Apple's Health Depends On Jobs'
Time for full disclosure is now.
Hello from New York, where I have yet to find an upside to dissecting the price or performance of Apple (AAPL) over the last five years. I've said repeatedly that Apple manages its stock as well as any company on earth. I've also said I wouldn't short the stock with my greatest enemy's money. I've mentioned that Apple's exceptional growth and stock performance has bought the company more latitude than is allowed any other American public company. I stand firmly behind every one of those statements.
And I know that I open myself up to the kind of criticism you wouldn't hurl at the dog who bit your kid when I say that these opinions are not tantamount to saying "Buy Every Dip in Apple!"
Which brings us to yesterday, and Apple's earnings report. The Fast Money crew and I got the headlines just before going on air at 5 p.m. The earnings per share (EPS) were good (see my expectation for a "quarterly estimate stomping" in yesterday's Buzz). The number of units sold was better than expected, but average selling prices were soft.
What's more -- though Apple is a legendary estimate sandbagger -- guidance for September's quarter was lighter on the top and bottom lines by a meaningful margin (about $500 million and 25% of EPS, respectively). As we went on air, Apple was off a few bones in after-hours trading - about $158, versus the $166 closing level.
Now, here's where the mix of "Live TV," "Cultish Stocks" and "the Art of Explaining the Whims of the Markets" gets tricky. Halfway through Fast Money, as Apple's conference call started, the stock ticked down to the low $150s and kept working lower.
Today, it's being widely reported that the market was "concerned about Steve Jobs' health." We didn't have that information during the show. What we knew on-set was that Apple CFO Peter Oppenheimer had said, in response to a question, that "Steve Jobs' health is a private matter". He seemed to make that comment at the exact moment after-hours Apple traders took the stock roughly $8 lower than the $158 at which it had been trading.
Sensing that one of the most popular stocks in the universe dropping at an extremely aggressive rate was the hour's "Top Story," the Fast Money crew opted to spend some time exploring what was going on at Apple. We focused on the fundamentals, but we didn't ignore the obvious impact of Oppenheimer's comment about Steve Jobs.
We did it as carefully as you might expect 5 decent people with wildly incomplete information to do when discussing the health of a business legend. It was a tough topic, but the price action in Apple -- and our task of interpreting the market and offering our opinions for the viewer's benefit -- made the idea of ignoring the link between Jobs' health and Apple's stock price a non-starter.
Here's a summary of what was said on the panel, along with some suggested alternatives to the time-honored practice of sending hostile emails to people reporting news on television:
- To a person, we disagreed with Oppenheimer's assertion that Steve Jobs' health is a "private matter" (e.g. "not material to investors in Apple stock"). Jobs is the more important to his company than any other CEO in corporate America. Losing Jobs would be worse for Apple's stock than losing Warren Buffett would be to Berkshire Hathaway (BRK A). Apple lost over $7 billion in stock value when Oppenheimer made his comment about Jobs' health being private (contradicting the company's June statement that "Steve had a bug").
I don't care to be invested in a company where an $8 stock drop is regarded as immaterial. If you disagree with that assessment, buy the Apple dip.
- We incorrectly stated that Jobs is "frequently" on quarterly conference calls. He's not, and that fact was corrected later in the show. Regardless of that fact, Jobs dropping in to say "hi" on the call would put all rumors regarding his health to rest. Suffice it to say, when speculation on an executive's health moves from the New York Post to Bloomberg, the rumor is in no way under control.
- If a corporate CEO, any corporate CEO, wants his health to be a private matter, he or she needs to retire or take the company private. If you don't regard who's leading companies in which you hold shares as material, you should.
- For the last 10 years, Apple has been the very best at managing investor expectations. The company guides low, reports big and brings out products with a fanfare that would embarrass P.T. Barnum. Last night's performance wasn't shareholder-friendly, to say the least. CFO Oppenheimer's utterly ham-fisted handling of the Jobs question does much to reinforce the image of Apple as a one-man show. That will now remain a bad thing - until Steve Jobs shows up looking like something resembling his old self sometime soon.
- If I'm on the board of Apple, I have one priority right now: Build a bench of executives and raise their profile beyond that of "supporting cast". Succession is always a top-5 obligation for a corporate board. Apple's stock has hidden this fact till now, but Apple's Board of Directors has failed miserably in this regard.
- I hope Steve Jobs is fine. I love Apple products. I never, ever, suggested Jobs was in dire or failing health. What I said, and what I believe, is that Apple has presented itself as a company led by a uniquely talented visionary, and has suggested that it would be lost without him. Rumors of that visionary's poor health are hurting Apple shareholders.
Apple's legal and ethical obligation is to either put those rumors to rest or to inform the investing public of the true status of Jobs' health. This may be unseemly, but it's a legal and material requirement the company must meet.
- Apple's quarter and guidance were flawed but, if Steve Jobs proves to be fit as a fiddle and ready to resume his special brand of tyranny, Apple's stock will go much higher. At the moment, only Steve Jobs' closest friends and physicians have enough information to know if today's move is a dip or the first sign of a serious retrenching at one of America's greatest companies.
In a market where we've gone crazy witch-hunting shorts, that material informational imbalance is reason enough for investors to demand that Apple give a reasonable update on their leader's health.
For more on Steve Jobs' special brand of tyranny, check out Hoofy and Boo's always astute report.
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