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Apple (AAPL ) is arguably the most watched stock during earnings season as it is not only the largest company in the world, but the stock has a cult following in the investing community. Time and time again, the company seems to defy analyst expectations no matter how high the bar is set, and the tech giant did just that with its Q1 earnings report.
For starters, analysts predicted that Apple would show EPS of $2.60 with revenues of $67.69 billion. Instead, the company reported EPS of $3.06 and revenues of $74.6 billion, crushing analyst estimates. Apple’s first quarter, which spans from October to December, is always its strongest given the holiday shopping season, but this quarter set a number of milestones for the company:
AAPL’s results buoyed Wall Street today, after a number of earnings misses had created a fair amount of selling pressure.
To call the blowout quarter impressive would be an understatement, but long-term investors should take the results with a grain of salt. One glaring red flag in the report is the fact that the iPhone accounted for so much of the company’s revenue while other segments suffered. iPad sales, for example, continue to disappoint as they dropped 22% this past quarter. While iPads have always been a major portion of sales, it has never topped the two-thirds mark.
Should a competitor even scrape off a slight number of iPhone users, or the next iteration of the iPhone disappoints on sales, Apple’s results will take a big hit. The iPhone is a juggernaut product among consumers, but from a sales standpoint, Apple lives and dies with just a single product. As an investor, you would almost never have a holding that accounted for 70% of your capital; that would be a diversification nightmare.
By no means are we saying that the future is grim or that investors should be worried, but the stock should certainly be approached with caution from a long-term perspective. If Apple wants to continue to remain a favored stock on Wall Street, investors will want to see products like the upcoming Apple Watch and iPads (among others) begin to take the burden off of iPhone sales as time goes on.
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