Two Major Companies Face Investor Concerns After Earnings Updates
Shares Drop Before Trading Begins
Shares of an iPhone maker and a data software company moved lower in early trading after both companies released their latest financial results.
The iPhone maker posted stronger-than-expected total revenue for its fourth quarter. However, iPad sales came in below forecasts, and its outlook for profit margins disappointed investors.
The data software company delivered better-than-expected results for its third quarter. Its revenue nearly doubled from the same period a year earlier and passed $2 billion for the first time.
Even with those strong results, the company’s shares fell because investors noticed slower growth in new business deals from U.S. commercial customers.
- The iPhone maker’s shares were down about 3.8% in early trading.
- The data software company’s shares fell about 7.8%.
Higher Costs Put Pressure on the iPhone Maker
The iPhone maker’s latest earnings statement was the first under its new chief executive. The company said it had completed its strongest fiscal year ever, despite several challenges affecting its business.
One major problem is a global shortage of memory chips and other computer parts. Memory costs rose during the quarter compared with the previous period. Higher prices for these parts could make it more expensive to build phones, tablets, and computers.
The company is also dealing with limits on the supply of some components. Demand for certain products has been stronger than expected, creating pressure on the company’s ability to make and ship enough devices.
Foreign currency changes added another challenge. When exchange rates move against a company, money earned in other countries can be worth less after it is converted back into U.S. dollars.
The company’s chief executive said its growth continued despite supply limits and currency problems. Still, investors focused more closely on the effect these challenges could have on future profits.
Profitability Is the Main Concern
The biggest issue for investors is not demand alone. It is whether the company can continue earning high profits while its costs rise.
Memory prices are putting direct pressure on profit margins. The company is also spending money to bring new artificial intelligence features to customers. Those investments could add to costs before they begin producing meaningful revenue.
Memory shortages may also limit the supply of Mac computers and iPads. Demand for those products has grown faster than the company expected, but production may not be able to keep pace.
The company’s shares had already gained about 25% during the year before the earnings release. That strong performance raised investor expectations and left less room for disappointing news.
Strong Growth Fails to Calm Software Investors
The data software company posted several impressive numbers. Revenue almost doubled from a year earlier, and total revenue moved above $2 billion for the first time.
Its U.S. commercial business also became larger than its government business. That shift showed stronger demand from private companies and marked an important change in the company’s customer mix.
However, investors were concerned about the pace of new contract bookings from U.S. commercial customers. Growth in this area slowed to 11%.
Contract value bookings measure the amount of business a company is adding through new and expanded agreements. A slowdown does not always mean demand is weakening, but it can make investors question whether recent growth rates will continue.
What Investors Will Watch Next
Future earnings reports will likely receive close attention. Investors will want to see whether the slower commercial booking growth was caused by the timing of contracts or whether it signals a deeper change in demand.
The company has argued that demand for its software remains greater than the available supply. If that continues, the booking slowdown could be temporary rather than a lasting problem.
For the iPhone maker, investors will focus on whether higher memory costs and artificial intelligence spending continue to reduce margins. They will also watch product supply, especially for computers and tablets.
Both companies delivered important signs of strength. One produced better total revenue than expected, while the other reached a major revenue milestone. But rising costs, supply limits, and slower growth in one key business area pushed investors to sell their shares.