, Cook will lead them from greatness to something else. That something else could very well be better than what the competition puts forth. With the exception of Microsoft's ( MSFT) forthcoming Windows 8-related offerings, there's not much out there in the way of formidable competition. And, for Microsoft to perform better than slightly above average, Steve Ballmer needs to keep his foot out of his mouth and his head down. His history proves that that's a tall order. But the uncertainty that surrounds Apple competition -- or lack thereof -- will not save AAPL from falling. It's key to separate the company from the stock here. Apple, the company, set a bar for its stock that could very well have been too high.
Apple's fiscal Q1, which covers the holiday shopping season, will have to do more than meet expectations. It must produce the record numbers we saw from the company earlier this year. Anything short of that will trigger disappointment. After Tuesday's afterhours swoon, AAPL remains priced to perfection. Investors should take profits if they can immediately, or take them on a bounce, and absolutely not hang around too long at levels above $600, assuming the stock gets there again. They should also shy away from arguments based on valuation. Valuation means little, if anything, with relation to Apple. The product pipeline matters. That includes more than iPhone 5. It includes the mini iPad and iTV, a product Tim Cook clearly does not know like Steve Jobs. And maybe even more importantly, the product pipeline includes how Apple organizes and markets a launch. Jobs told his marketing staff: "You worry about the back covers. I'll worry about the front covers." Now with Jobs gone, there is nobody to say "no" to bad design and there is nobody left to adequately take care of "front cover" marketing.