Apple Earnings Good or Bad?

Apple reports earnings on April 24. This report is actually for earnings from the 2nd quarter of Apple’s fiscal year, even though corporations on a calendar year are reporting first quarter earnings right now. (Several tech companies reported earnings last week.)

Apple Stock graphicAfter a rough week for the company in the headlines, these earnings will likely be used as a gauge for the short-term future of Apple stock.

Recently, Apple has been the subject of legal action from the Justice Department regarding alleged price-fixing for ebooks. Although this makes up a tiny portion of Apple’s revenue, it is a major key in how the Apple store works. If there is a problem with this model for books, there could conceivably be issues in other markets as well.

What is not in doubt is that Apple will continue to dominate the tablet computer market and that its prolific iPhone will continue to be a huge player in the smartphone market. There is little doubt among analysts that things in the marketplace look good for Apple in both the short and long-term.

In fact, the only real question about Apple stock these days seems to be whether the company’s shares have risen too far, too fast. The stock, which hit $600 earlier, has declined to closer to $575 per share. There are two main concerns about Apple’s stock. One, is have investors simply gotten ahead of themselves, in which case share prices would hold at this level or rise much more slowly going forward. The second is has the company’s extraordinary growth finally topped out, in which case, share prices might need an actual reset in the marketplace.

As CEO Tim Cook likes to point out, the markets Apple is in are huge and they are growing. Additionally, it isn’t like Apple has an 80 percent market share in mobile phones. There is theoretically plenty of room for Apple to grow there.

However, just because Apple doesn’t dominate the entire smartphone market, it may dominate the smaller high-end smartphone market. In other words, if everyone who wants, and can afford, an iPhone already has one, then the company’s growth is on shaky ground. There are few analysts, however, who espouse this theory.

Some technology pundits have begun suggesting that Apple will see reduced subsidies from carriers for the iPhone. However, Apple has multi-year agreements with carriers, so any impact from such a move would be down the line. In addition, unless a dazzling Windows Phone or Android phone comes to market, Apple still has remarkable leverage with carriers. In fact, some analysts question whether Sprint gave up too much to be in the iPhone market. That isn’t something that you worry about right before a company is forced to agree to less favorable terms.

Expect Apple’s stock price to move dramatically following the earnings announcement, but the expect whatever movement occurs to be tempered over the coming weeks as clearer heads prevail.

 

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