Apple shifting its guidance to stop being blamed for "missing" analyst expectations - Page 2

Originally Posted by jpellino 
"Let's say the industry earns $100 M. Apple could earn $110 M - if someone lost $10 M and everyone else broke even."

OK, but that's why Tallest Skil said "profits" and not "earnings".

I'm still a little confused about that, but wouldn't it be the same, just change the word to 'profits'? If all companies break even, making no profit, Apple makes 10 billion profit, and one company loses 1 million… 

Still, that's not over 100%; it's just 100%. That others lost doesn't add to someone's winnings, despite what politics would have you believe (perpetually topical! hi-yo!).

Found this to be and interesting read on the way Wall Street is treating Apple stock....

http://finance.yahoo.com/news/apple-slaying-tech-hero-190310561.html

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Originally Posted by Tallest Skil 

 

I'm still a little confused about that, but wouldn't it be the same, just change the word to 'profits'? If all companies break even, making no profit, Apple makes 10 billion profit, and one company loses 1 million… 

 

Still, that's not over 100%; it's just 100%. That others lost doesn't add to someone's winnings, despite what politics would have you believe (perpetually topical! hi-yo!).

The industries loss doesn't add to the companies gain, but it does mean the percentage of profits is greater.  Again if all other companies lose $1 Billion and Apple makes $10 Billion.  The industry as a whole has profits of $9 Billion.  Thus Apple has abuot 112% of industry profits. Simple but confusing math.

Stock analysis is one of the more ridiculous professions in the world today.  You can be wrong every time, but the company you research is at fault for not matching your predictions.  No other profession would celebrate their failures like stock analysts.

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Originally Posted by ndirishfan1975 

Found this to be and interesting read on the way Wall Street is treating Apple stock....

 

http://finance.yahoo.com/news/apple-slaying-tech-hero-190310561.html

Apple makes the best products bar none, and Samsung churns out copy-cat swill, but a lot of people don't know the difference. Everyone laps up Google's nonsense about innovation, and try to shoot down Apple's hubris. The fact is that Apple has hits, and Google has misses. For some reason the press would prefer to criticize Apple.

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Originally Posted by stelligent 

It's happening already. All will be well, when the other shoe (patent) drops.

Unfortunately, Apple's legal strategy has been an unmitigated disaster. I wish that weren't so. If their legal team was conducting "thermonuclear war", they needed a death star.

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Originally Posted by onelungedwonder 

I've been an Apple investor since 2006. I recently got out of the stock entirely, because of their guidance. Like the article says they've always guided conservatively and so low guidance wasn't a great reason to sell. They made it really clear during the conference call that their guidance was a range they'd be pretty sure they'd land within, and they wouldn't sandbag any longer.

Well they if you take the data points they guided for in the quarter ending in March and figure out the range of EPS that they can hit using those parameters, then they've guided very low.

Using their ranges, the upper bound is approximately $10.20 EPS, the lower bound is $8.30 EPS. Compare this with the year ago March quarter that had $12.30 EPS. Basically they guided at best 17% drop in profits, and at worst a 32.5% drop in profits Y/Y.

No one is going to be happy with that. If they're not growing profits, then a P/E in the range of 8-11 is probably pretty fair for a company of their size, and that's exactly the range they're in right now. So the market has done a pretty good job of pricing them accordingly.

I don't think the price drop has anything to do with the holiday quarter, that was a great quarter for them. It's this next one that's not going to be good, especially if they're serious about not low-balling estimates.

While I agree with almost everything you say, I think Apple's plan to adjust their device release schedules has totally destroyed any quarterly YoY comparison. I think a yearly YoY comparison makes more sense, but the damage is already done, and I think Apple deserves a lot of blame for their inability to deliver good numbers. Apple should not be production constrained on the iPhone 4, a 2 year old phone. Samsung doesn't seem to have the same production problems Apple does. They churned out something like 90M more phones last year than Apple. 

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Originally Posted by ifij775 

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Originally Posted by Rogifan 

When you get as big as Apple is how do you do that? Law of large numbers come into play.

You go after a bigger market. I have one word for you...no, not plastics...enterprise.

Much as a huge number of people, including myself, would love to see some serious competition in the enterprise segment, I suspect it is delusionary wishful thinking to think that Apple can crack that market. They simply don't have the products in software or the experience. It would be fantastic to see the microsoft stranglehold get broken, but I reckon the chances of that are indistinguishably close to zero. From the reports I have seen re messaging and iCloud, to name but two examples, the Apple offering is orders of magnitude away from what enterprises are demanding, and the established players (MS, HP, IBM) would not give up that space without serious fighting.

Apple is unfortunately a consumer-oriented company with a consumer-oriented mindset. Cool look and feel, premium priced devices and an obsession with high margins will all stand in their way. I do have some considerable experience with the mindset of corporate IT in multinational companies and it would astonish me to see any of them going apple any time soon. As far as I can tell, the ONLY inroad in this sector that Apple has made is with the iPAD, but that's by no means the only thing they need to drive MS out of its practicallly monopoly on enterprise.

There are always dumb posts, but #30 in this thread takes the cake (assuming the numbering is the same whether you blocked anyone or not).

I don't think the disparity is fair to Apple. However, I don't think Amazon's valuation is right. I think it's way over valued, and over the long term will have to come down. 

Amazon is a great company, but ultimately its a business that makes it's money by taking market share and lowering the margins of every business it enters. It's a long term low margin business. I don't think there's going to be some great day in the future for them, when after they've stolen market share from every brick and mortar store on the planet, that they're going to magically up their margins. I hope investors realize this after a couple of quarters of more disappointing earnings.

I don't short stocks, but if I did, I'd short Amazon.

Originally Posted by onelungedwonder 

I don't short stocks, but if I did, I'd short Amazon.

"Stay thrifty, my friends."

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Originally Posted by jragosta 


I agree. In fact, people are even saying that Apple is lying when they post their conservative guidance (see below, for example).
Frankly, you don't know what you're talking about. Offering conservative guidance is not a lie, nor is it misleading nor fictitiously low as you claim. Apple was clear what their numbers meant - they gave numbers that were numbers that they felt confident that they could meet. They were not expectations, nor were they meant to be Apple's maximum numbers. As stated, they were essentially the minimum numbers that Apple felt confident of.

Did Apple consistently beat their numbers? Yes. But for a long stretch, Apple was consistently beating the numbers by 10-15% but the analysts were throwing out projections that were 30-40% above guidance.

Not really true.  Apple posted its 'conservative numbers' which everyone knew weren't near reality.  Analysts would exceed those numbers by a wide marge- but still be outrageously low.  Apple would consistently exceed even those numbers and bask in the headlines.  Analysts were even getting accused of willingly 'playing along' with Apple by knowingly lowballing so they could make an inside fortune every time Apple posted results.

I don't normally rely on Fox, but Fox business is actually fairly decent.  When even an organization as Business friendly and coservative of Fox starts calling a companies estimates fictitious and warning investors- there just might be something to it.  Note also the date is well before the current Shenanigans and analysts are getting beat up for giving 'unreasonably low' expectations lol.

http://www.foxbusiness.com/technology/2011/07/18/why-no-one-should-believe-apples-earnings-guidance/

So analysts were getting heat for consistently low-balling Apple and being corrupt for taking profits knowing Apple would 'exceed.'  They were pretty much forced to up their estimates.  That drove Apples valuation through the roof.  If you came to this site and pointed that out, you'd get roasted for being an Apple hater.  With so many people loving Apple so much, they were more than happy to believe the hype and bought in.

Ultimately its not the analysts that drive stock price.  Investors buying and selling the stock drive the price.  People have to buy into it.

Thats why I said I like Apples new guidance policy.  They are giving a range instead of a point.  So their low point can now be their historically low 'coservative estimate' which everyone knows they will beat by a mile.  The key is they are now providing an optimistic high point.  Its a double edged thing and that's the real test for Apple.  If Apple ever exceeds its optimistic high point, its just back to its old shennanigans.  If it is a true estimate, Apple should always be below it.

That makes valuation for their stocks a very easy thing.

Using easy numbers and assuming 0%interest and no currency fluctuations for NPV simplicity....

Apples low guidance:

We will sell 50,000,000 devices at $500 per device this quarter at a margin of of 40%.

High guidance:

We will sell 70,000,000 devices at $500 per device at  a margin of 50%

That makes Apples valuation pretty straightforward:

Revenue expectations:

50,000,000 x500 = 25,000,000,000 on the low side

70,000,000 x500 = 35,000,000,000 on the high side

Profit expectations:

25,000,000,000 x .4 = 10,000,000,000 on the low side

35,000,000,000 x.5  = 17,500,000,000 on the high side

Prior correct valuation was at 400,000,000,000.

So at the end of this quarter Apple is expected to worth $410,000,000,000 to 417,500,000,000

Assuming apple had 1,000,000,000 shares outstanding....

Current stock price - $400,000,000,000/1,000,000,000 = $400

Price expectation at end of quarter = Between $410 to 417.5

It is nowhere near as sexy or exciting as posting lowball numbers and then being a 'miraculous' company that pulled a financial rabbit out of the hat and exceeded expectations yet again- but its an amazing thing for people that would prefer investing over gambling.  As long as they keep selling more devices at higher margins their stock will very coninuously continue to climb along with their performance.

If Apple does what some of the analysts predicted- which is to give their outrageously low low number, and then give a 'high' number that they know they will beat as well....   Well, invest at your own risk.

Apple, thanks for making the reporting change, please continue to surprise us with your great products, not your financials.

Originally Posted by Archipellago 
think about what you post before posting… 

Delicious irony.

Never post this again.

And yet 90% of people are. Huh. How about that. 

BA HA HA HA HA HA HA HA!

And yet you're still totally wrong.

Rules #4 & 5. No one cares at all.

Saying "I love Apple, but" or including a laundry list of supposedly owned Apple products neither impresses me, nor is necessary to support a well-reasoned argument.

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Originally Posted by Archipellago 

 

think about what you post before posting… History says that when iCon isn't at Apple then Apple fails. Even when on sick leave he was still really there as the guiding mind. He's gone now..for good. Recent successes can be attributed to products he had a major hand in, but that pipeline is now wearing out and it's up to TC,JI etc. to come up with new stuff…or do what iCon did and steal the best ideas. Market is saying that they won't/can't. I agree. Major flaws in all the main products plus much better competition is the reason. The VFM in Apple products, which was always on a knife edge has been busted by Nexus 4/7 and Kindle. You don't NEED to spend THAT much anymore. Tablet is moving to 7" form factor which squeezes Apple's margins. iPhone demand is weakening..especially in the latest model. The computers are priced ridiculously and the OS has been going backwards since Leopard. None of this is rocket science. To give context, my household contains 2 iPhones, an iPod touch and an iPad….none of which we will replace with iOS devices next time. we used to have a ATV, a mac and another iPhone but we are moving away from it because there are better products out there for less money.

Thanks for regurgitating all the bullshit on the internet in one concise post.  iPhone demand has never been higher, and Apple broke all their records, again.  Who gives a crap about the stock price.  Not Apple.  Why should they let a bunch of neurotic gamblers dictate their next move.  They're doing just fine.

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Originally Posted by herbapou 


Stock is going down on growth decelaration and margins. This is causing a shift in fund ownership from growth to value.

This will provide a chance to pick up the stock at undervalue levels even by value stock metrics. If apple can maintain small eps growth this will play out fine.

But apple is flirthing with yoy declines now, so there is still a risk even at the current price.

Thanks for locking in on the real issue.  So many people just look at the last quarter results and cant figure out why the stock dropped another 60 points.

Do you have an opinion on whether the projections, if they are accurate, will carry through for the 3rd and 4th quarters?  If they see similar growth and margins as the 2nd I think we're looking at about $40 eps for 2013.  Obviously new products and other events could impact that, but if you project a similar product cycle I think 40 is the number.  Hopefully it would level off there and start growing again, but further margin compression would, absent other variables, continue to drive that number down.   I think $400 is a fairly safe number, but given how the market tends to overshoot would not be surprised to see mid 300s before it moved back up.

As you indicated slowing revenue growth along with margin compression was a real bad combination.  Things could get real interesting if 2nd qtr results are just in line, and guidance deteriorates further.

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Originally Posted by onelungedwonder 

I've been an Apple investor since 2006. I recently got out of the stock entirely, because of their guidance. Like the article says they've always guided conservatively and so low guidance wasn't a great reason to sell. They made it really clear during the conference call that their guidance was a range they'd be pretty sure they'd land within, and they wouldn't sandbag any longer.

Well they if you take the data points they guided for in the quarter ending in March and figure out the range of EPS that they can hit using those parameters, then they've guided very low.

Using their ranges, the upper bound is approximately $10.20 EPS, the lower bound is $8.30 EPS. Compare this with the year ago March quarter that had $12.30 EPS. Basically they guided at best 17% drop in profits, and at worst a 32.5% drop in profits Y/Y.

No one is going to be happy with that. If they're not growing profits, then a P/E in the range of 8-11 is probably pretty fair for a company of their size, and that's exactly the range they're in right now. So the market has done a pretty good job of pricing them accordingly.

I don't think the price drop has anything to do with the holiday quarter, that was a great quarter for them. It's this next one that's not going to be good, especially if they're serious about not low-balling estimates.

Mind sharing how you come up with the bottom of that range?  I'm probably missing something, but I keep coming up with roughly $10.30-10.60 which is significantly higher.  I agree the main issue is the projection and what the 3rd and 4th quarters will look like if you extend the margins and growth to those quarters.

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Originally Posted by Suddenly Newton 

Saying "I love Apple, but" or including a laundry list of supposedly owned Apple products neither impresses me, nor is necessary to support a well-reasoned argument.

Unfortunately, in forums where people are often allowed to argue against opposing opinions by calling names (troll, astroturfer, etc), a lot of even oldtime Apple supporters feel the need to prophylactically include their support history.  It's really sad that they feel the need in the first place.

Like I've said, it's like the Joe McCarthy hearings in the 1950s, where his best offense was simply to call his opposition out as "Commies", and put the burden of proof that they weren't, on them.

You can always spot a poster without a decent argument point, because they responded with personal attacks instead.  Never fails.