There's so much fretting around Apple right now that analysts, commenters, and Apple-ologists are calling today's quarterly financial results that'll hit after the markets close the mother of all earnings reports (Forbes is explicitly calling it that).
Why the high anxiety about the world's most valuable publicly traded company — and the most valuable California company by a substantial margin (Apple: $418 billion market cap; number two Google: $254 billion)? Simple: Analysts suspect that Apple's epic comeback story, from near bankruptcy to a mature company that's printing money with its monumental profit margins, is over. Nothing gold can stay, to borrow a line from a rustic American poet who never would have dreamed of an Age of iPhones but who would probably have been retroactively credited by Apple for his efforts to "Think different."
The stock has taken a beating since it peaked at more than $700 per share last year (it recently dipped below $500, but it's recovered a bit ahead of Wednesday's earnings announcement). Apple could, of course, turn in a phenomenal quarter, silence the naysayers, and resume its upward march toward $1 trillion in market capitalization, with a $1000-per-share price. It might get there, but...
Q: What could send Apple's stock price lower?
A: As The Street [via Forbes] points out, it's all about gross margin: how much Apple makes in profit, before subtracting various expenses. Investors have come to expect ridonkulous margins from Apple, and they're doing that again for this quarter. How does 40 percent strike you? For comparison, Amazon's gross margin for recent quarters has averaged just over 24 percent. And when you shift from gross to net margin, Amazon's falls into the low single digits, while Apple's hangs in there in mid-20 percent territory.
Google's gross margin is typically higher than Apple's but it has only recently become a hardware company in addition to an Internet company. BlackBerry maker Research in Motion used to have gross margins as high as Apple's, but they're fallen in recent years, into Amazon territory.
Apple's gross margin, derived primarily from iPhone sales, is what truly drives the stock's value. So if that margin stops looking quite so...well, ridonkulous, then the Apple stock slide could continue. But for the time being, it's looking as if Apple is going to be able to hold its gross margins well above the competition, although they might not be quite so gross in coming quarters.
Q: But what about the iPad?
A: Oh, who cares about the iPad? Apple does, but it's hitched its wagon to the iPhone, for better or worse. The iPad and the new, lower priced iPad Mini (which may have enjoyed a very successful holiday shopping season debut) could help Apple ultimately phase out laptops. The iPad has certainly helped Apple to define and effectively own the incipient tablet market. But to lose focus on the iPhone is to lose focus on what is now the heart of Apple.
That said, if Apple has carved out a new market for lower-prices tablets with the Mini, analysts are going to like the looks of potential long-term gross margins for that business.
Q: Isn't this all just inside baseball?
A: Pretty much. Apple is a company in transition at the moment. It has a now-familiar product line. It hasn't introduced any groundbreaking new technologies or designs of late. The stock isn't surging in value but settling into a waiting period. Apple isn't as much a growth company as it is a value company, a stock for the long haul, not for making a quick buck. That could all change if it introduces an iTV and reinvents television. But the fear that an earnings report that fails to hit a home run is going to send the company into a death spiral is overblown. Apple is a great company. It just isn't as insanely great for investors as it was in early 2012.