Apple stock fell almost $3 on news of a report that Apple’s iTunes Store sales of music are “plummeting,” falling 65% over the past year. This report is stupid for several reasons.

First, the study did not measure overall sales; it measures only sales of “2,791 U.S. iTunes debit and credit card purchases between April 2004 and June 2006.” (This is not noted in most media articles.) Not all sales, not all types of sales, and not sales worldwide. In other words, a tiny and probably non-representative chunk of Apple music sales.

Second, the drop is measured by taking the peak sales number to compare by, and does not give a sense of the overall trends. Furthermore, the peak took place in January, after many people were given gift cards, and the “present” lull was actually last June, not necessarily a high sales month. Measure the sales in January 2007 and then you might have something.

Third, Apple does not profit much directly from iTS sales; it makes little difference to Apple whether people buy from the iTS or rip the music from purchased CDs, or even load pirated music onto their iPods–the key numbers for Apple are the sales of the iPods, which are booming.

The report as quoted in the media is alarmist, distorting, and out of context–and caused Apple’s stock to drop 3%. Like I said, stupid.

Update: I wrote this last night, but only uploaded it this morning (at my folks’ house, for some reason a blog entry won’t post if I do it from a WiFi connection, so I have to plug in an Ethernet cable to alter the blog). Since then, a new report from PiperJaffray blows the Forrester “study” to bits, noting Apple iTS sales growing steadily based upon sales milestones which Apple reports. The new report says that iTS sales have increased 78% between September 2005 and September 2007. Here’s another report from ZDNet also debunking the report.

Update 2: Now the writer of the report is backtracking, saying that he did not mean that Apple sales were “plummeting,” but that the media blew it all out of proportion. The writer says, “Now for the record, iTunes sales are not collapsing. Our credit card transaction data shows a real drop between the January post-holiday peak and the rest of the year, but with the number of transactions we counted it’s simply not possible to draw this conclusion… as we pointed out in the report.” He further clarifies by making most of the points I made: the data is partial, it measure a peak vs. the rest of the year, and Apple makes money from the iPods, not the music store.

Told ya!

Nevertheless, it took this joker a day to clarify himself while Apple’s stock tumbled 3%. Possibly because he recanted, and partially because it was clear to anyone who thought about it for a minute that the report was not worth paying attention to, Apple’s stock has since risen back to 30 cents above where it was when it fell yesterday.

Update 3: While more and more reports question the original story, and even the report’s author is debunking the media’s spin on it, some in the media–major news outlets, in fact–a few days later, are still running with the original and now completely discredited slant. Amazing.