Apple Shares Fall Hard on Earnings Report

Last week’s tech surge already seems a long time ago.

Apple shares are down in late trading after the kids from Cupertino reported profit rose 38%, to $10.7 billion, or $1.85 a share, in the fiscal third-quarter, on sales of $49.6 billion.

The bottom line beat consensus comfortably, if not spectacularly. Apple was expected to earn about $1.80 a share, or about $10.4 billion, on nearly $50 billion in sales. However, nearly $11 billion in profit is not impressing the Street. Shares were down 7% at $121.63. This isn’t even a matter of not beating the “whisper number.” Apple must’ve missed the whisper number’s whisper number.

“We believe investors have come to expect bigger beats from Apple,” Mizuho analyst Abhey Lamba wrote, “and lack of a meaningful beat at the current valuation could be viewed negatively.”

Apple sold 47.5 million iPhones, a 59% increase. Mac sales were 4.8 million units,  up 9%. It also sold 10.9 million iPads, down 18%. Gross margin came in at 39.7%. For the fiscal fourth-quarter, the company projected revenue between $49 and $51 billion. Street consensus is $50.9 billion, according to FactSet.

The forecast seems to indicate a slight slowdown, Mr. Lamba said. “The company’s increase in operating expenses for the September quarter and the revenue outlook indicate that it is likely calling for a sequential drop in iPhone sales and management seems to be calling for lesser acceleration in Watch sales than expected,” he wrote.

At least they’re not alone today. The company’s peers and rivals, Yahoo Inc.YHOO -0.59% and Microsoft Inc.MSFT -3.06%, are both down after their earnings reports came in below expectations, off 2.1% and 3.3%, respectively. Microsoft posted its largest quarterly loss ever, but it was all because of a write-off of the Nokia business. Yahoo posted a loss of $21.6 million, a swing from a profit of $269 million a year ago. Revenue rose 15%, though.

IBM IBM -1.31% also got hit hard after its Monday earnings report, down nearly 6% Tuesday. Shares of GoPro Inc.GPRO -2.26% were down 3%, after that company’s earnings report.

We explained earlier what how much Apple contributes to the market-cap weighted S&P 500. It is single-handedly pulling the tech sector out of the red, and it is cutting a few percentage points off the wider S&P 500′s drop in profit growth. The Street may not like these numbers, they may not be bullish enough for some very bullish investors, but they’ll still have a marked effect on corporate profits overall.

“In our view, Apple continues to represent one of the best values in the tech world,” wrote Cantor Fitzgerald’s Brian White.

Our colleagues at Digits are live-blogging the report and conference call, which begins at 5 p.m. New York time.


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