Expectations. They sometimes do more to create the impression of success than success itself.
Nowhere is this truer than in the stock market, where shares rise and fall not so much on the prospects of the company itself, but on whether the company is doing better or worse than analysts think it should be doing.
Apple is the latest stock-market victim of expectations. It turned in a strong performance in its earnings report for the quarter ending in December, notching a profit of $13.1 billion. That's more than most big companies earn in a year. But sales came in a bit lower than Wall Street analysts had estimated, which suggests the fervor for Apple products may be cooling. The stock fell a whopping 11 percent as a result.
Contrast that with Netflix, which flipped from darling to dog in 2011, when a misguided plan to split itself into two separate business sent customers fleeing. The stock reeled, with a nauseating 82 percent drop from its peak of $299 to a low of $54.
But Netflix just announced a surprise $8 million profit in its latest quarter, when analysts had been expecting a loss. It turns out Netflix garnered more new customers for its streaming-video service than anticipated, as more people used tablets to watch movies. Netflix stock soared by an eye-popping 38 percent as a result.
All companies have ups and downs, but what's fun about following technology stocks is the speed at which trends change and various companies slip in and out of favor. That volatility reflects our own mercurial tastes as consumers.
Apple remains a dominant technology trendsetter, with its iPhones and iPads becoming ubiquitous. The problem, however, is that it no longer has the huge edge it enjoyed when its breakthrough products were the first of their kind on the market. Samsung and other manufacturers now produce smartphones and tablets comparable to Apple's. Plus, as the market for such gizmos matures, sales growth tapers off for everybody.
Apple once seemed immune to those forces, but not any more. S&P Capital IQ, for instance, expects Apple's revenue to rise by 21 percent in 2013, which would be enviable growth for nearly any company. But that would be less than half of Apple's growth rate in 2012, which helps explain why the stock has sunk 35 percent from a high of $702 in September. Apple may be morphing from a stratospheric high-flier to just another successful company.
Netflix is in a more precarious position, since it's a lot smaller and less dominant than Apple, and vulnerable to competitors both bigger and smaller. It now competes with Amazon for streaming-video customers, while Redbox offers a different business model with its DVD kiosks. But Netflix is growing nicely in overseas markets, a big source of growth, and it's making progress in its efforts to be an original programmer, like HBO, rather than just a video provider.
What Netflix and Apple have in common is that they're both a real-time barometer of consumer tastes and behavior. What they're telling us is that people love to watch videos on hand-held devices they can carry around the house or take someplace else--but it doesn't have to be on an iPad or iPhone.
Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.