It's funny how perceptions can vary so widely. After spending a day at San Francisco's Moscone Center on Jan. 15 covering Steve Jobs' keynote address and attending Macworld Expo, I was taking a break and watching CNBC. One of the CNBC commentators, Pete Najarian, called the Jobs keynote "disappointing" and went on to rip the company. Everything the chief executive revealed was expected, he said. With no surprise product, there'd been no upside possible for the stock.
I had seen how the markets initially reacted to Apple's (AAPL) announcements. At one point, Apple stock had dropped by nearly 8% during the session, down almost $10 a share, to 164.66. By the close, it had recovered somewhat to 169.04, but still lost more than 5% for the day.
Watching Najarian, I chuckled. Here was one who doesn't get it. And there appeared to be many more like him out there. More than 83 million Apple shares changed hands on Jan. 15, not a record, but unusually high. Many clearly opted to sell on news they judged to be disappointing. For those who bought before Macworld in hopes of cashing in on a keynote bounce, I have only one word: suckers.
Real Numbers Beyond iPhone Mania
Apple's stock has been a huge wealth-generation machine over the last few years. If you had bought it five years ago when shares were worth about 7.50 on a split-adjusted basis, and held it until now, you'd be staring at a gain of more than 2,000% over five years. But that's called investing. By contrast, betting on a short-term gain from a Steve Jobs keynote at Macworld has always been fraught with peril.
Yes, on the surface it might seem a good bet. Going back to 1999, Apple's stock price has gained an average of 4.7% on the day of a Jobs keynote at the January edition of Macworld. But of those 10 occasions, only half have seen the stock rise, the biggest gain coming with last year's unveiling of the iPhone. Developed in the strictest secrecy, the phone was widely expected to make its public debut that day. But with so little known about the device before it was revealed, iPhone mania pushed the stock up more than 8% that day.
But a one-day pop like that can create unreasonable expectations. In fact, if you exclude the iPhone spike from consideration, Apple's stock price has dropped an average of 3.6% on keynote day since 1999.
Not the Biggest Loser
The second biggest keynote bounce came in 2006, when Jobs announced a new MacBook Pro line of laptops and the switch to Intel (INTC) chips for the iMac lineup. The stock gained more than 6% that day. The third-biggest keynote day gain came in 1999, when the stock gained 5% with the introduction of colorful iMacs, fancy studio displays, and the PowerMac G3.
This year's keynote-day drop, it turns out, was not the biggest loser of the past decade. That came in 2005, with the stock sliding more than 6% as Jobs announced the iPod shuffle and the Mac Mini. Other big keynote-day drops came in 2001 (3.9%) and 2002 (3.4%).
What lessons should Apple investors draw from these results? Well, Macworld is clearly the wrong time to make a bet and hope for a fast buck. Certainly, there are exceptions, as last year's iPhone launch proved, but you can't count on exceptions.
It's also notable that keynote day losses sometimes do spin into gains. Take 2001: Jobs announced new PowerBooks, PowerMacs, and the first iteration of iTunes (there was no iPod yet). On keynote day, the stock dropped more than 3%. But 10 trading sessions later, it was showing a gain of more than 23% from its pre-keynote price. As with the iPhone surge of 2007, this case proves exceptional. When you remove it from consideration, Apple's stock has shown an average loss of more than 4% on the 10th trading day following a January keynote.
What makes for a winning keynote day? Generally speaking, lots of flashy hardware such as consumer friendly iMacs and the iPhone—but not always. New PowerBooks in 2003 and the combination of the iPod shuffle and Mac Mini in 2005 both propelled Apple's stock to a keynote-day drop. But in both cases, within 10 days, the stock had risen more than 4% from its pre-keynote close.
So what to make of this year's keynote-day sell-off? More than a few analysts are calling it a buying opportunity. Analysts at Piper-Jaffray (PJC), Morgan Stanley (MS), Pacific Crest, Citigroup (C), and Deutsche Bank (DB) all see the pullback as a chance to buy before another run. It doesn't hurt that the stock has now been beaten down nearly 20% from its December peak at 202.96. Among Wall Street analysts covering Apple, the average price target is 214.69—a third higher than where the stock sits today.
Where Apple's Sales Are Shining
What's to like? Plenty. Mac and iPod sales are expected to show a single-quarter record when Apple reports its results for the final three months of 2007. And while iPhone sales—now totalling 4 million units since the late June launch—may be a little behind expectations, the handheld is already the second most popular smartphone in the U.S. A new version compatible with speedier next-generation cellular networks—expected sometime late this year—will go a long way toward winning international business.
And then there's the great unknown of AppleTV. Is it the next iPod? Will consumers flock to the idea of buying and renting iTunes video content from the comfort of the couch?
Either way, analysts don't seem worried anything has fundamentally changed with this year's Macworld pageant. Once that's clear, all those who sold on what they thought was a bad keynote may feel like suckers, too.