Wall Street is a fickle beast.
Immediately after Apple (AAPL) reported a near $11 billion profit for its third quarter, its stock dropped nearly 7 percent in after-market trading to $121 a share from a close of $130.75. Regardless of the “spectacular” quarter the company claimed it enjoyed, its subsequent follow-up call with analysts caused reason for concern moving forward.
Officially, for its third quarter ended June 27, Apple reported revenue of $49.6 billion, up considerably from the $37.4 billion the company posted for the corresponding period a year earlier. This was also slightly above analysts’ general expectations of around $48 billion. Profit for the three-month period came in at $10.7 billion or $1.85 per share vs. $7.7 billion in net income, or $1.28 per share for the third fiscal quarter a year ago. Gross margin for the period even rose to 39.7 percent from 39.4 percent.
Apple said the growth was fueled by record third-quarter sales of iPhone and Mac, all-time record revenue from services and the successful launch of Apple Watch, although it would not break out specific revenue figures for the Apple Watch. “We had an amazing quarter, with iPhone revenue up 59 percent over last year, strong sales of Mac, all-time record revenue from services, driven by the App Store, and a great start for Apple Watch,” said Tim Cook, Apple’s CEO, in a prepared statement. “The excitement for Apple Music has been incredible, and we’re looking forward to releasing iOS 9, OS X El Capitan and watchOS 2 to customers in the fall,” he said.
“In the third quarter our year-over-year growth rate accelerated from the first half of fiscal 2015, with revenue up 33 percent and earnings per share up 45 percent,” added Luca Maestri, Apple’s CFO. “We generated very strong operating cash flow of $15 billion, and we returned over $13 billion to shareholders through our capital return program.”
But as strong as its fiscal third quarter was, analysts didn’t like what the company said regarding its fourth-quarter outlook. For the fourth fiscal quarter, Apple is anticipating revenue between $49 billion and $51 billion, gross margin between 38.5 percent and 39.5 percent, operating expenses between $5.85 billion and $5.95 billion, other income/(expense) of $400 million, and a tax rate of 26.3 percent.
However, despite these strong numbers, the company’s stock dropped in after-market trading, as some analysts said these projections fall short of expectations and specifically cited lower iPhone sales expectations.
Originally, analysts were expecting the company’s revenue to be north of $51 billion for the fourth quarter, according to Thomson Reuters.
Apple said it sold 47.5 million iPhones in the third quarter, up 35 percent from a year ago during its earnings call. However, some analysts had expected around 49 million. Some analysts are seeing market saturation for the iPhone.
"Where are you going to find growth in the world?” said Colin Gillis, an analyst for BGC Partners in a published report on Reuters. "You've done an amazing job sucking all the smartphone profits into your balance sheet, but smartphone sales are slowing. What's going to happen when the industry matures, just like PCs did?"