Apple and Netflix: Two MAJOR Disappointments, One STRONG Company

This earnings season has dealt some serious blows to Mr. Market. Several companies that have been riding high on momentum in recent weeks have been hit hard, as financial results are not comforting investors. Apple (NASDAQ:AAPL) and Netflix (NASDAQ:NFLX) were the two latest names to disappoint on analyst expectations, but still manage to generate double digit quarterly revenue growth.

Apple (NASDAQ:AAPL), the world’s most valuable brand, reported its earnings for the latest quarter Tuesday night. Net income came in at $8.8 billion ($9.32 per share), compared to $7.31 billion ($7.79 per share) a year earlier. Revenue also increased more than 20 percent to $35 billion in the same time period. While the results appear to be impressive from the year earlier quarter, they fell short of of the mean analyst estimate of $10.38 per share on revenue of $37.23 billion. It was only the second time in 39 quarters the company reported weaker-than-expected earnings and revenue figures.

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In the fiscal third quarter, Apple (NASDAQ:AAPL) sold 17.04 million iPad units, compared to about 12 million in the previous quarter, and higher than the projected 15.4 million units. It was the first full quarter for Apple’s new iPad with Retina display. Peter Oppenheimer, chief financial officer, explained how more users are adopting tablet PCs. “One great example of iPad adoption in education is the Mansfield, Texas Independent School District, which has purchased 11,000 iPads. This fall every Mansfield High School student and teacher will receive an iPad under the districts power of initiative. Some teachers will use a flipped classroom concept, putting their lessons and resources online where students can access them any time with their iPads,” Oppenheimer said on the conference call with analysts.

Although iPad sales were impressive, iPhone units came in below expectations. Apple (NASDAQ:AAPL) sold 26 million units in the June quarter, compared to 35 million in the March quarter. The average prediction of 19 analysts polled by Bloomberg was 28.4 million units. However, the miss may be taken lightly by some, considering Apple is expected to release a new iPhone in the fall, and consumers are simply waiting for the new model. Oppenheimer noted, “Our weekly iPhone sales continue to be impacted by rumors and speculation regarding new products.”

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Shares of Apple (NASDAQ:AAPL) met Sir Issac Newton and fell more than 5 percent on the earnings disappointment. But, the move failed in comparison to the 16 percent plunge in Netflix (NASDAQ:NFLX) shares. The media company reported a 91 percent decline in net income to $6.2 million (11 cents per share), compared to $68.2 million ($1.26 per share) a year earlier. While the results managed to beat the mean analyst estimate of 4 cents per share, the company expects domestic subscribers to be “about equal” next quarter to what they were two years ago. Netflix also blamed the Olympics ahead of time by saying they will have a “negative impact on Netflix viewing and sign-ups.” Shares of video competitor Coinstar (NASDAQ:CSTR) also declined on the news.

While Netflix (NASDAQ:NFLX) has long-term fundamental problems and is black and blue from higher content costs and weak subscriber numbers, Apple (NASDAQ:AAPL) appears to be taking a breather in between rounds. Unfortunately, that breather may last until the next iPhone is released. Some investors may be worried that Apple’s impressive growth is slowing, but the company is still a far cry from other struggling tech names. Last week, Microsoft (NASDAQ:MSFT) reported only a 4 percent increase in revenue and its first quarterly loss since going public. Meanwhile, Hewlett-Packard’s (NYSE:HPQ) most recent revenue figure represented a 3 percent decline from a year earlier.

“We have become spoiled by Apple and what they have done in the past,” said Daniel Morgan, senior portfolio manager at Synovus Trust, according to Bloomberg. “It’s just inevitable that you’re going to have some numbers that disappoint people. Come down the road you’re going to have a big upgrade cycle with the next iPhone.”

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