What hasn't been said about tech giant Apple (AAPL) in the past three months?
The most glaring thing has been the Apple Watch is a mega-flop. Supporting that view are all sorts of data that I deem suspect. Take, for example, data from some company called Slice Intelligence, whose sales projections have been lighting up the Internet ever since the Apple Watch became available in the spring. I don't care how this company derived its conclusions, unless it has the ear of Apple execs and top suppliers (it doesn't look like it does), I am not listening.
Another that has made the rounds in the lead-up to earnings is from an opinions website, which said customer satisfaction with the Apple Watch is off the charts. Pardon me, but who gives a damn? Data from an opinions website now means existing Apple Watch users are more likely to purchase versions two, three and four? Don't be so quick to revise your discounted cash flow analysis, Apple investors.
The point here is that there is a host of conflicting data out there on Apple (as well as reviews), especially on the Apple Watch, that is creating a great deal of noise for investors to sift through. And I think this noise has weighed on Apple's stock, as it has performed relatively in line to the Nasdaq this year. In fact, Apple shares were technically lagging the Nasdaq until late June, only recently buoyed by Google's (GOOGL) results and the general enthusiasm on the tech sector lifting all ships. (Apple and Google are part of TheStreet's Action Alerts PLUS portfolio.)
Nevertheless, this noise diverts investor attention on what really matters when it comes to Apple: what its actual sales are and the thinly veiled comments made Tim Cook & Co. I think you need to be paying more attention than usual to Apple's earnings call this evening, as the company is unlikely to release Apple Watch sales estimates. Further, Cook has shown a willingness to be more open to the media of late. Here is what you want to be focused on:
How Tim Cook assesses Apple Watch demand: "It's been really great to see the reaction of customers since their watches began arriving on Friday morning. All around the world, we've seen the excitement on social networks as people start using their Apple Watch. The response has been overwhelmingly positive," said Cook on Apple's first-quarter earnings call in April. Sure seemed rather positive on the surface, but analysts were quick to point out Cook's more measured tone on the early consumer reception to the watch compared to things such as the iPhone. The market will be very locked into how Cook describes the appetite to own the Apple Watch, especially as it's now available in stores and will roll out to more countries in the months to come.
For Apple shares to get the stamp of approval of bulls who have soured a bit on the name lately, Cook must come out optimistic on the Apple Watch because the sales were stronger than the naysayers have been bantering about and he is upbeat on the looming software update. Should Cook maintain his measured assessment offered back in April, Apple's shares could be dumped and EPS estimates revised lower by Wednesday morning (and, possibly, ratings).
It's up to Cook to shoot down rumors that the watch was a flop, and not the next major Apple product platform.
The iPhone needs a blowout sales quarter: If the Apple Watch had a light quarter of sales, sparking concerns on its long-term viability, Apple will have to show very strong sales of the iPhone 6 and 6 Plus to get the stock working again. Keep in mind, the iPhone had a better-than-expected first quarter, which helped enhance Apple's gross profit margin. "Growth and demand for iPhone 6 and 6 Plus has remained incredibly strong -- our current estimate is that about 20% of the active installed base has upgraded to a 6 or 6 Plus in the first quarter," pointed out Cook.
Hearty sales of the iPhone for the first two quarters of 2015 would likely spur buying ahead of Apple's product refreshes later in the year. It would show the iPhone could continue to support Apple's existing valuation in light of an OK arrival of the Apple Watch, with new models typical to the fall lending way to an even higher valuation.
In Apple land ... nobody said assessing the company was cut and dried!