Trading Tactics: Playing Apple’s Earnings By Bryan Bottarelli
After the close of trading today, Apple Computer (AAPL:NASDAQ) will announce its Q3 results. And leading up to this announcement, there has been rampant speculation about the early success of Apple’s iPhone, and this has triggered a rash of recent selling pressure unseen in APPL’s stock.
Yesterday, for example, APPL dropped $8.81 (more than 6%) after AT&T (the iPhone’s exclusive carrier) reported that 146,000 iPhones were activated on June 29 and 30. This was considered a “disappointment” because investors wanted to see 500,000 activations in its first weekend.
So let me break this down for you…
Over $7 billion in Apple’s market value was erased yesterday after Wall Street was disappointed with its first two days of activations?! And this is NOT iPhone sales, mind you. It’s based only off activations reported by AT&T.
The down-move was further exacerbated when CIBC World Markets said that demand for the iPhone has experienced a “significant decline” in the past 10 days.
This begs me to ask the rhetorical question, “How can you conclude that a ‘significant decline’ is taking place over the past 10 days when the iPhone debuted earlier this month?”
I can justify using the phrase “significant decline” when I’m describing typewriter sales over the last 20 years. But I cannot understand how anyone can make a conclusion like this so early in the iPhone’s life cycle. In other words, it’s not smart to make strong forward sales conclusions when your sample size is less than one calendar month.
But if you don’t agree with me, then here’s some additional food for thought. I went to the flagship Apple computer store in NYC this weekend (pictured below) and I witnessed the iPhone sales frenzy for myself.
According to sales tracker Web site AppleInsider.com, Apple’s subterranean Fifth Avenue store sells five Macs every hour and one iPod every two minutes. That amounts to $45 million in sales over the past three months -- tops in the nation.
All things considered, Apple’s eight stores around the nation posted total sales of $810 million for the three-month period, so I personally don’t believe the hogwash about disappointing sales. And when you also consider that iPhone sales have yet to be included in Apple’s profit forecast of $637 million in this latest quarter, I would use any earnings-induced selling pressure as a big-time buying opportunity for AAPL stock.
Now, I understand that many customers (myself included) consider the iPhone pricey -- and a little too bulky too. But Steve Jobs is no dummy. I fully expect to see a smaller, sleeker iPhone on the market come Christmas, which (similar to the iPod mini and nano) will keep Apple’s sales humming along for quite some time.
Around the time you’ll be reading this report, Apple will most likely be coming out with its earnings. The Thompson Financial consensus is that Apple will earn $0.72 on revenue of $5.29 billion, up from $0.54 on revenues of $4.37 billion in Q3 2006. I would expect Apple to rally on this news. But if you see a sell-off, which you very well could, I’d use it as an opportunity to accumulate AAPL stock.
