Apple’s most recent financials tanked and from that the stock tanked. What was so bad about those financial results that the stock market went into a tailspin? There’s something of a paradox at work here; forces which combine to push Apple up and down; forces that focus on the wrong items at at the wrong time.
Some Apple followers think Apple is a company built on its ecosystem foundation and that’s true, but only partially. Others, especially critics, think Apple is built on the iPhone, and nothing else matters. That’s definitely not true, but the iPhone matters enough.
If nothing else, Apple is a company built on its ecosystem foundation. A company dependent on, and greater than, the sum of its parts.
The sum of the parts should be pure math. Mac, iPhone, iPad, Watch and other accessories, plus the growing services component. They all combine to bring in enormous profits. This past quarter was considered a disaster yet Apple’s total profits from the disaster were higher than Microsoft, Google, Samsung, Facebook, and Amazon. Combined.
The paradox is this. Apple is worth more than the sum of the parts because all the parts produce enormous revenue and profits for the company’s coffers. On the other side of that perspective is the iPhone which leads revenue and profits but is so outsized that it obscures the value of other products, and dampens the total being worth more than the sum of the parts.
Apple missed Wall Street’s expectations and the stock suffered a dramatic fall. But Apple did not miss its own guidance for the quarter. How far back do we have to go to witness a quarter when Apple did not meet its own expectations? Does Apple know its financial condition better than stock market analysts? Apparently.
Some insightful analysis and perspective should have been built into this past quarter’s financial results and the market, ever myopic and short-sighted, reacted on 1) base numbers and, 2) China, rather than backing up two steps to see a slightly larger picture. Was the quarter so disastrous? Not so much if the iPhone 6 hadn’t been such a huge hit. It was an outlier year that pushed Apple’s revenue and profits and unit sales– iPhone 6 and the halo for the Mac– into the stratosphere, to a level never before witnessed in business.
What goes up, must come down.
There is little doubt that Apple’s financials are worth more than the sum of the parts. The 27-percent growth in the Services category should tell that story. The ecosystem is healthy and thriving and has been for years. There’s little evidence that will change any time soon.
Rather than the knee-jerk reaction to an outlier year followed by a plateau year, I would rather have seen analysts concerned about Apple’s lack of growth from additional products. Is Watch a hit? That depends upon what Watch is compared to. Compared to the entire smartwatch or watch industry? Absolutely, Watch is a huge hit. Customers love and it added billions to Apple’s numbers. Compared to iPhone– which, if anyone does such a comparison, please ignore anything they say after that because they obviously don’t understand the market, business, or Apple– Watch is a resounding failure.
So, let’s keep the perspective closer to reality. Apple gets hammered because iPhone is too much of the company’s revenue and profits, but Google, Microsoft, Facebook, et al, none of which have as diverse a product line as Apple do not get hammered even though most of their revenue and profits come from a single source.