By all accounts across the mainstream business/financial media Apple™ reported “fantastic earnings.” The earnings report was a “solid beat across the board,” again, using the vernacular of the media. (Full disclosure, I am an avid user to near exclusivity.)
There was one metric however, that sent jubilation across the next-in-rotation fund-manager cabal. It wasn’t that Apple guided higher for the next quarter, surpassing future expectations, but rather, offered up another $100 BILLION dollar stock buyback on top of all the previous $Billions allocated prior. They (e.g., Apple) also announced concurrently, that the current payout of dividends would also increase by double-digit percentages.
The implications to all the above are very clear: If you are a shareholder in Apple stock? Yesterday, was a very good day.
Yet, like a great night out on the town, where spirits flow freely and enthusiasm to consume runs even wilder – then comes the morning. And it is here, that suddenly, quite a few people are waking and asking themselves: “What really happened last night, and was it truly worth it, if I don’t remember?”
That question is very much in-kind a representation of the many questions I fielded this A.M. from a few business leaders I confer with regularly. It seems there is a conflict going on within their respective craniums as they try to parse though the “great earnings” reported, while at the same time, reconcile why they were having this moment of, “Yeah, last night was off the hook! Tell me again what happened?”
Again, let me make clear, by all accounts from a “share holder” perspective, there was nothing not too like about what many heard as the, “headline reporting and analysis” via most (if not all) the mainstream financial/media outlets parlayed across the wires and satellites. Most (again, if not all) was nothing more that pom-pom waving. It’s now just par for the course. However, if one did listen carefully, there was one overture that seemed to be rearing its head by just the tiniest bit as to not scare the children aka “momo-investors.”
That overture?: Apple may be a transitioning into a value play as opposed to growth story. Hint: Can you say Microsoft™?
This is the reason, I believe, that helps explain why the people I spoke with appeared perplexed as to why they had on the one side, by all accounts, every reason to think the “party” was nothing but a smash hit. Yet, at the same time, they have this nagging feeling that the next person they speak with about what happened are going to suddenly reveal a detail that makes them think or say, “I was doing what, with who?” Causing that in-the-moment flash of either anxiety, outright panic, or both, simultaneously.
“So where does this relate to Apple’s earnings report?”, one may ask. Good question, and it is this…
Again, form a casual “share holder” perspective – there was nothing not too like. All the headline numbers, buybacks, dividend increases and more were all reported on in ebullient fashion.
But then, for those with any business acumen, there just seemed to be something under the surface that you just couldn’t quite grasp its meaning or significance, yet, were highly apprehensive that the next person one talked to would fill in those details sending the, “Oh great” into the “Oh crap” with every revelation or forthcoming detail you either forgot, or breezed over.
Which, of course, is why I suddenly began receiving queries about, “Last night.” Or phrased differently, “So… you were there, right? What did you think?”
Here was my reply, which I repeated near verbatim every time I was asked. To wit:
“Let me ask you this: Why are you asking, when you yourself are prefacing almost everything you’re asking under the guise of, ‘But the earnings were more than solid, don’t you think?’ It’s like you’re trying to convince yourself, as well as me. Look, the reason I believe you are having some doubt, yet don’t want to fully understand the ‘why,’ is because you’re looking at it through your own ‘share holder’ type glasses. All the while your business side is screaming in your brain, ‘Wait…what?’ And you don’t know why.
Well, maybe it’s not that you really don’t. It’s probably more in-line with – you really don’t want to know. And that’s fine, but the problem is your business side wants you too know. Or, at the least, convince yourself via your own acumen why your business side shouldn’t be listened to. Do you think that’s possible?”
Amalgamated response: “Go on.”
“Here’s what I believe the answer to your question really is, but it’s more of a conundrum situation, rather than an outright answer for you to weigh what side of the scale you want to place your true meaning for what this latest earnings release showed. So, let me put it this way in simple form:
If – the tax cuts had not have been enacted, and remember, that was only just a few months ago and was right at the beginning of this reported quarter. Would you be as ‘pleasantly surprised’ with this earnings report? Remember, the reason stated for all the share holder money being returned was via the tax cuts.
iPhone® sales are contracting, margins contracting, product launches (Christmas shopping season no less) missed, ballooning inventory, and more. Yes, the bottom/top line numbers are solid. However, the best Apple can do with $Billions upon $Billions of dollars in cash is return it? Again, Apple’s best use of cash is to – return it. Is that because last time they spent cash, as in Beats®, it’s been lack luster at best, and more like foolish-folly at worst?
That’s the point that I believe is gnawing at you, that you don’t want to entertain the implications of. It’s also the same perplexing conundrum you aren’t going to hear in the media. But if you play-along and just ignore the 800lb. elephant, (like most are currently) it’s all sunshine and lollipops.
But your business side won’t let you.
Maybe what you need to do is go back using purely the business side of your reasoning, sit down, and figuratively ask yourself squarely something akin to: ‘Alright, no games, tell me everything again, in detail, exactly what happened last night.’ Then take that detailed earnings report – and read it, looking at every detail as you normally would as if you were buying the business itself, and reassess why you’re having these mixed thoughts. If you do that, I’ll bet dollars-to-doughnuts you’ll come to your own clarity as to the ‘why’ quite quickly. Then – act accordingly.”
Usual response: “I think you’re right, thanks. I’ll get back to you.”
If you, dear reader, may be having the same perplexing thoughts on what Apple’s earnings may truly encapsulate, I would suggest the same to you.
You may be quite surprised (maybe pleasantly, maybe not) at your conclusions when you do. If not, may I suggest ordering more aspirin?
© 2018 Mark St.Cyr