Question

The following news story appeared on Yahoo! finance on July 24, 2012, after Apple Inc., the maker of iMac, iPod, iPad and iPhone products, released its results of operations for the third quarter of fiscal year 2012:
Apple sags in 3Q as iPhone gets cheaper By Peter Svensson, Associated Press – Tuesday, July 24, 2012, 6: 47 PM EDT NEW YORK (AP)— Consumers are buying cheaper Apple products. That’s a disappointment for investors who thought the company would keep boosting profits and revenues at its previous breakneck pace.
On Tuesday, Apple Inc. revealed that both revenue and net income posted increases of just over 20 percent— cause for celebration at most companies, but meager by Apple standards. The growth was the slowest in more than two years, and failed to meet analyst expectations.
. . .
Net income in Apple’s fiscal third quarter was $ 8.8 billion, or $ 9.32 per share. That was up 21 percent from $ 7.3 billion, or $ 7.79 per share, a year ago. Analysts polled by FactSet were expecting earnings of $ 10.37 per share. Revenue at the Cupertino, Calif., company was $ 35 billion, up 23 percent. Analysts were expecting $ 37.5 billion. Apple shares fell $ 29.82, or 5 percent, to $ 571.10 in after- hours trading, after the release of the results.
. . .
Source: http:// finance. yahoo. com/ news/ apple- http://finance.yahoo.com/news/apple- sags- 3q- iphone- gets- cheaper- http://finance.yahoo.com/news/apple-sags-3q-iphone-gets-cheaper- 212218120— finance. html. Accessed April 1, 2013. Used with permission of The Associated Press © 2013. All rights reserved.
Required:
The earnings of Apple Inc. increased from $ 7.79 per share for the third quarter of 2011 to $ 9.32 per share a year later, but its share price dropped by $ 30 after the announcement of the quarterly result. Explain why the price per share decreased even though the company announced an increase in its earnings per share.


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  • CreatedAugust 04, 2015
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