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Apple Inc. (AAPL), Facebook Inc (FB) & Zynga Inc (ZNGA): Profiting From Earnings Surprise

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Sometimes your fastest selling product makes a miss and the laggard takes its place. This was the case with Apple Inc. (NASDAQ:AAPL)’s latest earnings report, as iPhone sales were 31.8 million (31.2 million plus the 600,000 from previous inventory), which beat estimates for 27 million iPhone’s to be sold in the quarter. That presented a 20% increase over last year.

Apple Inc. (AAPL) to be Added to Several WisdomTree ETFsThis enabled investors to look past iPad sales, which missed estimates, coming in at 15.3 million (14.6 million plus the 700,000 from the inventory drop) versus expectations for 18 million. According to management, “factoring in this 1.9 million unit channel inventory swing, iPad unit sales was 3% year-over-year.”

Regardless if it was a decrease or a slight growth it still missed everyone’s expectations for strong growth. The tablet market is expected to grow by 58.7% (according to IDC) in 2013, yet the iPad lacked that growth. While a strong iPhone showing easily compensated for the miss, going forward Apple Inc. (NASDAQ:AAPL) needs another big selling device when the US market reaches full saturation.

This Fall

It is expected that Apple will unveil an iPhone 6 this Fall, with a lot of speculation around whether or not Apple Inc. (NASDAQ:AAPL) will release an iPhone Lite. An iPhone Lite would enable Apple to push into emerging markets, like Google Inc (NASDAQ:GOOG) has been, with a lower price point. Android has been snatching up market share as its phones sell for a third of what the iPhone costs in emerging markets.

Kantar puts Android’s market share in China at around 71.5%, surpassing Apple’s 23.6%. If Apple Inc. (NASDAQ:AAPL) signed a deal with China Mobile and offered a lower cost iPhone, that would be huge. The growth runway would be enormous, with China Mobile rapidly converting its 750 million customers to 3G. As of now China Mobile has 129.4 million 3G customers and China as a whole has 309.5 million.

A cheaper iPhone would enable Apple to cater to significantly more Chinese consumers and would be a major buy signal if it announces one in the future. Apple Inc. (NASDAQ:AAPL) saw a 14% revenue drop in China this quarter and a 43% drop from the previous quarter. If Apple can reverse this then it can start growing again, it will see its PE rise from 10.5 to around 15.

When Apple Inc. (NASDAQ:AAPL) announces or gets close to announcing the new iPhone is when it would be a great time to buy, but I would become very bullish on Apple if it released an iPhone Lite.

Booking a smaller loss

Investors who got into Facebook Inc (NASDAQ:FB) during the IPO had losses around 50%, until its latest earnings. Facebook rallied 30% the day after it posted a beat and showed investors that it could effectively get into mobile.

Facebook Inc (NASDAQ:FB) posted revenue of $1.81 billion, which was up 53% year over year and beat estimates for $1.62 billion. On the earnings side, Facebook posted an EPS of $0.19, beating estimates for $0.14 and up from $0.12 a year earlier.

In the first quarter, mobile revenue made up 30% of revenue but that jumped up to 41% in the second quarter. Facebook Inc (NASDAQ:FB) now has 819 million monthly mobile active users, which was up 51% year over year.

This led to a variety of analyst upgrades and sentiment on the stock completely changed. While Facebook still sports a very high PE (trailing twelve months) of 156, its forward PE is 36. If Facebook Inc (NASDAQ:FB) can keep moving into mobile maybe one day it will have a realistic PE.

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