Markets

Apple Stock Plunges; Earnings Are Good but Not Good Enough

By Conrad Aenlle

Updated on: October 18, 2010 / 5:47 PM EDT / MoneyWatch

Apple's stock (AAPL) plunged 7 percent in after-hours trading Monday after the company reported earnings that beat Wall Street forecasts but left the impression that conditions were not as unequivocally wonderful as they have seemed in the past.

Apple earned $4.64 a share for the quarter ended Sept. 30, compared with $2.77 a share for the same period of 2009. Estimates had been clustered a bit over $4 a share.

Revenues totaled $20.3 billion, compared to $12.2 billion a year ago and forecasts for about $18.5 billion. Apple's gross profit margin fell to 36.9 percent from 41.8 percent.

Apple projected earnings for the current quarter of $4.80 a share, below Wall Street forecasts for just over $5. Apple foresees revenues of $23 billion, a bit above the $22.2 billion forecast.

While the $4.64 headline number for the quarter just completed, Apple's fiscal fourth quarter, was better than analysts had expected, the details made for a mixed picture, just like the broad outlook for the current period. Apple sold 14.1 million iPhones, well above analysts' forecast of 11.9 million, despite the controversy surrounding the iPhone 4's dodgy antenna and some more unusual issues involving the phones. But sales of iPads and iPods both disappointed, coming in at 4.1 million and 9.1 million, respectively; that is a combined 1 million units fewer than Wall Street was looking for.

So why such an unkind reaction from investors? As I noted Monday morning, the steep rise in Apple's share price during the last three months reflected the sort of extreme optimism that can leave a stock vulnerable to a decline. Another indication of just how hopeful investors had been about Apple was a live blog/forum on TheStreet.com just before the announcement in which participants, mostly amateur investors apparently, tried to top one another in predicting runs of the stock in quick order to $350, $385, $400 and beyond.

After a brief halt, Apple was trading at about $298, compared to a close of $318.

I warned in the post that even a "neutral surprise" could hit the stock. Wall Street will need more time to digest Apple's report fully, but so far that appears to be occurring.