Apple’s Lowered Expectations Pay Off

Tuesday’s keynote presentation by Phil Schiller has been widely regarded as a relatively lackluster affair. That isn’t to say it went badly - I’m genuinely excited about some of the new software updates. But the Macworld keynote in years past has been home to some very major product announcements, including the Macbook Air, the MacBook Pro, and perhaps most notably, the first iPhone. Investors have learned to expect big things from Apple (AAPL) every January, and for at least the last four years their reactions to the keynote have weighed heavily on Apple’s stock price.

Except for this year. And that’s no accident.

A site called the Keynote Index Fund has tabulated just how big these stock swings have been over the years. In 2006, Apple launched some of its first Intel-based computers, and was rewarded with gains of 10.3% over the two days following the announcement. The next year, the launch of the iPhone and the Apple TV was met with an increase of a whopping 13.5% over the same time period.

But the stock has taken a major hit whenever the keynote didn’t live up to expectations. Last year, Apple released products including Time Capsule, Movie Rentals, AppleTV 2, and Macbook Air - an impressive lineup to be sure, but nothing that could live up to the iPhone release of the year before. The stock subsequently took a 10.7% loss over the next two days.

In the weeks leading up to Macworld 2009, it looked like this year’s show might be headed for a similar fate. Rumors of new products were few and far between, and it seemed like Apple simply didn’t have much to announce. And then Apple dropped the bomb: this would be the company’s last Macworld, and CEO Steve Jobs wasn’t going to be giving the keynote. This spawned countless distasteful rumors regarding Jobs’ health, but it also served to lower expectations. Leading analysts went on to report that “no significant new products [were] expected“. So when Phil didn’t whip out the third generation iPhone Tuesday morning, nobody was surprised. The stock dipped a bit, but little more than it would on a typical day.

So what was the damage? A loss of $1.56 (-1.65%). Nothing to cheer about, but looking at years past, it could have been much, much worse. Granted, the figures stated above were averaged over two days, so we won’t know until Wednesday just how big the swing was, but given Tuesday’s performance I won’t be surprised if any change is relatively modest.

It’s unlikely we’ll ever know if Steve Jobs pulled out from the show with the direct intention of lowering expectations. But can you picture him presenting a keynote whose major highlights were an 8-hour laptop battery and some software updates? I don’t think he could either.

Original post

Comments

[Bill Youngs:]

It's wonderful, of course, when Apple introduces something completely new, but the great strength of the company in recent months would seem to be in INCREMENTAL improvements -- some bigger than others. The Apps store is certainly huge, and there some exciting incremental improvements in iPhone software released through the store are almost a weekly event. There were also plenty of those plenty of good changes heralded in Phil Shiller's Macworld keynote. Case in point: I have been wrestling with an iMovie dilemma, needing 8.0 for my new ACVHD camera, but missing some features like slow motion from 6.0. iMovie 9.0 has a slow motion capability. Problem solved! Multiply that improvement by 20 or 30 for the other increments in hardware and software announced yesterday, as well as iTunes Store changes, and you can see that there is still a lot to like in Apple's momentum.

Jan 07 12:24 PM

[Timeline St...:]

Great article. Thorough, well-researched, and to the point.

Please keep contributing Apple articles because there is a very low signal-to-noise ratio on this company.

Jan 07 12:25 PM

[iNeal:]

Apple is finally taking steps to make the stock harder to manipulate. This is the most important news in months.

Jan 07 12:25 PM

[Timeline St...:]

Hi Bill: I posted similar sentiments (from the investor's perspective) on the Google AAPL Finance Board here:
finance.google.com/gro...

Jan 07 12:27 PM

[jenny:]

Apple is planning ahead and I think this was the right step in managing expectations so the stock isnt as easily manipulated. Investors were extremely bullish leading up to the keynote presentation but you can see sentiment only fell slightly (www.predictwallstreet....) where in the past years it has dropped quickly to bearish. The smaller swings in investor sentimint will mean less huge price swings around this time.

Jan 07 12:43 PM

[mollytjm:]

as an Apple investor, it's a relief to see Apple refusing to dance to the Macworld tune anymore. in this economy, after consumers charged their hearts out to buy the latest Apple products for holiday presents, i don't think Apple had the heart to bring out a new 'anything extreme'. and it doesn't want to make january announcements anymore...it needs to develop and reveal when it's in APPLES' best interest, not in the interest of an expo. i think this should also help the stock prices and perhaps make stock manipulation more difficult. i hope.

Jan 08 10:55 AM

[brewer:]

I am sick of seeing the stock manipulated, too. It's just too easy for shorts to put the kibosh on all of MacWorld, just because it didn't make history or change the entire face of computing in a given year.

Meanwhile we have Microsoft at CES saying THEY will be the ones to integrate TV, Cellphones, and computers... That is pretty amazing, but of course, no one will call them on it. Where is the plan?

Jan 08 03:06 PM

[BerkeleyBob:]

I am a Mac user and have attended Mac World for several years. This year, the absence of Apple was notable, as was the lack of a game pavilion and re-sellers. Apple is content to focus its marketing through the net and its retail stores, both apparently quite successful. The quality of the exhibitors this year was somewhat disappointing--tending to tschotkes and a multitude of iPhone and Ipod cases. The loss of Apple may cause IGN to cancel the show next year, which is hard on the smaller vendors who struggle to reach potential customers. I recognize that Apple is cash rich, but don't feel inclined to invest. If I wanted exposure to tech, I would consider CSCO or Hewlitt Packard.

Jan 08 03:13 PM

[Zoltan L. K...:]

What if one keynote per year is just not enough for Steve Jobs? Look at how diverse Apple's product portfolio has become and how its retail operations are developing. Consider the ongoing internationalization of the iPhone business following that of iPods and music. And what about the change in targeted customer groups the company is communicating with nowdays?

Jan 09 06:59 AM