When Waiting for Apple is Akin to Waiting for Godot

Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Does Real Life Mimic Fiction?
Waiting for Godot, an absurdist play by Samuel Beckett, covers a day in the life of two gentlemen who try to keep themselves busy as they expectantly wait in vain for a character named Godot to arrive.  Even though they hardly know him, even admitting they would not recognize him if they saw him, both men still claim that he is an acquaintance.  The play ends when a young boy arrives to tell them that Godot will not be coming, but promises that their much awaited guest will arrive the next day.  Both men agree to leave, but neither one of them makes any move to go.

The above scenario may sound familiar to Apple (NASDAQ: AAPL) shareholders who, after Wednesday’s disappointing quarterly results and future guidance, may decide to wait, holding onto their shares until the next big Apple announcement. 

Shareholders Don’t Like Surprises
It certainly came as a surprise when Apple reported its first year-over-year decline in earnings per share in nearly 10 years late Wednesday, with sales lighter than Wall Street expected for the holiday season. The company’s shares tumbled 10% in after-hours trading.  Apple earned $13.81 a share, down ever so slightly from $13.87 a year earlier, for its fiscal first quarter ended Dec. 29.  Sales rose 18% to $54.5 billion, but this was less than the $54.7 billion expected by the Street.

Analysts probably stayed up until the wee hours of Thursday morning adjusting their future estimates and resultant ratings for a stock that has already lost more than one-quarter of its market value and could lose more before the price settles down.  Although they continued to pepper CEO Tim Cook about Apple’s next chapter of innovation, the tight lipped executive could only talk about a “pipeline” of new products and ideas that the company appeared to be excited about.

“Apple is in one of the most prolific periods of innovation new products in its history.” – CEO Tim Cook
It is no surprise that many investors marveled at the iPhone and iPad and the stunning revenues, growth, and soaring stock price that they provided.  They can only hope that Apple’s CEO is right and that there is a “new, new thing” waiting in the wings; although, rhetoric aside, only Apple’s senior management seems to know.  Since Steve Jobs had a hand in choosing the team that succeeded him, they should be able to develop the next “insanely great” device, right?

There are plenty of great ideas, or rumours, floating around.  A less expensive iPhone could be developed to compete with Samsung’s smartphone, the Galaxy S III, currently equipped with Google’s (NASDAQ: GOOG) Android operating system; soon the company will be offering Microsoft's (NASDAQ: MSFT) Windows Phone 8 version.  But if Apple does successfully offer a less expensive smartphone, this could significantly reduce the robust profit margins that the company has historically enjoyed.

Apple TV has sold well, but the original box is ancient as far as “Apple years” go, and rumors about a big move remain just that--rumors.  Will the company use its massive hoard of cash to make some acquisitions, like content for their rumored new television, or will they continue to do a modest buyback of their outstanding shares?  Netflix (NASDAQ: NFLX) was one of the rumored acquisitions that would be a good fit for acquiring content (probably spread by Neflix shareholders).

It is all about the “Guide” and the Guide Needs Innovations
The March forecast suggests more iPhones, iPads, iPad Minis, and computers will continue to sell.  But the Steve Job groupies want future revenue guides to include innovations, not just growth of existing products in new markets.

A fingerprint sensor on an iPhone could also be the ticket.  The intuitive, secure, and just plain “cool” device could create a lot of consumer interest.  Apple figured out that fingerprint sensing technology would be a hit, that’s why the company invested millions of dollars to start an implementation of this technology.

Rumors that Apple may have invested in the ultra-thin IGZO displays manufactured by Sharp suggests that the company may be looking to include this technology in their roll out of future iOS devices.  The IGZO display technology offers a higher retina display than Apple’s current technology, and it is also determined to be thinner and tougher with lower power consumption.

Apple Innovation Needs to be more Reliable than Godot
Many shareholders, like the aforementioned gentlemen waiting for Godot, now sit tight and hope that Apple can ride out the negative vibes and come up some new “cool” products that is the tech titan’s trademark.  Unlike Godot, lets see if Apple can deliver.

Profitability and Management Effectiveness (Trailing Twelve Months)
Three out of the four companies below have strong metrics and offer investors a compelling reason to invest.

<table> <tbody> <tr> <td> </td> <td><strong>Apple</strong></td> <td><strong>Google</strong></td> <td><strong>Microsoft</strong></td> <td><strong>Netflix</strong></td> </tr> <tr> <td> <strong></strong></td> <td><strong><em>AAPL</em></strong></td> <td><strong><em>GOOG</em></strong></td> <td><strong><em>MSFT</em></strong></td> <td><strong><em>NFLX</em></strong></td> </tr> <tr> <td><strong>Profit Margin</strong></td> <td>23.35%*</td> <td>21.4%**</td> <td>21.71%***</td> <td>0.48%**</td> </tr> <tr> <td><strong>Operating Margin</strong></td> <td>33.46%*</td> <td>25.43%**</td> <td>36.02%***</td> <td>1.39&**</td> </tr> <tr> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td><strong>Return on Assets</strong></td> <td>20.58%*</td> <td>9.59%**</td> <td>14.21%***</td> <td>0.89%**</td> </tr> <tr> <td><strong>Return on Equity</strong></td> <td>38.41%*</td> <td>16.61%**</td> <td>24.50%***</td> <td>2.47%**</td> </tr> </tbody> </table>

*Trailing Twelve Months (as of December 29,2012)
**Trailing Twelve Months (as of December 31, 2012)
***Trailing Twelve Months (as of September 30, 2012)

mjwcopywriter has no position in any stocks mentioned. The Motley Fool recommends Apple, Google, and Netflix. The Motley Fool owns shares of Apple, Google, Microsoft, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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