Monday, January 14, 2013

Why Is Apple Getting Killed?

Today, Apple (NASDAQ: AAPL) stock plunged $18.55 or was down 3.57% of total value. A spectacular drop by any measure!  

Apple Stock Slides 28% from peak value in 2013 (NASDAQ: AAPL)
Since beginning of 2013, Apple stock has lost $49 or roughly down 10% of total value. Even more remarkable is the fact that Apple stock is down over $200 from the high water mark of $705 set in September 2012, or about 28% down from the peak value. Is Apple going back up to $700, or is it destined to go down further?

What drove today's slide?  Here is what Bloomberg story reported: "Apple Inc. declined to the lowest price in 11 months after the Nikkei newswire reported that production of the iPhone was cut on weak demand."

The analysts love to play the herd mentality... Here is what Cramer is saying: ""Even as I see the stock come down to levels that are surprising on a valuation perspective, I can't see a reason to buy more"

Cramer identified a handful of developments that may be a cause for concern:
- The company has missed Street estimates two quarters in a row.
- Apple's new products have been received with incrementally less enthusiasm than the products before.
- New reports suggests Apple may have cut orders for iPhone 5 parts 

Apple can turnaround the negative sentiment quickly by announcing great earnings for the holiday quarter later this month. Apple investors will be anxiously waiting for Apple to not only beat the consensus estimates, but also blow past it. Any perceived weakness in numbers, both revenue and profits, and the analysts are going to be quick to jump on "I told you so" bandwagon and begin writing the obituaries.

Check related article: 11 Innovation Ideas to Change Apple

Apple and CEO Tim Cook will have to do a few things right to reverse the tide, turnaround the demand, and stop the bleeding:
1. Post a solid quarter - both revenue and earnings.
2. Provide reasonable guidance for the new quarter.
3. Announce new strategic partnership (e.g. with China Mobile).
4. Share a glimpse of new, amazing product innovations in the pipeline to get the excitement going!
5. Provide strategy and thought around how it will beat Android worldwide.

What has Apple going for it? It is still the world's most valuable company, has over $100 billion in cash, and demands a huge respect and following. Any other company in the world would die to be in Apple's shoes. But Apple can't rest on those laurels anymore. It has to prove the naysayers wrong again, and set the tone for the rest of the year.

Apple must also accept the fact that consumers want bigger and cheaper smartphones! There was a time when the iPhone created an awe and consumers were magically drawn to it. Now, that time has passed. How will Apple inspire the consumers again?

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