I would agree, and also agree that any "analyst" worth their paycheck should be well aware of these sorts of things.
My point was that some of the supposedly "big name" analysts have in recent memory published articles about Apple in major financial rags that indicate they didn't take GAAP into account. so I would argue that the correlation between being a "big name analyst" at a big financial concern or newspaper, and knowing about GAAP, is not 100% by any means. Some of these guys are just giant dumbasses masquerading as "analysts."
I think that there are two issues here. One is the tendency to assume that analysts operate in a pragmatic, reasoned bubble. They don't. They operate in companies that have a macro view of markets and trends, that have a vested interest (and market bets) in that view being right, and a disdain for nuance, as nuance doesn't translate to short-term performance, and short-term performance is unfortunately what keeps an analysts job. Plus, when they make those bets they are remiss to change their view, as that is another way to lose your job. Right now the meme playing is "deep recession, non commodity priced products get creamed, no one company can possibly have a built a better mouse trap." This and bias against Apple for all of their side nuttiness (Jobs health, secrecy, manipulation of media) clouds the real story:
Apple is not just a good marketing story or the cult of one guy (Steve Jobs); they are a breakout successful business who, win, lose or draw, have to be respected for swinging for the fences. Simply put, who looks better against the template that Apple has put together; namely, differentiated products, diverse revenue lines, a deep product pipeline, stellar management team, huge profits, high operating margins, massive cash reserves and ungodly cashflow?
Two is that Apple is a complex story from a financial standpoint. They don't play the short term game. The have three core stools that each have a story to them (software, hardware, service revenue, revenue recognition, competition), and that story is different for each leg of the stool. For example, the market has no way to value App Store and 500M downloads, 20K apps created other than to say, "Android, MS and BB will need one of those." Given this fact, it's a lot easier and a lot more natural to focus on an atomic item (one month of sales, how competition might respond to this product or that - iphone, netbooks, etc.).
As a result, and this is the key point, Apple is priced not at a premium to its peers, but at a discount. In other words, relative to a generally sinking market, the company with the best and most diversified "boat" with the greatest supply reserves (cash) is priced less than leaky boats likely to sink.
That's the issue, something I blogged about in:
Apple is a Great American Company Worth Celebrating
The market is reacting to Apple's sales figures and bleak prospects in a continuing recession, Apple being the only "high price" company that prides itself for not giving its customers what they want, i.e. decent prices for the latest technology.
.....
Hopefully, Apple will use the current circumstances to refocus itself on its customers and offer competitive products at a competitive price.
Given Apple's results (compared to its competitors) I would say that Apple IS giving its customers what they want - good computers at a good price. No "refocus" on customers is needed. Given the recession/depression that we are experiencing, Apple is doing amazingly well.
Thank you -this clarifies it even more why it's over 2 years then. After 2 years will you be charged if you keep the same iPhone?
Based on this 2-year accounting model and the fact that the origunal and 3G iPhones have the same primary HW, save for 3G and GPS, the original iPhone will most likely either not get the update or will be charged for it like the Touch.
However, it may be possible for Apple to disperse firmware v3.0 just prior to the anniversary and then supply incremental bug and performance updates over the next year to the original iPhone without incurring a penalty. But this a "for profit" company, years of advanced updates on any cellphone is still rare and, well, this is Apple, so I doubt they will do that.
There is a silver lining. For those still holding an original iPhone the unlocking of the baseband is well known and, as previously stated, the HW is almost identical to the 3G so I'm sure you'll be able to install v3.0 on the original. It just will require a couple small hurdles to install.
PS: For once I have to disagree with Digitalclips. I don't think you were being antagonistic. In fact, your posts on this thread have seem fairminded.
After two full years of iPhone sales, the company's GAAP and non-GAAP numbers will begin to approach each other.
Two full years? Have I been using the wrong calendar all this time? I know the iPhone was "introduced" two years ago but was not actually being sold until June/July of '07 right?
Maybe they are referring to the June/July timeframe in '09?
It's time the SEC investigated the biassed reporting that goes on in the tech media with regards to Apple - at best it's inaccurate and misleading, at worst it's deliberately manipulative.
There are too many people who would feel very happy if Apple were to have a bad time, and they are massaging facts in order to fit with their opinion. In these jittery market conditions that's having a serious destabilising effect on APPL and I think it's easily open to abuse.
What biased reporting? Its sales are dropping. NPD numbers showed that Apple sold less products in January.
This site is hilliarous... over the recent months it has lambasted any analyst that called for more skepticism with Apple stock. It has said they are only serving their own interest. Yet it prominently proclaims this analyst correct for calling for people to buy more Apple stock. No he is serving his own interest in trying to raise the stock price before he sells his shares.
The FACTs are that we are in a recession heading to a depression. This is the worst economic times since the Great Depression. All sales are falling including Apple. Stock holders generally don't give a damn about current assets, they care about future profits and when all signs look to LESS sales then they rightly conclude there will be LESS profits and thus LESS value to the stocks. I think one should be skeptical at this moment.
The Problem is the components are not as cheep now as they were.. Due to all the $ vs Yen vs £ and other major problems the cost price of many of these products has gone up...
What exactly do they buy from Japan? It is only the Yen going up, not the other currencies.
After two full years of iPhone sales, the company's GAAP and non-GAAP numbers will begin to approach each other. Until then, Apple is sitting on a huge recession-insurance policy, which is paying out regular dividends that will blunt the retail pain the company is now suffering through. That will continue to keep Apple's results buoyed above the tanking sales of most other retailers and PC makers.
GAAP and non-GAAP will not approach each other until there has been two years of flat iPhone sales. The markets shift to 'smart phones' will prevent that from happening for at least 7-10 years. It will take that long for 'smart phone' share to achieve 70% of the worldwide handset market (saturation). Further enhancements of 'smart phone' technology, including the ability to make internet phone calls via wireless networks (which I believe will become a standard worldwide feature before 'smart phone' sales flatten), insure the segment's growth.
Within that segment the iPhone will be achieving significant growth, much as the iPod did. The prospect of two years of flat iPhone sales are very low for a long time to come.
I'm sorry folks but this is a reality, if you are in the market to make money Apple is way overpriced. There are much better opportunities out there to profit on. Further the recession hasn't hit the tech industry hard yet. They very well might get clobbered if people suddenly decide that it is safe to buy major purchases like automobiles again. The longer the major consumer items suffer, the greater the pent up demand that eventually will cause people to pour what money they have into new big ticket items.
Apple is really exposed here but on there other hand is likely to be seen as the safe buy in consummer electronics. That is actually funny if you consider how many years we had to listen to stories about Apple being ready to go under.
Sorry, but that sounds absurd to me. Do you have any historical data on times when people stopped buying little items and shifted to high ticket items when we were coming out of a recession?
And Apple is not overpriced, they are way underpriced based on cash flow and cash in the bank.
Deferred Revenue is not a new concept by any means. It may be unusual for Apple, but analysts are well aware of it. You cannot be a CFA / CPA / registered licensed analyst without being fully aware of the concept of deferred revenue, let alone be the analyst assigned to follow Apple and not be aware of it. It's simply not that big of a deal. Apple's cash flows are enormous since they get the cash upfront, but have to recognize the revenue over time. Analysts see this as well, and it likely mitigates any issues around the deferred revenue. It's all about cash, and Apple's got plenty of it. This revenue rule is actually a good thing, since it smooths out the income over each quarter, instead of huge bursts of revenue, such as from iPod sales in November and December.
I specifically pointed out that a well-known analyst covering Apple, Shaw Wu, is quoted as not understanding Apple's deferred revenues. It seems remarkable, but it's true. Here's the article I wrote with link to his quote:
If you don't go to the link, this is what Shaw Wu said, "AAPL?s accounting treatment of iPhone and Apple TV revenue where hardware revenue is amortized over 2 years or 8 quarters remains somewhat confusing and is unprecedented."
In the article I wrote, I point to where Carl Howe, of Blackfriars, agrees that analysts are not understanding Apple's deferred revenues.
And, if you look at the analysts predictions from last quarter, you would see that of the dozen or so analysts on record, only 2 or 3 had made specific mention of Apple's deferred revenues and how it impacted their financial models. Just look at how low those predictions were. These analysts were comparing this year's Xmas quarter to last year's, when this year's had at least $900M more in deferred revenues! How could their predictions be so low?!? It only seems to make sense if they were not fully understanding the impact of deferred revenues. I cannot see it any other way.
And, if you look at the analysts predictions from last quarter, you would see that of the dozen or so analysts on record, only 2 or 3 had made specific mention of Apple's deferred revenues and how it impacted their financial models. Just look at how low those predictions were. These analysts were comparing this year's Xmas quarter to last year's, when this year's had at least $900M more in deferred revenues! How could their predictions be so low?!? It only seems to make sense if they were not fully understanding the impact of deferred revenues. I cannot see it any other way.
I agree - and when they are proven wrong, they still don't get it. The RBC guy doubled down on his $70 price target and low-ball earnings predictions after he was made to look like a fool by Apple's high quarterly earnings.
I agree - and when they are proven wrong, they still don't get it. The RBC guy doubled down on his $70 price target and low-ball earnings predictions after he was made to look like a fool by Apple's high quarterly earnings.
And Munster is still doubling down on a $200 price target.
If the whole Wall Street doesn't understand Apple's numbers --- then it is Apple's fault.
And Munster is still doubling down on a $200 price target.
If the whole Wall Street doesn't understand Apple's numbers --- then it is Apple's fault.
I understand the numbers, so why can't Wall Street Stock Analysts? They are paid much more than I am - you would expect them to be the best and brightest, but nope.
And what is so unreasonable about a 12 month price target of $200? If we really do get out of the recession in the 3rd quarter, then AAPL stock will probably be at $200 next spring.
No matter what happens, they always advise the same thing: Buy!
WHAT A FARCE!
The Stock Market is a ponzi scheme. Nobody can give you back more money than you gave them, without taking it from somebody else. Stock brokers are just trying to get people to play, so they take the first percentage of all profits; everybody else gets paid last, if they get paid at all.
And, when you do get paid, it comes back to you as inflation anyway. There is no way to win inside of a ponzi scheme, except by not playing. Look at how much money and goods big corporations move, but they fall into debt anyway. One person's profit is always somebody else's expense.
Get out of the market and stay out. The best thing Apple can do is go private, and exit the ponzi scheme. The ponzi scheme brings down everybody eventually. (When will Obama tell the people the truth?)
If you love Apple, then give them your stocks. Don't suck the life-blood out of them like a leech.
Think Different, or don't think at all.
.... I have been saying the same thing since I can remember but everyone thought I was crazy for thinking this way, oh well thats life.
I understand the numbers, so why can't Wall Street Stock Analysts? They are paid much more than I am - you would expect them to be the best and brightest, but nope.
And what is so unreasonable about a 12 month price target of $200? If we really do get out of the recession in the 3rd quarter, then AAPL stock will probably be at $200 next spring.
No, we all understand the general concept of deferred revenue --- but you need more than that to actually understand Apple's finances.
Even Andy Zaky (who famously penned an article on blaming Apple for the whole wall street not understanding apple's deferred revenue) --- himself doesn't understand Apple's numbers. Andy Zaky had the worst estimates on iphone and mac shippment numbers, yet he had the best estimates revenue and EPS --- which basically means that he pulled the revenue and EPS numbers out of thin air.
Munster's estimates are based on numerous things that haven't happened yet --- like an iphone nano. I would rather have Wall Street analysts revise their estimates when Apple actually announces these products.
That is what we are saying, that the analysts don't understand *the general concept of deferred revenue*, or else they would not estimate so low.
They got their estimates so low because they don't know the specifics breakdowns of the deferred revenues --- the vast majority of the deferred revenues are coming from 1st gen iphones with complex revenue models (like head bounty and carrier revenue sharing). They missed the EPS numbers because they also got the margins wrong.
It is a lot better than Andy Zaky lecturing Wall Street on not knowing how to read deferred revenue numbers --- and then he himself was was shown to be the emperor with no clothes on. He missed the most on iphone and mac sales number among all the analysts --- yet he was the closest on the actual revenue and EPS.
Comments
What if someone breaks the contract or changes their phone ... before 2 years? I wonder if they pick up all the remaining revenue then at that point?
Yes, I believe they do, because the revenue is in the bank from Day 1. The two-year spread is merely a legal requirement for reporting the revenue.
I would agree, and also agree that any "analyst" worth their paycheck should be well aware of these sorts of things.
My point was that some of the supposedly "big name" analysts have in recent memory published articles about Apple in major financial rags that indicate they didn't take GAAP into account. so I would argue that the correlation between being a "big name analyst" at a big financial concern or newspaper, and knowing about GAAP, is not 100% by any means. Some of these guys are just giant dumbasses masquerading as "analysts."
I think that there are two issues here. One is the tendency to assume that analysts operate in a pragmatic, reasoned bubble. They don't. They operate in companies that have a macro view of markets and trends, that have a vested interest (and market bets) in that view being right, and a disdain for nuance, as nuance doesn't translate to short-term performance, and short-term performance is unfortunately what keeps an analysts job. Plus, when they make those bets they are remiss to change their view, as that is another way to lose your job. Right now the meme playing is "deep recession, non commodity priced products get creamed, no one company can possibly have a built a better mouse trap." This and bias against Apple for all of their side nuttiness (Jobs health, secrecy, manipulation of media) clouds the real story: Two is that Apple is a complex story from a financial standpoint. They don't play the short term game. The have three core stools that each have a story to them (software, hardware, service revenue, revenue recognition, competition), and that story is different for each leg of the stool. For example, the market has no way to value App Store and 500M downloads, 20K apps created other than to say, "Android, MS and BB will need one of those." Given this fact, it's a lot easier and a lot more natural to focus on an atomic item (one month of sales, how competition might respond to this product or that - iphone, netbooks, etc.).
As a result, and this is the key point, Apple is priced not at a premium to its peers, but at a discount. In other words, relative to a generally sinking market, the company with the best and most diversified "boat" with the greatest supply reserves (cash) is priced less than leaky boats likely to sink.
That's the issue, something I blogged about in:
Apple is a Great American Company Worth Celebrating
http://thenetworkgarden.com/weblog/2...lebrating.html
At the end of the article is link to analysis of last earnings call, too. Check it out if interested.
Mark
The market is reacting to Apple's sales figures and bleak prospects in a continuing recession, Apple being the only "high price" company that prides itself for not giving its customers what they want, i.e. decent prices for the latest technology.
.....
Hopefully, Apple will use the current circumstances to refocus itself on its customers and offer competitive products at a competitive price.
Given Apple's results (compared to its competitors) I would say that Apple IS giving its customers what they want - good computers at a good price. No "refocus" on customers is needed. Given the recession/depression that we are experiencing, Apple is doing amazingly well.
Thank you -this clarifies it even more why it's over 2 years then. After 2 years will you be charged if you keep the same iPhone?
Based on this 2-year accounting model and the fact that the origunal and 3G iPhones have the same primary HW, save for 3G and GPS, the original iPhone will most likely either not get the update or will be charged for it like the Touch.
However, it may be possible for Apple to disperse firmware v3.0 just prior to the anniversary and then supply incremental bug and performance updates over the next year to the original iPhone without incurring a penalty. But this a "for profit" company, years of advanced updates on any cellphone is still rare and, well, this is Apple, so I doubt they will do that.
There is a silver lining. For those still holding an original iPhone the unlocking of the baseband is well known and, as previously stated, the HW is almost identical to the 3G so I'm sure you'll be able to install v3.0 on the original. It just will require a couple small hurdles to install.
PS: For once I have to disagree with Digitalclips. I don't think you were being antagonistic. In fact, your posts on this thread have seem fairminded.
After two full years of iPhone sales, the company's GAAP and non-GAAP numbers will begin to approach each other.
Two full years? Have I been using the wrong calendar all this time? I know the iPhone was "introduced" two years ago but was not actually being sold until June/July of '07 right?
Maybe they are referring to the June/July timeframe in '09?
It's time the SEC investigated the biassed reporting that goes on in the tech media with regards to Apple - at best it's inaccurate and misleading, at worst it's deliberately manipulative.
There are too many people who would feel very happy if Apple were to have a bad time, and they are massaging facts in order to fit with their opinion. In these jittery market conditions that's having a serious destabilising effect on APPL and I think it's easily open to abuse.
What biased reporting? Its sales are dropping. NPD numbers showed that Apple sold less products in January.
This site is hilliarous... over the recent months it has lambasted any analyst that called for more skepticism with Apple stock. It has said they are only serving their own interest. Yet it prominently proclaims this analyst correct for calling for people to buy more Apple stock. No he is serving his own interest in trying to raise the stock price before he sells his shares.
The FACTs are that we are in a recession heading to a depression. This is the worst economic times since the Great Depression. All sales are falling including Apple. Stock holders generally don't give a damn about current assets, they care about future profits and when all signs look to LESS sales then they rightly conclude there will be LESS profits and thus LESS value to the stocks. I think one should be skeptical at this moment.
The Problem is the components are not as cheep now as they were.. Due to all the $ vs Yen vs £ and other major problems the cost price of many of these products has gone up...
What exactly do they buy from Japan? It is only the Yen going up, not the other currencies.
After two full years of iPhone sales, the company's GAAP and non-GAAP numbers will begin to approach each other. Until then, Apple is sitting on a huge recession-insurance policy, which is paying out regular dividends that will blunt the retail pain the company is now suffering through. That will continue to keep Apple's results buoyed above the tanking sales of most other retailers and PC makers.
[ View this article at AppleInsider.com ]
GAAP and non-GAAP will not approach each other until there has been two years of flat iPhone sales. The markets shift to 'smart phones' will prevent that from happening for at least 7-10 years. It will take that long for 'smart phone' share to achieve 70% of the worldwide handset market (saturation). Further enhancements of 'smart phone' technology, including the ability to make internet phone calls via wireless networks (which I believe will become a standard worldwide feature before 'smart phone' sales flatten), insure the segment's growth.
Within that segment the iPhone will be achieving significant growth, much as the iPod did. The prospect of two years of flat iPhone sales are very low for a long time to come.
Apple is really exposed here but on there other hand is likely to be seen as the safe buy in consummer electronics. That is actually funny if you consider how many years we had to listen to stories about Apple being ready to go under.
Dave
And Apple is not overpriced, they are way underpriced based on cash flow and cash in the bank.
Deferred Revenue is not a new concept by any means. It may be unusual for Apple, but analysts are well aware of it. You cannot be a CFA / CPA / registered licensed analyst without being fully aware of the concept of deferred revenue, let alone be the analyst assigned to follow Apple and not be aware of it. It's simply not that big of a deal. Apple's cash flows are enormous since they get the cash upfront, but have to recognize the revenue over time. Analysts see this as well, and it likely mitigates any issues around the deferred revenue. It's all about cash, and Apple's got plenty of it. This revenue rule is actually a good thing, since it smooths out the income over each quarter, instead of huge bursts of revenue, such as from iPod sales in November and December.
I specifically pointed out that a well-known analyst covering Apple, Shaw Wu, is quoted as not understanding Apple's deferred revenues. It seems remarkable, but it's true. Here's the article I wrote with link to his quote:
http://macdailynews.com/index.php/we...17105/opinion/
If you don't go to the link, this is what Shaw Wu said, "AAPL?s accounting treatment of iPhone and Apple TV revenue where hardware revenue is amortized over 2 years or 8 quarters remains somewhat confusing and is unprecedented."
In the article I wrote, I point to where Carl Howe, of Blackfriars, agrees that analysts are not understanding Apple's deferred revenues.
And, if you look at the analysts predictions from last quarter, you would see that of the dozen or so analysts on record, only 2 or 3 had made specific mention of Apple's deferred revenues and how it impacted their financial models. Just look at how low those predictions were. These analysts were comparing this year's Xmas quarter to last year's, when this year's had at least $900M more in deferred revenues! How could their predictions be so low?!? It only seems to make sense if they were not fully understanding the impact of deferred revenues. I cannot see it any other way.
And, if you look at the analysts predictions from last quarter, you would see that of the dozen or so analysts on record, only 2 or 3 had made specific mention of Apple's deferred revenues and how it impacted their financial models. Just look at how low those predictions were. These analysts were comparing this year's Xmas quarter to last year's, when this year's had at least $900M more in deferred revenues! How could their predictions be so low?!? It only seems to make sense if they were not fully understanding the impact of deferred revenues. I cannot see it any other way.
I agree - and when they are proven wrong, they still don't get it. The RBC guy doubled down on his $70 price target and low-ball earnings predictions after he was made to look like a fool by Apple's high quarterly earnings.
As soon as they release new products, and SL, up she goes!
I agree - and when they are proven wrong, they still don't get it. The RBC guy doubled down on his $70 price target and low-ball earnings predictions after he was made to look like a fool by Apple's high quarterly earnings.
And Munster is still doubling down on a $200 price target.
If the whole Wall Street doesn't understand Apple's numbers --- then it is Apple's fault.
And Munster is still doubling down on a $200 price target.
If the whole Wall Street doesn't understand Apple's numbers --- then it is Apple's fault.
I understand the numbers, so why can't Wall Street Stock Analysts? They are paid much more than I am - you would expect them to be the best and brightest, but nope.
And what is so unreasonable about a 12 month price target of $200? If we really do get out of the recession in the 3rd quarter, then AAPL stock will probably be at $200 next spring.
No matter what happens, they always advise the same thing: Buy!
WHAT A FARCE!
The Stock Market is a ponzi scheme. Nobody can give you back more money than you gave them, without taking it from somebody else. Stock brokers are just trying to get people to play, so they take the first percentage of all profits; everybody else gets paid last, if they get paid at all.
And, when you do get paid, it comes back to you as inflation anyway. There is no way to win inside of a ponzi scheme, except by not playing. Look at how much money and goods big corporations move, but they fall into debt anyway. One person's profit is always somebody else's expense.
Get out of the market and stay out. The best thing Apple can do is go private, and exit the ponzi scheme. The ponzi scheme brings down everybody eventually. (When will Obama tell the people the truth?)
If you love Apple, then give them your stocks. Don't suck the life-blood out of them like a leech.
Think Different, or don't think at all.
.... I have been saying the same thing since I can remember but everyone thought I was crazy for thinking this way, oh well thats life.
I understand the numbers, so why can't Wall Street Stock Analysts? They are paid much more than I am - you would expect them to be the best and brightest, but nope.
And what is so unreasonable about a 12 month price target of $200? If we really do get out of the recession in the 3rd quarter, then AAPL stock will probably be at $200 next spring.
No, we all understand the general concept of deferred revenue --- but you need more than that to actually understand Apple's finances.
Even Andy Zaky (who famously penned an article on blaming Apple for the whole wall street not understanding apple's deferred revenue) --- himself doesn't understand Apple's numbers. Andy Zaky had the worst estimates on iphone and mac shippment numbers, yet he had the best estimates revenue and EPS --- which basically means that he pulled the revenue and EPS numbers out of thin air.
Munster's estimates are based on numerous things that haven't happened yet --- like an iphone nano. I would rather have Wall Street analysts revise their estimates when Apple actually announces these products.
No, we all understand the general concept of deferred revenue --- but you need more than that to actually understand Apple's finances.
That is what we are saying, that the analysts don't understand *the general concept of deferred revenue*, or else they would not estimate so low.
That is what we are saying, that the analysts don't understand *the general concept of deferred revenue*, or else they would not estimate so low.
They got their estimates so low because they don't know the specifics breakdowns of the deferred revenues --- the vast majority of the deferred revenues are coming from 1st gen iphones with complex revenue models (like head bounty and carrier revenue sharing). They missed the EPS numbers because they also got the margins wrong.
It is a lot better than Andy Zaky lecturing Wall Street on not knowing how to read deferred revenue numbers --- and then he himself was was shown to be the emperor with no clothes on. He missed the most on iphone and mac sales number among all the analysts --- yet he was the closest on the actual revenue and EPS.