Steve Jobs' Health: A Red Herring

Steve Jobs hasn't attended a conference call in years (see archive).  So any attempt to imply that Jobs' lack of presence at the conference call yesterday is related to health concerns, is either driven by a motivation to manipulate the stock price or is said with a complete lack of knowledge of how Apple's management operates things (and probably a complete lack of knowledge of Apple's fundamentals altogether).  

 

I for one believe some hedge fund(s) decided to manipulate Apple's stock price yesterday, and spread rumors about Steve Jobs'  questionable health (as if they're all physicians) via the New York Post article.  Otherwise, how does one explain the highly "coincidental" "concern" over Steve Jobs' health that is raised on the day Apple happens to report earnings?  The issue of Jobs' health is old news.  It was brought up over a month ago, and almost no one has even remotely mentioned the issue ever since.  Yet, right when earnings rolls in, it happens to be the focal point of Apple's earnings report.  The fact that Apple once again smashed consensus estimates and the whisper numbers across the board doesn't matter. Only Jobs' fictitious health problems diagnosed by Hedge Fund Managers, MD matters here. 

 

Apple is the only stock that I know of that goes down 10% despite beating every single analyst's expectations (according to Thomson Financial) across all categories: Mac Sales, iPod Sales, Revenue and EPS beat everyone's expectations.  GOOG, RIMM and MSFT missed on their earnings results and fell either less than Apple did or about the same as Apple did after earnings.  And they missed!  Moreover, Apple fell a combined total of $15.00 on other company's earnings results.  Apple fell $6.66 on Google miss and about $9.00 on RIMM's miss. 

 

So Apple is now down over $30.00 on earnings reports despite the fact that it beat expectations.  And the whole guidance thing is just complete nonsense.  No one should listen to anything Apple has to say regarding the future.  Its guidance is meaningless. Yet, Apple will not go up a single quarter as long as we're in a shaky market no matter what Apple posts in earnings.  Why? Because the market will just continue to simply ignore the fact that Apple gives conservative guidance that it always smashes.  And as irrational as Wall Street's misplaced focus of Apple's guidance is, there is nothing that can be done about it.  

 

Moreover, there is nothing that can be done about the obvious manipulation by Hedge Funds and obvious misreporting by the media.  What this should tell investors is that Apple's earnings has become the easiest short on Wall Street.  This past earnings results confirmed this.  Fool me once (Q1 Earnings) shame on you, fool me twice (Q3 Earnings) shame on me...

 

Disclosure: Long Apple for now. 

Comments

[dave smitty]

written by an author who knows (apparently) zero about corporate valuation... stock price movement is driven by a number of things... obviously a company like Microsoft misses by a penny, and there's some negative reaction. But, MSFT trades at 14x P/E, and carries a 1.7% Divident. When a company that trades at a 35x P/E guides lower in the future - there will absolutely be a reaction... And on the topic of Jobs health - i think investors want to simply know that a succession plan of some sort is in place - and the company has not indicated that any such plan exists...

[The Fox]

You have a lot to learn, my friend. Jobs' health is a HUGE concern to AAPL shareholders whether they be hedge funds or otherwise. Steven Jobs IS Apple. His health has been a concern for sometime now, and AAPL did nothing to alleviate that concern on the conference call. Saying "Jobs health is a private matter" is a far cry from "Jobs health is fine".

Face it- you got caught on the wrong side of the trade. I am short AAPL so I am feeling pretty blessed now. Additionally, don't think AAPL is the only company to get punished on good earnings. RIMM's earnings growth made AAPL look weak (107% year over year growth) and it still sold off. We are in a bear market. Stocks are to be shorted unless they are energy or commodities related. Why people don't see this is beyond me.

[User 186090]

A bigger issue here is lowered margins. Apple wasn't shorted down ofter hours, it was sold off.

[andyzaky]

To: lostinvancouver

Interesting how you comment that the author knows apparently zero about stock valuation and then focus on the fact that Apple has a 35 trailing P/E for determining that the stock is implicitly over-valued. First of all, Apple grew earnings 47% this year. So the trailing P/E is justified.

Yet, even the stupid analyst understands that valuation is based on analyzing a stock's forward rather than its dated-trailing P/E.

Yet, those of higher intelligence understand even further that one shouldn't even really focus on Apple's P/E since a large portion of its revenue is deferred due to the iPhone subscription method of accounting. They realize that due to the subscription method of accounting, Apple generates large horde's of cash which aren't fully reflected in a P/E ratio, and that the analyst should probably focus on Apple's P/DCF.

But thanks for demonstrating your expert understanding of stock valuation based on looking at Apple's trailing P/E. The one number that no analyst really cares about.

A 25 forward P/E is not a steep valuation for a company that is generating large amounts cash from operations not figured into its income statement.

[Apple Heavy]

Something can be done .....Ban Short Sales outright!

[Kaiser]

the real point here is the lack of knowledge of the tv people (mad money, kramer etc , and the rudeness of lostinvancover

[ACW]

Whatever Apple will report for the next quarter, they've already getting close to it: didn't tey sell over a million 3G iPhone already? perhaps well on its way to the second million? By the quarter's end, there should be a good bet it'd go over 3: that should translates to at least 1.5 to 2 billion in revenue. This is not counting in anything else Apple sells... Anyone sensible can figure that out. Am I way off base here?

[awcabot]

There is some truth in Apple's guidance. Apple has consistently been very conservative in EPS, by 30% in the last four quarters. But it has been more honest in revenue guidance, by being about 7% too conservative.

Consider the revenue guidance as realistic and then calculate an EPS. You will be surprised.

[pelican]

I can't say I disagree with anything you say. But be careful blaming hedge funds for attemtped price manipulation - those paragons of morality - because you may be accused of being on a witch hunt. I think that's how it works these days. Anyway, I think the real question is why Apple lowballs its earnings forecast so much. If investors take it to heart, they they get screwed in the short-term; if they take it with a grain of salt, then what's the point because if Apple does come up a bit short on the "real" expected number, then the stock tanks anyway. After a while, investors get wind of the pattern and its probably better not to give projections at all.

[RT]

Although the selloff is unfortunate, it does have a reasonable basis (less than expected future earnings, questionable CEO health). This uncertainty is the chief reason for the share price decline. To deny the uncertainty, whether or not you agree with it, is not being rational. To blame it on hedge funds or TV shows is somewhat simplistic.

Apple still has a bright future, and if you are a patient investor, I suspect that you will be rewarded with a higher stock price over time. Despite today's uncertainty, investors will not be able to continually ignore the continued improvement in Apple's core businesses, and its ability to produce strong earnings and cash flow. At some point, the the pessimism will ebb.

[Jared]

The stock traded down into the $150s before the analyst on the call asked about Steve. A significant part of this hit is the guidance. The comments on forward earnings and margins suggest that Apple is sacrificing profits to maintain unit growth.

They can spin it as "product transitions" all they want. However, we all know that Apple has historically benefited from higher margins on new products.

[fatcat]

Well said ,RT,leave emotion out of the equation..

[mollytjm]

because of the timing of the comments about Jobs, it sure seems like manipulation.
Jobs has done wonders for Apple... but Apple is huge now and employs lots of talented people. no CEO lives forever, but Apple would recover from losing Jobs and still be a strong company. Years ago it was tottering on the brink when he came back to control it. The opposite is true now... they have a fat $ cushion, no debt and more innovative products already in the pipeline.
bottom line...this is a great company and one day it's stock price will reflect that.

[contrarian@coalmine]

"The issue of Jobs' health is old news."

Having watched family and friends succumb to recurrences of a variety of cancers, none as lethal as pancreatic cancer, it's very naive to write off Job's health as old news. My father, a physician with access to the best oncological care in the United States, started out with renal cell cancer which was "isolated" in his kidney...and the kidney was removed. Over time, renal cell cancer has showed up in his lungs (inoperatable), his brain (operatable), and esophagus (inoperatable). At this point my father's cancer is "old news", but my family knows that his death, when it finally comes, will be related to the original diagnosis of kidney cancer.

The Street has the right to question Apple,and receive answers,about Steve Jobs health without vilification...especia... when no succession plan appears to be in place.

[Apple Heavy]

The public face of Apple at product launches is Steve, and he has been sharing this role recently. The public face of Apple on Financial matters is Peter, and the public face on operational matters is Tim, so Steve's health is a red herring to a large degree, and do people really think innovation will stop when Steve leaves?

Regarding the role of hedge funds; they not only exacerbate the volatility of the stock, but also scare investors out of the stock who otherwise may be inclined to ride out temporary bad news. They effectively convert investors into traders.

[notsosmart]

dont believe anybody or anything. this is all just vegas only slower &nobody brings a drink.

[BS Detector]

Andy, you need to chill when people attack you. It comes with putting your face on the page.

The subscription accounting is interesting, as it does make the revenue and profit numbers less meaningful than it is for most companies; I don't think there are very many other companies who have as large a portion of revenue accounted for this way. Perhaps analysts should include in guidance numbers for deferred revenue; including these would provide a more balanced view of performance. For the current quarter, deferred revenue grew by $238M to $4.1B; and that's with just 700K of iPhone sales. iPhone sales of 2M in the current quarter would add just $40M or so to Q4 revenue, but would add almost $1.0B of CASH to deferred revenue (assuming $500/unit).

If AAPL were to sell, oh I don't know, 10 million iPhones this quarter, its revenues would only grow by $200 million, or a few percent. The real story is not completely told in the quarter-over-quarter or year-over-year comparison.

Now, as for the mysterious product shift, my guess is that we will see a significant price cut in Macs in the back-to-school and Christmas season, as the company tries to accelerate its market share gains.

But what the hell do I know about anything.

[BS Detector]

Correction: too fast with the numbers. 2M iPhones would add about $120M to quarterly revenue, with $900M or so deferred; 10M would add $600M to revenue in the quarter.

[.crazylegs.]

Personally, I love when the numbers are spectacular and the stocks - it means it is much cheaper to acquire. The only pertinent metric one needs to know is cash flow. They announced cash flow of $5.4 in the first 3 quarters or $6 per share. If they can come close to $8 per share cash flow, you are buying this company at roughly 16x cash flow net of cash. (And you are paying for these earnings for the year ending Sep 30 2008). The multiples get even better for next year's cash flow.

[tom1234]

bravo--andy ---here i was after hours making u-turns in my office because of the sell off last night --but because it did not make any sense what so ever i doubled down on my position---you have verbalized my sentiments very clearly ---it does and is paying off

[User 230580]

keep up the good work of flogging down the price of Apple, it only opens more opportunities to buy them. Here is a company that is actually making truck loads of money, and you are unhappy, maybe you want to purchase stocks of companies that have never made a cent of profit and compare that to Apple and then you also have all those banks and mortage lenders....

[deasys]

@lostinvancouver: "i think investors want to simply know that a succession plan of some sort is in place - and the company has not indicated that any such plan exists..."

You mean, other than having one of the best management teams in the world? There's your "succession plan" right there...

[pdq]

Here's that "product transition":

Sometime within the next year (I'd guess at MacWorld in January) Apple will announce the iPhone Mini (or Nano, or whatever you want to call it). It will cost less than the iPhone (I'm guessing $99) and the required contract won't be so heavy, because it won't have G3 (and may not have WiFi). It'll be a straight 2 year ATT voice contract.

This will cannabilize some iPhone sales, (thus the "product transition" with lower margins) but will vastly expand the overall Apple cell phone market.

So why would anyone buy it? It's just another cell phone, right.

It's the apps (and the iPod capabilities and the styling, but it's mostly the apps. By Macworld there will be zillions of them, PIMs, games, etc, and all those that don't require 3G will work just fine for the iPhone Nano.

Now, all of this is pure speculation - I don't claim _any_ inside information - but this is an entirely predictable replay of the iPod model, and the comment about the mysterious "product transition" fits perfectly.

And...it will work. They'll sell 10 million _a quarter_.

I'm hurting now, but I'm long, long, long.

[pdq]

PS- in case you were wondering, the way the apps _get_ to the new phone is the iTunes store get to iPods- through iTunes on a Mac or PC.

[AdamC]

My take on the succession plan - if Apple do come out with a succession plan there will be more sell off because it literally says that there is something wrong with Jobs.
And when there is no succession plan being announced doesn't mean there is no succession plan at Apple.
For a company as successful as Apple it is in the interest of the management team to make sure that its success continue to run as far as possible into the future otherwise it is as good as killing the goose that lay the golden eggs.

[BS Detector]

pdq:

I like your line of thought, but I just don't think an iPhone mini is in the cards. The problem with your idea is that iPhone apps are all formatted for the iPhone screen. If you make an iPhone mini, you won't have the same resolution, the apps won't work the same. So then you'd have to have developers create a new set for the mini, and I just don't see them introducing that level of complication. Apple's all about simple.

But the real problem is the "gee whiz" factor. Where's the gee whiz? When was the last time Apple released a product that didn't have any gee whiz? Okay, the shuffle has always been pretty devoid of gee whiz. But other than that?

It also does not fit the diminishing margin story; they expect margin diminution to continue from FQ4 into FY09. I certainly don't see them releasing a product that's competitive with the iPhone in time to impact FQ4 margins.

As I (and lots of others) have said, I expect them to try to accelerate market share gains in the Mac, and then after Christmas to cut the cost of the iPhone. Then they'll have a new product ready on iPhone's 2nd birthday for all of the 1st gen users to gobble up as they come off their contracts.

Succession plan: make Jobs less the face of the company. At the iPhone 3G launch, he shared the stage with several others. When was the last time his keynote included other people? Don't be surprised if at the next big public event there are several other Apple executives involved in the presentation.

[David477]

If it is just a red herring, let Apple prove it by having Jobs' doctor say he is in perfect health! The stock price is tied to his well being.

[Dirtt]

Apple Heavy...brilliant idea. Stop Short Sales?

Hey!!! Let's stop Long Sales TOO. Aren't they responsible for driving UP stock prices?

The ONLY thing that should be stopped is CONGRESS. If we could only SHORT SELL those freakin' thieves then the only subprime commentary here would be VISTA.

AND IMHO - just in case the blinders allowed many to PRETEND that foreclosure is just a hiccup for the world economy - the SanDisk debacle is the leading indicator of how fast the consumer is falling from May to June to July.