Today: Apple (AAPL) posts record quarterly profits, but fails to match analysts' projections for revenues, sending the company's beleaguered stock price down more than 10 percent in late trading. Also: Netflix (NFLX) skies higher after reporting unexpected profit, Wall Street rises again.
Another record-breaking holiday quarter for Apple produces different effect
What a difference
Apple announced profits of $13.81 a share on $54.5 billion in revenue for the final three months of 2012, beating analysts' projected profit of $13.47 a share and falling just short of projected revenue of $54.7 billion, according to Thomson Reuters. The company's total net profits of $13.1 billion beat out Apple's record $13 billion in profits in the same quarter of 2011, and revenues were stronger than the $46.3 billion recorded then, despite the 2012 holiday quarter being a week shorter than 2011. As The Wall Street Journal's Tom Gara pointed out, Apple's quarter was the fourth most profitable by any company in the world, ever.
Still, Apple's stock price took a big hit in after-hours trading. Shares have already fallen steeply from an all-time record of $705.07 hit on the day the iPhone 5 was released, Sept. 21; after a 1.8 percent rise in regular trading Wednesday, they closed at $514.01. As investors and analysts listened to CEO Tim Cook and other executives explain the numbers on a conference call, that price just kept dropping, with the decline measuring at 10.7 percent at 3 p.m. Pacific time, when shares were trading for $458.78.
At that stock price, Apple would be much closer to losing its title of world's most valuable company: At $458.78, Apple would have a market capitalization of $431.8 billion; second-place Exxon ended Wednesday trading at $413.53 billion.
Going into the report, analysts were fearful that waning demand and production issues had curtailed sales of Apple's signature mobile devices, the iPhone and the iPad. However, that was not entirely the case: Apple sold a record 47.8 million iPhones, with analysts on average expecting between 46 and 48 million; and a record 22.9 million iPads, only slightly below projections of 23 million to 24 million. Production issues were alive in the iPad number, Cook admitted, saying on the conference call that the company could not produce enough iPad Minis to meet consumer demand.
Still, since the slight miss on iPad sales could be attributed to production issues that would likely just push those sales to the current quarter, it is unlikely that was what caused the extreme stock drop, which nearly doubled during the conference call. There are three more likely causes:
Lack of growth -- While Apple managed to again set records, the year-over-year change in profit was very small, especially when compared with Apple's production in the past few years. Revenues did gain 18 percent, but revenues growing and profits failing to grow could signal a reduction in Apple's profit margin, long the biggest strength of the company that could be threatened even more if Apple follows through with reported plans to offer a cheaper iPhone.
"For Apple to renew growth, they need to come up with new devices and form factors and completely amaze the world again," Global Equities Research analyst Trip Chowdhry told Reuters.
Guidance for current quarter -- As Chief Financial Officer Peter Oppenheimer spoke about Apple's guidance for the current quarter in Wednesday's conference call, the stock immediately dropped farther. Apple, which is known for providing extremely conservative guidance for future profits and revenues and then destroying that figure with its actual results, will begin offering a range of possible results.
"In the past we provided a single point estimate that was conservative. This quarter and going forward, we are going to provide a range of guidance that we're likely to report within," Oppenheimer said twice.
That note likely scared analysts silly, as the guidance Apple provided was less than their own projections for the current quarter, which they would expect under the previous path for Apple, but not after Oppenheimer's statement. Apple reported that it expects to bring in between $41 billion and $43 billion in revenues, while analysts on average expect more than $45 billion, and did not report expected profits.
"The guidance is not going to be exciting enough to get people to think the worm has turned," Capital Advisors CEO Keith Goddard told Bloomberg.
Lessening Mac demand -- While sales of iPads and iPhones continue to grow at strong rates, Mac sales fell 22 percent year-over-year for Apple, a big part of its failure to provide expected revenues, and one that sounds a lot like some PC manufacturers' woes with similar products.
Cook and Oppenheimer tried to dismiss the shortage in Mac sales, but little they said would lead one to expect a turnaround in sales of Apple laptops and PCs.
"We know that iPad will cannibalize some Macs. But that's not a concern," Cook said, also downplaying the possibility that iPad Mini sales would hurt demand for full-sized iPads. By Cook's reasoning, consumers are still buying Apple products, so still creating revenue. However, Mac sales bring in much more revenue: Apple reported that the iPad's average selling price dropped 22 percent to $467, while the Mac's ASP increased 7 percent to $1,359, Charles Arthur tweeted.
Oppenheimer noted that Apple's new iMacs did not start shipping until late December, likely pushing sales into the current quarter, and Cook also mentioned constraints hurting sales.
Despite those negatives, Apple still reported sales in the final three months of the year that exceeded Google's (GOOG) full-year revenues, as well as North Korea's annual gross domestic product. The conference call added other impressive nuggets, such as a plan to buy back $45 billion in stock in the next 3 years and increasing profits from China, which accounted for $7.3 billion in revenues for the quarter.
Still, that won't be enough for some investors.
"It's going to call into question whether we have seen the peak of Apple," Sterne Agee & Leach analyst Shaw Wu told Bloomberg News. "One quarter can't answer that question, but the concern will be heard louder until proven otherwise, and that will weigh on the stock."
Netflix profits send stock price shooting higher
And now for something completely different: Netflix.
The Los Gatos video-on-demand service reported a profit in the final quarter of 2012 when everyone -- including the company itself -- had projected a loss, sending the company's already-volatile stock price 35 percent higher in after-hours trading.
Netflix's surprising success stems from subscriber growth, which the company had been projecting -- and failing to achieve -- in the first nine months of 2012. Netflix added 2 million subscribers in the United States in the quarter, giving it 27.1 million domestic subscribers, and the international expansion that is sucking up most of Netflix's revenues right now produced 1.8 million subscribers new foreign subscribers.
"The fact that our growth remains this strong despite intensifying competition, and our already substantial U.S. market penetration, underlines the large opportunity ahead," CEO and co-founder Reed Hastings said in Wednesday's statement.
Netflix reported profits of 13 cents a share, the complete inverse of expectations, which were for a loss of 13 cents a share, according to Thomson Reuters. Netflix posted revenues of $945 million for the quarter, about $10 million more than expected, and posted profits of 29 cents per share on revenues of $3.6 billion for the full year, after warning analysts that it could post a loss for 2012.
Hastings credited Netflix's fourth-quarter gains to the popularity of mobile devices, as customers added Netflix to the devices they received over the holidays. Even Wedbush analyst Michael Pachter, a vocal Netflix bear, credited the company on that success.
"As the sales of tablets go, apparently so go the fortunes of Netflix," Pachter told The Associated Press.
Netflix stock gained 5.6 percent in regular trading Wednesday to close in triple digits; if it maintains the late-trading gains, it will hit a 52-week high on Thursday.
Stock indexes gain yet again as Google shoots higher after earnings
Stocks gained again on Wednesday, pushing the Dow Jones and Standard & Poor's 500 to five-year highs for the third consecutive session, while Tuesday's raft of strong earnings pushed the tech sector higher.
The S&P flirted with 1,500, closing at 1,494.8 as Silicon Valley tech companies received a big boost from successful Tuesday earnings reports. Google gained 5.5 percent to close at $741.50 after revealing that its annual revenues had cracked $50 billion for the first time; struggling Sunnyvale chipmaker Advanced Micro Devices advanced 11.4 percent after announcing its losses were not as great as analysts expected; Intuitive Surgical, also based in Sunnyvale, gained 9.4 percent on strong demand for the medical device company's da Vinci surgical robots; and San Jose's Super Micro Computer increased 18.6 percent following a record quarter for net sales.
The flood of earnings reports continued beyond Apple and Netflix on Wednesday, as Symantec received a stock boost from earnings announced before the market, then gained a bit more after the bell when it said it would restructure the company, including layoffs of managers. Milpitas chipmakers SanDisk and LSI both exceeded analysts' expectations with their reports, though SanDisk stock dropped after it forecast possible issues with NAND chips in 2013.
Silicon Valley tech stocks
The tech-heavy Nasdaq composite index: Up 10.49, or 0.33 percent, to 3,153.67
The blue chip Dow Jones industrial average: Up 67.12, or 0.49 percent, to 13,779.33
And the widely watched Standard & Poor's 500 index: Up 2.25, or 0.15 percent, to 1,494.81
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/mercbizbreak.