As you may have heard, Apple announced last night that it made some money and sold some gadgets, but not enough money and not enough gadgets, because its stock is down 10 percent today, and people who work on Wall Street and study Apple for a living are calling it a “tough setback” and a “disappointing quarter.”
On the face of it, this reaction seems ridiculous. Apple is still the biggest company in the world! It did 54 billion dollars in revenue last quarter, and sold more iPhones and iPads than ever before! What the hell is Wall Street’s problem?
Tech types are aghast at the market’s inability to recognize Apple’s earnings for the historic success they were. Box CEO Aaron Levie best encapsulated the backlash to the backlash:
(Levie later posted a photo of a crying baby, with the caption, “Apple posts record revenue, wall street reacts.”)
Here’s the thing, though: Wall Street is right. Apple’s quarter was disappointing, despite the fact that it’s a very large, insanely profitable company. Because when you’re a very large, insanely profitable company, people’s expectations matter a lot. Investors aren’t paying more than $400 a share for Apple because they like what the company has done in the past or they think Steve Jobs was a god; they’re buying because they think the company can do better in the future. When Apple makes worrisome changes to the way it gives guidance, and when its rate of growth slows from “insanely friggin’ fast” to just “really fast,” that’s a bad sign, and investors are right to sell.
Size and profitability are relative. If you’re a humpback whale, nobody’s going to congratulate you for eating 5,000 pounds of food a day. That’s just how much you’re supposed to eat. When your intake drops to only 3,500 or 4,000 pounds of krill and plankton and whatever else, that’s when people who study whales worry about your health.
The aggrieved wailing from Silicon Valley about Apple’s stock slide is like a bunch of cuttlefish looking at the whale and going, “3,500 pounds is an insaaaaanely large amount of food,” while the actual marine biologists are trying to nurse the damn thing back to health.
I have no idea how much Apple is worth. Maybe it’s a “broken company,” as bond-guru Jeff Gundlach says. Or maybe Rolfe Winkler at The Wall Street Journal is right, and the market is over-reacting and its earnings figures were better than they look.
But Apple doesn’t get to escape the kind of scrutiny that Wall Street gives every other company, just because it’s cool and you like their products. If it’s changing its guidance, and its rate of growth is flattening out, then it’s fair game to be disappointed. And investors might also note that Aaron Levie, whose company is expected to start trading on Wall Street next year, considers these very real concerns the unfounded trivialities of a bunch of crybabies.