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Apple Earnings Leave Investors Confused

We wrote yesterday that Apple’s (NASDAQ: AAPL) first-quarter earnings could be a critical fork in the road for the world’s largest tech stock.

It didn’t really take either road.

Apple’s earnings were decidedly mixed, sending the stock on quite a rollercoaster ride since the company reported after hours yesterday.

When the results first started to trickle out, shares rose from their $406 closing price to $415. This morning, however, the stock had dropped back below $400 at 10:14 ET. It’s currently hovering right around the $400 mark.

Investors can’t seem to make up their minds on how they feel about recent Apple earnings. Here are some of the numbers they’re weighing – both good and bad:

The Good

  • The company sold 10 million more iPhones and iPads than it did a year ago – an encouraging sign given the growing competition from rival Samsung.
  • Apple is finally returning some of its massive cash stockpile to its shareholders. The company is planning a series of stock buybacks and dividend increases to return $100 billion in cash to investors by 2015. It will start by increasing the quarterly dividend 15% to $3.05 a share.
  • Apple earnings and revenue both narrowly edged Street expectations. EPS of $10.09 outpaced analyst estimates to $10.07, and revenue of $43.6 billion outperformed the $42.3 billion that was forecast.

The Bad

  • For the first time in a decade, Apple failed to increase its profits. The $9.55 billion in profits was an 18% drop-off from the $11.62 billion the company earned in the first quarter a year ago. It’s telling that, on a per-share basis, the company still managed to beat expectations: the bar has been lowered considerably on Wall Street for the world’s most profitable company.
  • The current quarter isn’t looking much better. Apple lowered its revenue forecast by $2 billion and its gross margins to 36% from 43% in Q2 of 2012. That big a dip in revenue could mean another decline in profitability.
  • Still no word on any new products. Rumors have swirled for months about a new iWatch or an Apple TV, but an unveiling does not seem imminent. Even with iPhone and iPad sales still going strong, Apple could use a new product not only to combat slipping profits, but to remind investors of the innovative powers that helped it become the world’s largest company in the first place.