A Cascading Stock
Though determining corporate profit projections for each fiscal quarter is difficult for stock analysts of public companies, their work never seems to satisfy. In its third quarter results, Apple Inc. reported a 54% increase in profit – an economically astronomical figure – though its shares decreased by 7% in value after the results were reported. Apple is not alone certainly, it seems that for every publicly-listed company Wall Street analysts are continually disappointed, however the popular consumer products maker illustrates an important effect of possible information cascade in a twofold manner. Amongst consumers and professionals, Apple both benefits and suffers from information cascade, respectively, in an extreme manner.
Concerning the consumer, Apple’s ever-popular i-devices depend upon the notion that what is declared magnificent by a small number of company executives (who will speak only platitudes such as “magical”) is immediately imparted to a small, though substantially larger, press corps. On blogs, newspapers, and other media outlets Apple’s well-tuned advertising and press machine again convinces even these supposed ‘experts’ that minor changes in products demand their purchasing. (Case in point: the new iPhone 4S is not significantly changed from its predecessor (the simple iPhone 4), though technology reviewers and columnists have whole-heartedly recommended buying Apple’s latest at a cost of several hundred dollars to acquire a handful of new features.) Astoundingly, this creates an enormous information cascade, wherein Apple is capable of selling four million of its newest, not-market-tested, iPhone within its first day. Though beneficial, this cascades into stock analysts that can be even less rational.
The decrease in Apple stock price following stellar third quarter results revolves around analysts predicting an even higher volume of sales for the company’s i-devices. Whereas all product sales increased, their increase did not match expectations. With continual success, Apple has stoked an unrelenting fire beneath the fingers of Wall Streeters – one JP Morgan analyst predicted 20.6 million sold iPhones though only 17.07 were actually purchased. But only Wall Street was so deluded – Apple’s own projections were met, and exceeded: the company forecast $25 billion in quarterly revenue and it earned $28.27 billion.
For Apple, the saga of informational cascade is an ongoing one, though its positives and negatives can sometimes be difficult to disentangle, if it is at all possible.
http://www.nytimes.com/2011/10/19/technology/apple-disappoints-analysts-despite-54-rise-in-profit.html?pagewanted=all