C-suite executives are typically not trained economists and sometimes fail to accurately interpret high-level macro trends.Companies are often reactive, taking steps after the fact or too late.Management teams have the implied incentive to keep publicly announced targets conservative, leaving some room to later over-deliver.With that, here's a list of considerations investors should be making when thinking about guidance and corporate actions in general, in our opinion. Specifically, iPhone sales in 2019 proved to be much more resilient than feared while the company gained traction with services. Conditions simply evolved more favorably, allowing the company to ultimately outperform expectations sending shares higher. In hindsight, Apple's messaging that year was likely poorly devised based on backward-looking trends more than anything else. To be clear, the Q1 results that year were pressured by conditions in China and emerging markets, but it was clearly just noise in the bigger picture. The point we're making is to maintain a level of skepticism regarding any company guidance and analyst estimates, where even the most respected of management teams can sometimes get it wrong. Source: 圜harts Take Guidance With A Grain Of Salt Keep in mind that AAPL has returned more than 250% in the period since. The repercussions of the poor timing by CEO Tim Cook and the circumstances around the event remain the subject of an ongoing lawsuit considering it likely spooked investors into selling prematurely. In fact, the low of the year for the stock happened precisely on the day of the doom and gloom announcement. Shares of AAPL turned around into a massive winner, climbing nearly 100% through 2019. That being said, a funny thing happened from that point onward. Shares dropped by 10% in one of the largest selloffs of the last decade and referred to at the time as Apple's " Darkest Day ". The news on January 2nd, 2019 was devastating for the stock and worked to bring down the entire market. The updated targets were well below market consensus and accompanied by a somber tone. The unusual letter cited " the magnitude of the economic deceleration" related to uncertain conditions in China. It's been a little over four years since the infamous " Tim Cook Letter ", which created a debacle in early 2019, but now stands as just an embarrassing moment for one of the most successful companies in the world.Īs a recap, Apple took the unprecedented step of revising sales and earnings guidance sharply lower just weeks ahead of its fiscal Q1 report. In the annals of stock market history, a footnote to Apple Inc ( NASDAQ: AAPL) deserves to be remembered as an important lesson for all investors.
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