Apple hits a speed bump in Q2 after its stock soared in the past year

Apple hit a little snag in the second quarter, falling slightly
under what Wall Street expected in its earnings report —
causing a slight drop after its stock has jumped massively in
the past year.

The company reported earnings of $2.10 per share on revenue of
$52.9 billion. Wall Street was looking for earnings of $2.02
per share on revenue of around $53 billion. It also sold 50.8
million iPhones, whereas analysts expected Apple to sell 51.4
million iPhones. This is a slight miss on a few marks, which in
the grand scheme of things might not be that big of a deal — if
only an unexpected trip-up as the tide seems to have turned as
to whether Apple can keep growing.

Apple shares hit a 52-week high this afternoon before trading
ended, and in the past year have been on a very steady rise.
That’s even amid plenty of concern that its core driver — the
iPhone — will no longer be the rocket ship it used to be
driving Apple’s stock up. Instead, its portfolio of other
products (services in particular) are starting to show signs of
steady growth, meaning Apple’s ceiling may be higher than
simply getting record iPhone sales every quarter.

Not surprisingly, Apple once again showed growth in services
revenue. Apple brought in $7 billion in revenue from services,
up from around $6 billion in the second quarter last year. This
still isn’t the same rocket ship as the iPhone, but it is
growing at a healthy clip. The pitch — one that kept its
revenue from dropping off — may have even been more important
than the results.

Seriously. Take a look at the chart! In the past year, Apple
shares are up more than 50 percent.

Last quarter, Apple surprised Wall Street with a
better-than-expected quarter as its services revenue — which
executives have often said are going to be the size of a Fortune
100 company this year — started to offset its stalling iPhone
growth engine. Thanks to a seemingly healthy diversification of
revenue streams, Apple was able to once again grow its revenue
after it seemed like it was headed for a decline (or, at least,
topping out).

This is coming off the big holiday quarter for Apple, so
there’s naturally much less appetite for its products. But
diversifying its revenue is going to be important going
forward, because in the second quarter Apple’s hardware sales
were down for both the iPhone and iPad. The Mac showed
some strength, but in general, it has to show that it has
something else that it can grow into.

All this means its stock price is continuing to rise, which is
critical for a number of reasons. It has to continue to attract
talent, which it can woo with the prospect of a rising share
price as compensation. It also has to keep away activist
investors which — even though Apple is huge — may see it as an
attractive company to bug in order to demand an increased
return on capital. The latter is probably not so likely given
its size, but there’s some precedent for activists like Carl Icahn going
after the company

Of course, even a 1 percent drop in Apple’s shares (what
happened after the earnings report came out) can mean billions
of dollars in value for the company’s market cap — now above
$750 billion — can vanish in a few minutes. But again, looking
back at that chart, it appears pretty clear that Apple is
starting to figure out how to not only diversify beyond its
main driver, but also sell that story to Wall Street.

Featured Image: Justin Sullivan/Getty Images

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Apple hits a speed bump in Q2 after its stock soared in the past year

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