Technology

Apple Short Interest Keeps Shrinking, but for How Long?

Trey Thoelcke

Published: July 27, 2016 6:35 am

Last Updated: January 13, 2020 5:15 am

Since reaching a peak of almost 100 million shares short back in May, the short interest in Apple Inc. (NASDAQ: AAPL) has plunged to less than half of that. After a 14% drop in the previous period, the number of shares short shrank another 18% to 44.2 million the two weeks that ended July 15.

Maybe some Apple shareholders believed that its business will pick up in China or that the rumors about strong new features of the iPhone 7 are true. Perhaps they anticipated that its earnings would be beat the low expectations.

The technology giant just posted fiscal third-quarter diluted earnings per share (EPS) of $1.42 on revenues of $42.4 billion. That was better than the Thomson Reuters consensus estimates for EPS of $1.38 and $42.1 billion in revenues. However, in the same period a year ago, the company reported EPS of $1.85 on revenues of $49.6 billion.

Apple said it sold 40.4 million iPhones in the quarter, far short of the 50 million target needed to impress investors and analysts. And it said also that revenues from Greater China were down 33% year over year in the quarter, while U.S. revenues fell 11%.

Apple’s shares closed most recently just below $97, still in the same neck of the woods as three months ago. That remains depressingly lower than the 52-week high of $133. Concern over Apple’s ability to leapfrog other smartphone technology with the iPhone 7 has driven anxiety. So has the trouble selling the current generation of iPhones in China.

Jumping over the low earnings bar may give shares a bit of a boost, as they were up more than 6% in the premarket on Wednesday, but how long will that last?

Apple is up against two trends. One is industrywide and the other from competition. Most global tech research firms show the growth of smartphone sales slowing. And Samsung’s new Galaxy S7, a direct competitor to Apple’s iPhone 6 franchise, has done well.

CEO Tim Cook has been attacked for not pushing Apple forward with more revolutionary innovation. Perhaps that is because these it has become impossible.