Apple execs apparently didn’t get the iMessage that when you are the most highly valued company on the planet that leading by example — in most areas — should be modus operandi.
The tech giant’s stock was pummeled by 6.6% on Friday following a mixed fiscal fourth quarter and so-so holiday quarter sales guidance. But it was the iPhone’s maker’s surprise decision to stop providing quarterly unit sales data for its various tech gadgets that arguably had the bulls more up in arms than the raw three-month performance.
“As demonstrated by our financial performance in recent years, the number of units sold in any 90-day period is not necessarily representative of the underlying strength of our business. Furthermore, a unit of sale is less relevant for us today than it was in the past, given the breadth of our portfolio and the wider sales price dispersion within any given product line,” said Apple chief financial officer Luca Maestri right at the top of a conference call with analysts.
Likely sensing some unease by the analyst community — which craves numbers to help assist in their financial models that are shipped off to eager clients — Maestri tried to pitch its decision as being in line with practices from competitors.
“As I know you’re aware, by the way, our top competitors in smartphones, in tablets, in computers, do not provide quarterly unit sales information either. But of course we understand that this is something of interest and when we believe that providing qualitative commentary on unit sales offers additional relevant information to investors, we will do so,” Maestri said.
Fair point. Then again Apple is the only company in the world to still be valued at more than $1 trillion in the wake of October’s stock market rout. That extreme confidence people have put into Apple by way of stock ownership should hold it to a higher reporting standard than rivals.
Obviously Wall Street didn’t take kindly to Apple’s dog and pony show on the conference call. In the Street’s eyes, Apple’s decision was a sign of a future of slowing unit sales across the board.
“The lack of transparency is disappointing, and will likely limit investor’s visibility into the company. Our view remains that units may not grow at all going forward, and while ASPs [average selling prices] are still increasing, at some point they will plateau,” wrote BMO Capital Markets analyst Tim Long.
Explained Macquarie analyst Ben Schachter, “Long time Apple watchers will clearly be disappointed by this and the assumption is that units are very likely to turn negative for the near-mid-term and that is why Apple is making the disclosure change.”
Some analysts like long-time Apple fan Gene Munster said it was a good move. All in all though, the boo-birds outnumbered the smiley face emojis.
The seemingly matter of fact tone on this disclosure issue by Apple is unfortunate for investors. In the age of growing public distrust of big tech companies such as Apple and Google, taking away useful information is the latest example of tone deaf behavior. Doing so only fans the flames that these tech beasts are some form of entity unto themselves, untouchable by the government and the people that buy their products and invest their life savings in the company.
Apple should be serving up more disclosures, not less, in this type of heated environment. Getting investors to think what’s possible over the long-term starts with painting a clear picture each quarter. That doesn’t mean a singular focus on hyping average selling prices because they are rising (and de-emphasizing unit sales data because it’s unfavorable) amid price increases on hardware.
“Ultimately this is bad news for Apple as there isn’t much room for price increases,” says Matt Mead, chief technology officer at at digital consultancy SPR.
Why unit sales data is important:
- Unit sales data matters for Apple investors not named Warren Buffett (aka the average investor) who can’t get CEO Tim Cook on the phone in a moment’s notice.
- Unit sales data tell how Apple’s newest products are faring vs. rivals.
- Unit sales data tell how Apple’s older products are continuing to perform.
- Unit sales data helps investors make a reasonable assessment on the potential for Apple’s highly touted services business.
- Unit dales data help determine the health of a company trying to push prices even higher for its products.
From an investor perspective, this maneuver by Apple shouldn’t be a shock. Here is a company that has refused to disclose Apple Watch, Homepod and Airpod sales for fear of letting down the always optimistic Apple investor base or revealing too much to rivals. How about sales of Beats products? You know, that not so teeny headphone brand started by Dr. Dre that Apple bought for a cool $3 billion in 2014? No luck getting those numbers.
Just lip service on quarterly earnings calls.
Said Maestri on the latest call, “With revenue growth over 50%, it was another record quarter for wearables, which includes Apple Watch, AirPods and Beats products.” What does “record” mean? Unsure.
A year from now Apple’s decision to stop reporting unit sales sales data may be a blip on the radar screen. Then again it may not if Apple shares quickly recover from the recent pounding, possibly enabling Apple to pull another piece of data away from investors.
Average selling prices… why is Apple still reporting that one? Sales and gross profit margin guidance for the quarter ahead? Why bother detailing that? After all, Apple now sees itself as a services led company that drives good results over time. So no need to share quarterly guidance, right?
Besides Apple’s largest shareholder Warren Buffett, who holds some 251 million Apple shares, has said consistently he dislikes quarterly guidance. Surely Buffett has Cook’s ear on this issue.
And what if others in tech follow Apple’s lead and decide to disclose less information?
“Whenever a leader in an industry makes a change, it would be natural for other companies within that industry and their board members to at least discuss that change and weigh the benefits/disadvantages of following suit,” points out SunTrust chief markets strategist Keith Lerner.
Apple, you can — and should — do better.
An Apple spokesperson declined to comment for this story.
Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter@BrianSozzi