In a week we’ve watched Apple drop more than 5%, after reporting great results.
Apple’s fourth-quarter revenue jumped 9% from a year earlier to a whopping $91.8 billion, shattering records and blowing past the guidance Apple had given Wall Street. Holiday sales of the new iPhone 11 line were up 8%. (NY Post January 28, 2020)
So Wazzup? Analysts are catching on that supply chains are being disrupted by the Coronavirus. This is likely just the first cockroach (when you see one, you know there’s many more coming) to appear in the FAANG bubble that has so far been not only tolerated, but pumped by investors – no doubt much of the buying during December and into January was window dressing by institutional investors (wanted to show clients they’re cool and ‘own’ the right names) and scrambling by foolish retail investors who believed they’d missed the boat and were clambering to get aboard.
Admittedly, the current environment is very different than it was back in the year 2000, although the urge to participate has been just as frenzied. Rather than a whirlwind of IPO’s by companies with no revenues or profits, these businesses generate tons of cash flow and have millions of dedicated customers. The risk however has to do with a transition for these businesses from technology companies to consumer product (or rather, service) companies – subject to the seasonal ups and downs that used to be the bane of conventional department store retail.
Yes the impact of the Coronavirus will be widespread but it simply accelerated what was bound to occur in short order anyway. The outstanding earnings reports that have come out are not nearly as ‘surprising’ as they seem when reading headlines. With strong consumer spending during the holiday season, low jobless rates and pitifully low interest rates, earnings for the 3rd quarter of 2019 would’ve had to be outstanding. What will be a surprise is how rapidly these earnings will flatten or decline beginning this year. Why? Because AAPL and AMZN and yes even GOOG have businesses tied to the age old pattern of strong sales approaching the holidays, and a drop in consumer (and advertising) spending afterward. They are no longer disrupting retail…they ARE retail.
So don’t be ‘surprised’ when analysts and investors in general start looking ahead rather than focusing on historical earnings announcements, especially for those few monoliths that have contributed the lion’s share of the overall market’s performance last year.
Apple, Amazon, and Alphabet (Google) alone are over 11% of the S&P 500 Index and will be headed lower. There will be an opportunity to buy back these stocks: When Coronavirus is tamed perhaps, but more probably when earnings have bottomed out in the summer months.
And so it begins…this morning on CNBC
