SURPRISE, SURPRISE…APPLE BEATS ESTIMATES…
No comment really needed here. Only a Wall Street analyst could be shocked by the fact that Apple beat estimates and guided lower. I don’t mean to downplay the enormous quarter by Apple (it’s an outrageously good quarter), but how in the world is anyone still fooled by this guidance game they play? I know, I know…this is every analyst’s pet rock, but when your estimate is a full 20% off the mark you have to seriously consider another line of employment. You can’t be this wrong every single quarter and claim to be “analyzing” anything. The value added here by the analyst community is worse than negative….Via Briefing.com:
4:40PM Apple beats by $1.03, beats on revs; guides Q3 EPS below consensus, revs below consensus (AAPL) 342.41 +4.55 : Reports Q2 (Mar) earnings of $6.40 per share, $1.03 better than the Thomson Reuters consensus of $5.37; revenues rose 82.7% year/year to $24.67 bln vs the $23.38 bln consensus. Co issues downside guidance for Q3, sees EPS of ~$5.03 vs. $5.25 Thomson Reuters consensus; sees Q3 revs of ~$23 bln vs. $23.83 bln Thomson Reuters consensus. Co reports Q2 gross margins of 41.4% vs Street est of 39.0% and 38.5% guidance. Co reports 3.76 mln Macs sold in Q2 vs Street est of ~3.6 mln, 18.65 mln iPhones sold vs Street est of ~16.5 mln, and 4.69 iPads sold vs Street est of ~4.2 mln. “With quarterly revenue growth of 83 percent and profit growth of 95 percent, we’re firing on all cylinders,” said Steve Jobs, Apple’s CEO. “We will continue to innovate on all fronts throughout the remainder of the year.”
do you have historical data on the initial estimates that they guided down FROM, and then what they came in at?
ie, for next Q they just guided down from $5.25 to $5.03. It won’t be surprising when they actually end up “beating” with a report of $5.25 – but I’d love that historical data.
I’ve been following this for years. I’d have to go back in time and track it all down, but 3 years ago the analysts used to just pin their estimates at whatever AAPL said. Then they started kind of catching on. And AAPL would pin their estimates at $XX and the analysts would creep it up a little bit. For instance, this quarter they gave guidance of 4.90. Apple has historically crushed that number by 15%+. They don’t just low ball it. They pin the number so low that it’s not even remotely useful. The analysts had $5.37 this quarter which is far better than they’ve been doing, but given the rumors on ipad sales this number was still woefully low. I had an estimate closer to $6 so AAPL still soundly beat my estimate. It was a huge quarter by any standards, but I don’t see how they miss it by so much. Still, they’re getting better, but the “analysis” is still far from anything that is worthy of pay.
Ridiculous Apple analysts; the gift that keeps on giving. You’re right about the quarter though, it really was incredible. They should do around 25B in FCF this year. With no dividend and no buyback plan it just piles up, 65B in cash and securities and counting. I’m really not sure what to make of it, but I’ve never seen anything like it before.
Yeah, it’s a mind blowing performance. The problem ahead for them (when, who knows?) is that they’ve become an unsustainable behemoth. Ipads and ipods are easily replaceable. Barriers to entry is very low here. But Apple has been on an epic run with a series of innovative products that the world has never seen. I’d still want to be a shareholder here (because the Ipad is simply crushing the competition), but when they run out of tricks the hard landing could hurt. Revenues will collapse as they have no cornerstone product (macs aren’t there yet in my opinion – still too much PC competition). And by cornerstone, I mean nothing that can come close to supporting the revenue base they’ve built….
Agreed, there aren’t enough recurring “core” cash generators to support the valuation. They’re dependent upon continual innovation is a market that is historically fickle. Plus, it’s not exactly like the tens of billions their competition is spending annually in R&D is being shoveled into an incinerator. Hell, at some point the law of big numbers in investing comes into play. How fast can you grow off a 100B annual revenue base? Obviously none of this takes away from the run they’ve been on. Truly historic.
All reasonable concerns, but it’s worth remembering too that Apple isn’t really a hardware company. Their real competitive advantages are in brand and a vertical monopoly on content for their devices. I wouldn’t even agree that they are particularly innovative- what they really do is perfect the style of existing technology and then integrate it into their content business.
I would say their biggest threat in the SWOTT sense isn’t other companies, but rather growing even bigger to the point that they are forced by anti-trust laws to give up more of that control. If I had to wager, I’d mark that as the news event that would finally kill their amazing run.
(macs aren’t there yet in my opinion – still too much PC competition)
When working at a remote oil site deep in the frontier of the Algerian Sahara I noticed that although all our technology was state-of-the-art (both PCs and Sun workstations with tons of very sophisticated modeling software) our IT staff carried around macBooks with which they could reprogram any and all computer equipment on base. Also noticed that all our consultants carried macBooks exclusively for the simple reasons – versatility & reliability.
I quickly followed suit and discovered that macs (all are Intel based) could do anything any PC could BUT far more reliably. They all run on a core program of UNIX – the oldest and most perfected digital language. They also run ALL windows based software – faster than PCs can.
Sure glad I opened my eyes to reality and bought Apple stock at the same time. For the uninitiated, macs will be a real treat and improve your performance in a huge way.
I wouldn’t bet on PCs too much longer – it is only momentum carrying their sales at this point.
We are not really going to have an argument about how Apple and the analysts play this game are we? This one is as clear as day. I agree though, unreal how much business this company does. Juggernaut.
Look, my beef here isn’t with AAPL. It’s with the conflict of interest that still exists between the research arm and the ibank. It’s clear that the research arm doesn’t actually analyze the company because it’s a hot seller for the ibank. So, they want to create a bullish outlook for their top product. It’s just more wall street shenanigans and it’s plain as day. Sorry, but you know I get overly worked up over this Wall St con job stuff….
It’s not just Apple where I see this though being 20% off is terrible at least for now they are doing well. I find there are an unbelievable number of companies with falling revenue, lower profits, abysmal sales but they ‘beat estimates!’ Sometimes those estimates were lowered only a couple of days earlier too.
I keep wondering who falls for this crap but if it’s mostly a bunch of computers recycling the same stocks back and forth I guess it doesn’t matter. So long as the headlines overall are bullish (since almost nobody seems to read past the first paragraph of an article anymore) and the overall ‘feel’ is bullish people will keep buying.
Won’t beat a dead horse on the sell-side / AAPL thing again here but when you discuss the lack of “value-add” you’re overlooking the fact that a TON of value-add accrues to the sell-side via management access and the buy-side via allowing AAPL to consistently “beat” expectations when analysts purposely low-ball estimates, which translates into ever higher prices. And, judging by your commentary and that you actually take the time to derive AAPL estimates, it sounds like you are in fact a shareholder (maybe a big position of your fund even?) which should make you the happiest chap in the land about this arrangement. I think the momentum and monolithic nature of AAPL you discuss is actually partly due to their ability to just tear the cover off the ball vs. expectations every time they report, not just amazing products.
On the business side, I always thought these guys were purely a hardware company and as such, their economic moat was narrow. Increasingly though, these guys are inching ever closer to that elusive tech end game – being the gateway and bridge between tech hardware and universal (i.e., across all mediums) content access. That’s a very, very alluring competitive advantage that nobody else in tech has every achieved…
I get you 100%, I actually hate the cult of Apple (ther’s my bias) but am amazed at how much stuff they sell. I was poking fun at the Wall Street games too, not anything against Apple.
I think Tim Cook will be apologizing in Q2 for suggesting that Japan will not influence AAPL’s earnings.
It’s an older resource because it refers to 2010, but to your point on how “professional” fare when analyzing Apple and the comparison, near the bottom of the page, to bloggers, some of whom had a fairly decent record.
http://aaplmodel.blogspot.com/2010/10/fiscal-4q-10-actual-results-vs.html
The top blogger from 2010 was fairly close in his estimates for this most recent quarter as well.
http://www.asymco.com/2011/04/18/revisiting-estimates-for-apple%E2%80%99s-second-quarter-earnings-ended-march/
Seems like much of the blog space is talking about the same thing. How come everyone else gets it except for the talking heads on that CNBC garbage station where everyone wets their pants when anything Apple is spoken of?
http://thefundamentalview.blogspot.com/2011/04/apple-beats-another-horrendously-low.html
Love your work Cullen. The more I learn about the markets the more I get disgusted with what is going on.
Funny, I noticed this back in the early 2000′s when I was trading Apple, I made a few bucks trading between the 17 and 22 dollar hash marks. I never imagined it would ever see these levels. I never liked their (Strong Arm) way of controlling the product line.
OH, On a side note, I got a letter about a Lawsuit on AAPL stock a while back, seems a class action is out there for holders around the cira 2006 year.
ya might wanna check it out.
Apple sucks! Android is a better product. Better Apps and easier for guy fingers to use. Will have to see what happens when the bulk of the AT&T contracts begin to expire.
If you take out Apple, you take out NASDAQ. Need to keep the market up? Keep Apple up!
I am not a great fan of Apple products either, mainly because of their price, but also because of document problems. Occasionally I email a word document created on a Mac to a normal PC, and later find out the PC can’t read the file for one or another reason. This is damn annoying when it happens, as it doesn’t happen to me when going from PC to PC. It might be a small issue, but it really puts me off Macs.
“…when your estimate is a full 20% off the mark you have to seriously consider another line of employment…” That’s actually quite good! 40%+ is more typical – see ‘Analyst Forecasting Errors and Their Implications for Security Analysis’ FAJ 1995 by Dreman and Berry.
Also why do you think entry barriers are so low?? Why would I switch to using an Andriod or Web OS device once I’ve downloaded a ton of iPad apps?
Apple will never miss and the market will never go down again. Buy Buy Buy!!!!!
Take whatever you have left in your home equity and leverage this market to the hilt.
“Stocks have reached what looks like a permanently high plateau (ooopps, I meant to say Put)”. Mr. Bernanke has learned well from Professor Fisher.
Analysts will lose clients if they are wildly bullish and the stock keeps missing their estimates. It is far easier to stay with the pack and let a company beat your estimates handily because then it is rationalized as “we all were way off” as opposed to being the one analyst to be way off. I don’t like it either and this is why I don’t use analyst recommendations, they are worthless to me as a trader other than that they create noise trading opportunities. Check out some of the analysts bios, even Meredith Whitney was nothing more than an English major if I am not mistaken. My point is, these people aren’t paid to invest, they are paid to write reports and get clients to trade off those reports. While there are a few good analysts out there, most are hacks. They missed the tech bubble, they missed the housing/credit bubble and they will miss the next one as well.
Agree that the competitions are just totally pathetic. Their products are not as good, or plainly worse, and yet more expensive. Their leaders and R&D are thinking one step at a time while already behind.