A Bear Outlook for Apple? Analysts Are Cautious on Sales Growth

Apple's (AAPL) shares are trading at about $347, just shy of their all-time high of $364.90, which they hit in February. Its second quarter earnings were extraordinary, with record-high revenue of $24.67 billion and record net profits of $5.99 billion, or $6.40 per diluted share. Compare those results to those of second quarter 2010, when the company recorded revenue of $13.50 billion and a net quarterly profit of $3.07 billion, or $3.33 per diluted share. Given those numbers, it's hard to picture why some are expecting the stock to dip.

But analysts who cover Apple have started to become more cautious about the firm's future. Among 44 analysts who cover Apple, the low estimate for current quarter EPS is only $5.03. That would still be up from $3.51 last year, which would mean an increase of 43%. That seems impressive, but by Apple's standards, it is not. The low estimate for revenue in the current quarter is $23 billion. That would be up 46%. Again, the figure is amazing for a company of Apple's size, but not extraordinary by Apple's standards.

So what are the chinks in Apple's armor? The first is the iPod. The product that became the foundation of Apple's renaissance is now 10 years old. Sales of iPods dropped 17% in the last reported quarter compared to the same period last year. The iPod is hardly Apple's most important product from a revenue standpoint, but a decline in its sales will have to be made up for elsewhere in Apple's product line. The fall off is also an reminder that even Apple's hip devices can get old, and their sales can falter.

Second, Google's (GOOG) Android operating system continues to be described as a threat to the sales of iPhones and iPads. It is impossible to prove the degree to which this is the case. Android's presence is spread among a number of manufacturers which include Motorola (MMI) and HTC, and the Android app store is still smaller than Apple's. Apps are considered a critical tool for tethering users to the hardware that they own. Apple's long-term problem is that the number of Android apps available could eventually surpass the number of those offered in its App Store, which could dim the popularity of iPhones and iPads, even if the effect is modest. Android is no longer just a fast-growing operating system -- it's an actual challenger to Apple's smartphone dominance. That point has been made often, but the growth in the number of Android apps makes it worth repeating.

On the positive side of the ledger, Apple has just released a new line of more-powerful Macs with quad-core processors. The company claims that "the new iMac is up to 70 percent faster and new graphics deliver up to three times the performance of the previous generation." iPhone sales are still raising rapidly. And, in the first quarter of 2011, Apple took the No. 2 spot in global smartphone sales, according to research firm IDC.

Those who are bearish on Apple argue that a large company's sales can only increase at a double-digit rate for so long, but with Apple, that point has yet to be proved. Nonetheless, the tech giant could see its sales-growth arc shift dramatically in the next few months: If that happens, Apple's $347 share price may start looking very high.



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26 Comments

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cfurst5023

all apple needs to do is start paying a div and the price will soar

May 08 2011 at 9:12 PM Report abuse rate up rate down Reply
bosfakebirthcert

college drones soon will go broke, apple will vanish like atari

May 08 2011 at 7:13 PM Report abuse rate up rate down Reply
marticins

antone who listens to the wall street financial noise should rethink their approach..these guys and girls are almost always wrong

May 08 2011 at 11:46 AM Report abuse rate up rate down Reply
Davie2743

Short the stock and you will end up paying a hefty price.

May 08 2011 at 11:03 AM Report abuse rate up rate down Reply
ultraz2

APPLE sores are packed with customers, that are NOT window shopping , BUT BUYING, while most of the other mall stores are doing little business. APPLE 500 DOLLARS A SHARE. SOON

May 08 2011 at 12:41 AM Report abuse rate up rate down Reply
mbotto50

Nobody goes from an Apple product to a different product but there are a lot of people who go from other products to Apple. Until that dynamic changes Apple keeps going foward.

May 07 2011 at 1:59 PM Report abuse rate up rate down Reply
g5user1usa

Everyone is trying to push Apple shares down. They're talking about the decrease of iPod sales and yet the iPad will be bringing in more revenue than the iPod ever did. The iPad will be the greatest globally-selling tablet for all of 2011 and probably beyond. I'm not going to get into whether Apple's share price will rise no matter how much revenue and profits the company makes. Apple shares are being tightly manipulated to trade in a very narrow range no matter what the market is doing. The institutions (hedge funds) are controlling Apple's share price, plain and simple. Whether the hedge funds will let Apple rise is questionable in my eyes. Apple has already met conditions of past targets and the stock still continues to lag the general market. With a median target price of about $420, Apple is really screwing shareholders so whether it really will be a good investment for new investors is doubtful if the share price doesn't move until the end of the year.

May 07 2011 at 9:04 AM Report abuse rate up rate down Reply
wmjperry

This article suggests that AOL since Arianna took it over is really going down hill. I would bet against the idiots who are being quoted and the writer and Arianna. They have their collective heads buried in the sand. they obviously are too cheap to buy the various Apple products and do a head to head analysis against competition. They do not even bother to consider that most of Apple's growth is internal. Can you imagine what $ 55,000,000,000 cash on Apple's balance sheet could buy in the form of sales growth!
I own Apple and have owned it for quite sometime and I am a happy camper.

May 07 2011 at 7:44 AM Report abuse -1 rate up rate down Reply
wufinz

oh come on
aapl is a sterling-golden-platinum stock. I bought it at 12.00 a few years ago and I am NOT complaining. IT split twice and marched up and up. I am betting it will continue upwards for a while. Now, if there was another split, I would be a very happy camper.

May 07 2011 at 5:38 AM Report abuse rate up rate down Reply
Jdhdnumber7

REALLY...we are worried about analysts being worried...are you kidding me...what... are they trying to see if they can push the stock down?...LOOK @ THE DATA.....you know what you should be concerned about..THAT you actually allow analysts to get you worried....if so,there is no cure..C'MON...!!!

FOCUS,,,,do you have an I-Phone, I-Pad or Mac....no...then do all your friends....no again...but what?....they all want one...they just can't get one because Apple can't make them fast enough...cmon..REALLY?

If that doesn't suggest something to you then feel better about yourself because the analyst's worries are becoming your own and tomorrow for breakfast they are serving Soylent Green...REALLY..and I'm worried!!

May 07 2011 at 5:05 AM Report abuse rate up rate down Reply