Are Apple's Days of Revolutionizing Over?

In my last article, I warned investors to prepare for Apple’s (AAPL) ugly earnings report. The earnings came in a worse than I expected and as a result, the stock tanked almost 8% in after-hours trading.

For the latest reported quarter, Apple’s earnings came in at $1.90, missing the analysts’ estimates by $0.10. This is probably the biggest EPS miss in Apple’s history, however, this wasn’t the worst part. Apple’s revenue dropped more than what everyone expected and came in at $50.6 billion, falling short of the analysts’ estimate by $1.37 billion.

A 13% drop in revenue was surprising, but the company’s guidance was even worse.
Apple expects Q3 revenue of $41 billion to $43 billion, way below the consensus of $47 billion. To soften the blow, Apple increased its buyback authorization to $175 billion from $140 billion and hiked its dividend by 10%.

However, the buybacks and dividends didn’t help as Apple is down almost 7.5% as of writing and I expect it to fall to sub-$90 levels soon.

Buybacks won’t help

I find it ridiculous that Apple is spending billions of dollars on buybacks. I am not a fan of buybacks as they don’t add new revenue streams and are also not as investor-friendly as dividends. I think Apple could’ve put the money to better use by hiking its dividend further or increasing its M&A activity.

With Apple’s stock expected to fall on account of falling growth, I think the company is wasting money on buybacks. Although Apple does have a lot of cash, I think it should have focused it on kick-starting growth.

Days of Revolutionizing are over

The iPhone was a revolutionary product, however over the last few years, Apple has failed to introduce any revolutionary product. With the smartphone market slowing down drastically and probably heading in the same direction as the PC market, Apple will need a new revolutionary product to continue growing.

Expecting Apple to come up with another revolutionary product wouldn’t have been a problem if Steve Jobs was still in charge. However, I don’t think Tim Cook can deliver what is needed. Although Cook has done a tremendous job of milking the iPhone as much as he can by increasing sizes and offering different colors, Apple hasn’t been a revolutionary company in the post-Jobs era.

Conclusion

Tim Cook has done a good job, but as evident by the last few years, he is not an innovator. Apple’s needs a revolutionary product to tackle its 52-week highs and the Apple Watch, or the iPhone SE are not those products. Thus, I think investors should continue avoiding Apple and wait for it to fall to around $90 before considering to buy the stock.
Published on Apr 27, 2016
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

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