Delayed Gratfication and Wall Street’s Skewed Priorities
Apple’s earnings came out two days ago and the stock price dived. Wall Street analysts were upset that Apple’s earnings had fallen below their estimates. The company sold 26 million iPhones last quarter, 28% more than it had done a year earlier. Analysts had predicted that 29 million would be sold. Apple also sold 17 million iPads last quarter, compared to 9 million a year earlier. Apple’s net income was $8.82 billion, or $9.32 a share, up from $7.31 billion, or $7.79 per share a year earlier. Total revenue was $35.02 billion compared to $28.57 the previous year.
All the results sound damn good, yet the stock went down as Wall Street analysts were unhappy with the quarter’s results. However, it was believed that one of the reasons Apple’s sale of iPhones were not as robust as projected was because consumers are expecting a new version to come out in the fall and are waiting to buy this iPhone.
The immediate performance of Apple’s stock is symptomatic of the flawed thinking on Wall Street. Long term growth prospects of many companies are considered secondarily, if at all, with quarterly earnings and revenues driving the stock’s price. (Start-ups are given more leeway since they often have no revenue.) Unfortunately, this also influences companies to think about short term revenues instead of working for developing long-term prospects. This type of behavior has been particularly prevalent in financial corporations and investment banks where employees push for short term profits to pad their bonuses.
If American businesses are to remain world leaders and continue their history of innovation and growth, companies should be thinking long term instead of scrambling each quarter to reach Wall Street’s estimates. (Unfortunately, it’s also the way governments at all levels consider their finances, balancing their books by various gimmicks to make things look right in the short term and neglecting to bolster finances down the road.)
Wall Street analysts have to stop thinking like two year olds and delay gratification for a while when a company is basically strong, instead of issuing sudden downgrades that cause stock prices to drop.
A VietNam vet and a Columbia history major who became a medical doctor, Bob Levine has watched the evolution of American politics over the past 40 years with increasing alarm. He knows he’s not alone. Partisan grid-lock, massive cash contributions and even more massive expenditures on lobbyists have undermined real democracy, and there is more than just a whiff of corruption emanating from Washington. If the nation is to overcome lockstep partisanship, restore growth to the economy and bring its debt under control, Levine argues that it will require a strong centrist third party to bring about the necessary reforms. Levine’s previous book, Shock Therapy For the American Health Care System took a realist approach to health care from a physician’s informed point of view; Resurrecting Democracy takes a similar pragmatic approach, putting aside ideology and taking a hard look at facts on the ground. In his latest book, Levine shines a light that cuts through the miasma of party propaganda and reactionary thinking, and reveals a new path for American politics. This post is cross posted from his blog.