I won't rant about analysts and their relative merits (or lack thereof). One thing to consider with their GAAP reporting of iphone/mactv sales is that it will generally have a leveling effect, both hiding the peaks but also concealing the troughs. Overall this may be a good thing for Apple as this last quarters bang up iphone sales will now go towards helping the numbers for the next 7 quarters. What that means is that one will have to do more math (and track more values) to get the actual iphone numbers if Apple ever chooses to not disclose then non-GAAP (though obviously such a move would be viewed as a big red flag).
The market decides what the market value is for a stock, no matter how seemingly ill found that decision is. One can do this analysis to get a feel for what the general trend will be going forward, but to try to rationalize now and get upset is pretty useless. If you think the market and the analysts are a bunch of idiots for undervaluing the stock, go long young man.
Yeah... it's predicting the future, not art. I don't see how anyone could disagree on the future.
DUH!
I'm not entirely sure what it is your attempting to say, but I'm guessing your in disagreement with what I said.
To clarify..
I thought mcarling was making the argument that the possibility of analysts undervaluing AAPL was "absurd".
My point was that at some time in the future there will be one correct answer to what has been prophesied by many, some will be closer than others, and many will have significantly undervalued AAPL.
Prediction IS an art form, however the actual outcome of those predictions is hard fact.
I was surprised by how shockingly little many of the analysts understood about the technologies. I think the reason is that, historically, it was never a needed part of the job until about the 1980s. Corporate culture changes very slowly -- if ever. Also, it is more difficult to test or certify and the analysts' bosses don't understand the technology either.
Interesting, that explains a few things.
It's simply not possible to make predictions without technological know how, so what use are these muppets?
Of course. Which makes me wonder why so many people here fail to ignore them. Instead the bitch and moan, as if the analysts have any control over what happens to the stock. It's a straw man. The immature investor blames analysts, the mature investor understands that the market moves independent of analysts except in the very short term.
I do not believe many people on this forum fail to ignore them, I believe we are mainly bitching that other people fail to ignore them.
Whats you definition of short? In my experience I have seen analyst twaddle talk have affect on the market for a good 6 months.
Unfortunately people DO listen to them, and they do have an affect on the market in the short to medium term.
I'm permanent long BTW, I just buy more when it dips.
I was surprised by how shockingly little many of the analysts understood about the technologies. I think the reason is that, historically, it was never a needed part of the job until about the 1980s. Corporate culture changes very slowly -- if ever. Also, it is more difficult to test or certify and the analysts' bosses don't understand the technology either.
What is an analyst? They are basically salesmen, and everyone knows how trustworthy salesmen are.
GAAP earnings will eventually "catch up" to adjusted numbers roughly 2yrs after iPhone unit sales have stablized which I see happening in F10.
We're not really talking about iPhone sales stabilising, more so it and any new 'adjusted earning' products having stable sales. So Apple might stop growing in general (that'd stabilise it) but I'd be surprised if Apple didn't release other products under this system.
eg: The AppleTV also uses this system, if sales of it or a device like it take off we'll continue to see the odd accounting
Quote:
I'm just curious, but how did you arrive at non-GAAP financials for quarters 1-3? Did you just make assumptions as to the GM's of the iPhone 2G and the actual ramp-up of unit sales through each quarter? I'm waiting for the K to be filed to get a bit more clarity and see how far off my assumptions are.
I was also wondering whether the revenue from the last year of iPhone sales was removed from the calculation of this quarter's revenue. Of course, a huge number of iPhones were sold this quarter, about double as that sold in the preceding year.
I'll have to read the article again though... I've had a bad migraine and taken plenty of pain killers, so I feel fine but don't trust my judgements!
A couple of observations from a lay-person with no financial knowledge:
iPhone earnings - I understand the difference between these two sets of numbers is due to iPhone subscription-based earnings either being declared up-front (because Apple knows they'll take in the money over the term of users' contracts) or deferred to the point where the money actually rolls in...
... but surely this might be a case of not counting your chickens, considering though users are legally locked into the iPhone contract, rather like the sub-prime housing market, if many defaulted as they couldn't pay their bills, Apple may end up declaring profits which never materialise. Now if that were to happen, people might invest / get paid bonuses / act on prospective cash, and then be upturned later if the predicted profits don't appear.
Share prices etc... obviously lots of you here have bought AAPL shares and it would be in your interests for the share price to rise as a result of the alternative accounting figures. But would this be in Apple's interests? Because if you have higher share values and better-looking accounts, don't you have to pay your shareholders more in dividends? Of course if your business is doing extremely well without great dependance on stock prices and you have large cash reserves, aren't you pretty well insulated from trouble on both sides?
Well, I have little knowledge and understanding of such matters but can only apply the common sense I know - and someone probably has great reasons why I'm wrong. But I'd be interested to hear them if so.
A couple of observations from a lay-person with no financial knowledge:
No, what you're saying is pretty much correct.
Quote:
iPhone earnings - I understand the difference between these two sets of numbers is due to iPhone subscription-based earnings either being declared up-front (because Apple knows they'll take in the money over the term of users' contracts) or deferred to the point where the money actually rolls in...
Generally, you're supposed to give out the most relevant information and be conservative. Declaring a profit that never becomes a cashflow is worse than not declaring a dubious future profit and then reporting it only when it becomes real. However, if Apple can make a good estimate of future income, they should report it. Otherwise, they could be accused of insider trading. With the iPhone subscription-based earnings, it's a judgement call whether to declare them up-front and then deduct lost debt in future reports, or else defer everything. That was Apple's choice. Some countries allow the company to estimate the percentage of defaults and report the rest up front, with smaller adjustments in the end, but I don't know if that's allowed in the US.
Quote:
... but surely this might be a case of not counting your chickens, considering though users are legally locked into the iPhone contract, rather like the sub-prime housing market, if many defaulted as they couldn't pay their bills, Apple may end up declaring profits which never materialise. Now if that were to happen, people might invest / get paid bonuses / act on prospective cash, and then be upturned later if the predicted profits don't appear.
And that's why GAAP rules are Generally Accepted. They're really better in general than non-GAAP numbers.
Quote:
Share prices etc... obviously lots of you here have bought AAPL shares and it would be in your interests for the share price to rise as a result of the alternative accounting figures. But would this be in Apple's interests? Because if you have higher share values and better-looking accounts, don't you have to pay your shareholders more in dividends? Of course if your business is doing extremely well without great dependance on stock prices and you have large cash reserves, aren't you pretty well insulated from trouble on both sides?
Apple has $25B in the bank. They don't need to raise any money from the stock market or from banks, so the share price does not affect them directly. It is their duty to "take care of the stock" or else they face lawsuits, but that really only requires truthful reporting according to GAAP and not embezzling.
Quote:
Well, I have little knowledge and understanding of such matters but can only apply the common sense I know - and someone probably has great reasons why I'm wrong. But I'd be interested to hear them if so.
... but surely this might be a case of not counting your chickens, considering though users are legally locked into the iPhone contract, rather like the sub-prime housing market, if many defaulted as they couldn't pay their bills, Apple may end up declaring profits which never materialise. Now if that were to happen, people might invest / get paid bonuses / act on prospective cash, and then be upturned later if the predicted profits don't appear.
No, there is no risk to the income that Apple is deferring in this case, because Apple gets 100% of the money they'll ever earn from an iPhone from ATT (or other phone makers) at the start). Back before the 3G, what you said above could have been true, but not with the 3G.
This is precisely why people have been focusing on cash flow instead of income for Apple recently. The cash flow shows just what it sounds like - the flow of cash into Apple's account. While income numbers can be fudged and massaged with accounting tricks, cash flow is generally seen as more "real" and many experienced investors base their decisions on cash flow rather than reported earnings.
Quote:
Originally Posted by silent_surfer
Share prices etc... obviously lots of you here have bought AAPL shares and it would be in your interests for the share price to rise as a result of the alternative accounting figures. But would this be in Apple's interests? Because if you have higher share values and better-looking accounts, don't you have to pay your shareholders more in dividends?
No, you don't HAVE to pay your shareholders anything in dividends, and Apple does not. However, there is the concept of dividend yield, which is basically the return you get on your dollar invested in Apple. If Apple stock costs $100 and they give you back $2 per year, the yield is 2%. If the stock doubles to $200, the yield drops to 1% if Apple does not increase the dividend. Some people (generally older people who need income from their investments) do make investing decisions based on dividend yield, but since Apple does not pay a dividend, that way of thinking does not apply to Apple.
Quote:
Originally Posted by silent_surfer
Well, I have little knowledge and understanding of such matters but can only apply the common sense I know - and someone probably has great reasons why I'm wrong. But I'd be interested to hear them if so.
It was a good application of common sense, just not applicable in Apple's case.
The market will decide the value of stocks and, good news, it has rejected impassionate pleas by analysts such as Shaw Wu, Gene Munster, Charlie Wolf and now, Andy M. Zaky, from Bullish Cross, Special collaborator to AppleInsider.
A good point for Andy M. Zaky, his statement that he is a long term investor in Apple stock, declaring his conflict of interest since he stands to benefit should Apple stock gain a higher price following his comments.
What these bullish analysts seem to miss about Apple is that investors have no patience with secretive companies and analysts who speculate on unannonced products and missing features.
Other investors will punish a company whose highher management receives billions of dollars in unwarranted bonuses to the detriment of investors.
Finally, prudent investors will stay away from a company whose stock is substantially held by hedge funds as there is no telling what hedge fund managers will do if they lose "visibility" of anticipated double digit returns, especially in a market downturn.
Personally speaking, I am not about to believe these prophets.
... but surely this might be a case of not counting your chickens, considering though users are legally locked into the iPhone contract, rather like the sub-prime housing market, if many defaulted as they couldn't pay their bills, Apple may end up declaring profits which never materialise. Now if that were to happen, people might invest / get paid bonuses / act on prospective cash, and then be upturned later if the predicted profits don't appear.
And that's why GAAP rules are Generally Accepted. They're really better in general than non-GAAP numbers.
But in this case the reason that GAAP forces Apple to use the subscription method of accounting for iPhone sales is utterly absurd and makes no sense at all. The reason they have to use the subscription method of accounting is because, under GAAP, you cannot say you have earned the revenues from something which you have not delivered. That makes sense. Now here comes the stupid bit: since Apple chose to make firmware updates for the iPhone free instead of charging a nominal fee (say $10), they are judged not to have "delivered" the phone in it's entirety, therefore they have to declare the revenues from it using subscription accounting. That is just plain ridiculous!
It's not (as both silent_surfer and synp seem to think) that revenues from iPhone sales trickle in over time, so they shouldn't "count their chickens" incase that revenues stops. Apple gets the full revenue for every iPhone sold the moment the phone is sold. All of it.
It's a mistake to confuse AT&T's revenues from iPhone contracts (which really are subscription based) with Apples revenues from selling the hardware, which are anything but subscription based.
Comments
The market decides what the market value is for a stock, no matter how seemingly ill found that decision is. One can do this analysis to get a feel for what the general trend will be going forward, but to try to rationalize now and get upset is pretty useless. If you think the market and the analysts are a bunch of idiots for undervaluing the stock, go long young man.
Yeah... it's predicting the future, not art. I don't see how anyone could disagree on the future.
DUH!
I'm not entirely sure what it is your attempting to say, but I'm guessing your in disagreement with what I said.
To clarify..
I thought mcarling was making the argument that the possibility of analysts undervaluing AAPL was "absurd".
My point was that at some time in the future there will be one correct answer to what has been prophesied by many, some will be closer than others, and many will have significantly undervalued AAPL.
Prediction IS an art form, however the actual outcome of those predictions is hard fact.
What does "OI&E" stand for? Google is letting me down..
Other Income & Expense
This is largely the money-market-like interest that Apple's subsidiary Braeburn
scares up from the $25B cash horde. They pull in about 2% now, relatively risk-free,
down from last years' 3-4%. There is no state tax on this interest, since the
"Treasury group" (as Apple calls it) is located in Nevada.
I was surprised by how shockingly little many of the analysts understood about the technologies. I think the reason is that, historically, it was never a needed part of the job until about the 1980s. Corporate culture changes very slowly -- if ever. Also, it is more difficult to test or certify and the analysts' bosses don't understand the technology either.
Interesting, that explains a few things.
It's simply not possible to make predictions without technological know how, so what use are these muppets?
Of course. Which makes me wonder why so many people here fail to ignore them. Instead the bitch and moan, as if the analysts have any control over what happens to the stock. It's a straw man. The immature investor blames analysts, the mature investor understands that the market moves independent of analysts except in the very short term.
I do not believe many people on this forum fail to ignore them, I believe we are mainly bitching that other people fail to ignore them.
Whats you definition of short? In my experience I have seen analyst twaddle talk have affect on the market for a good 6 months.
Unfortunately people DO listen to them, and they do have an affect on the market in the short to medium term.
I'm permanent long BTW, I just buy more when it dips.
This is not secret; it is not an isolated case; it is not ignored by the stock market.
This is just a blow-up of easily available public data. To assume the market is unaware of this is, by now, a fantasy.
This is an over-verbal extension of a rather obvious point about subscription revenues.
This is not secret; it is not an isolated case; it is not ignored by the stock market.
This is just a blow-up of easily available public data. To assume the market is unaware of this is, by now, a fantasy.
Well stated. That's exactly my point.
I was surprised by how shockingly little many of the analysts understood about the technologies. I think the reason is that, historically, it was never a needed part of the job until about the 1980s. Corporate culture changes very slowly -- if ever. Also, it is more difficult to test or certify and the analysts' bosses don't understand the technology either.
What is an analyst? They are basically salesmen, and everyone knows how trustworthy salesmen are.
Other Income & Expense
This is largely the money-market-like interest that Apple's subsidiary Braeburn
scares up from the $25B cash horde. They pull in about 2% now, relatively risk-free,
down from last years' 3-4%. There is no state tax on this interest, since the
"Treasury group" (as Apple calls it) is located in Nevada.
gotcha. thanks.
GAAP earnings will eventually "catch up" to adjusted numbers roughly 2yrs after iPhone unit sales have stablized which I see happening in F10.
We're not really talking about iPhone sales stabilising, more so it and any new 'adjusted earning' products having stable sales. So Apple might stop growing in general (that'd stabilise it) but I'd be surprised if Apple didn't release other products under this system.
eg: The AppleTV also uses this system, if sales of it or a device like it take off we'll continue to see the odd accounting
I'm just curious, but how did you arrive at non-GAAP financials for quarters 1-3? Did you just make assumptions as to the GM's of the iPhone 2G and the actual ramp-up of unit sales through each quarter? I'm waiting for the K to be filed to get a bit more clarity and see how far off my assumptions are.
I was also wondering whether the revenue from the last year of iPhone sales was removed from the calculation of this quarter's revenue. Of course, a huge number of iPhones were sold this quarter, about double as that sold in the preceding year.
I'll have to read the article again though... I've had a bad migraine and taken plenty of pain killers, so I feel fine but don't trust my judgements!
iPhone earnings - I understand the difference between these two sets of numbers is due to iPhone subscription-based earnings either being declared up-front (because Apple knows they'll take in the money over the term of users' contracts) or deferred to the point where the money actually rolls in...
... but surely this might be a case of not counting your chickens, considering though users are legally locked into the iPhone contract, rather like the sub-prime housing market, if many defaulted as they couldn't pay their bills, Apple may end up declaring profits which never materialise. Now if that were to happen, people might invest / get paid bonuses / act on prospective cash, and then be upturned later if the predicted profits don't appear.
Share prices etc... obviously lots of you here have bought AAPL shares and it would be in your interests for the share price to rise as a result of the alternative accounting figures. But would this be in Apple's interests? Because if you have higher share values and better-looking accounts, don't you have to pay your shareholders more in dividends? Of course if your business is doing extremely well without great dependance on stock prices and you have large cash reserves, aren't you pretty well insulated from trouble on both sides?
Well, I have little knowledge and understanding of such matters but can only apply the common sense I know - and someone probably has great reasons why I'm wrong. But I'd be interested to hear them if so.
A couple of observations from a lay-person with no financial knowledge:
No, what you're saying is pretty much correct.
iPhone earnings - I understand the difference between these two sets of numbers is due to iPhone subscription-based earnings either being declared up-front (because Apple knows they'll take in the money over the term of users' contracts) or deferred to the point where the money actually rolls in...
Generally, you're supposed to give out the most relevant information and be conservative. Declaring a profit that never becomes a cashflow is worse than not declaring a dubious future profit and then reporting it only when it becomes real. However, if Apple can make a good estimate of future income, they should report it. Otherwise, they could be accused of insider trading. With the iPhone subscription-based earnings, it's a judgement call whether to declare them up-front and then deduct lost debt in future reports, or else defer everything. That was Apple's choice. Some countries allow the company to estimate the percentage of defaults and report the rest up front, with smaller adjustments in the end, but I don't know if that's allowed in the US.
... but surely this might be a case of not counting your chickens, considering though users are legally locked into the iPhone contract, rather like the sub-prime housing market, if many defaulted as they couldn't pay their bills, Apple may end up declaring profits which never materialise. Now if that were to happen, people might invest / get paid bonuses / act on prospective cash, and then be upturned later if the predicted profits don't appear.
And that's why GAAP rules are Generally Accepted. They're really better in general than non-GAAP numbers.
Share prices etc... obviously lots of you here have bought AAPL shares and it would be in your interests for the share price to rise as a result of the alternative accounting figures. But would this be in Apple's interests? Because if you have higher share values and better-looking accounts, don't you have to pay your shareholders more in dividends? Of course if your business is doing extremely well without great dependance on stock prices and you have large cash reserves, aren't you pretty well insulated from trouble on both sides?
Apple has $25B in the bank. They don't need to raise any money from the stock market or from banks, so the share price does not affect them directly. It is their duty to "take care of the stock" or else they face lawsuits, but that really only requires truthful reporting according to GAAP and not embezzling.
Well, I have little knowledge and understanding of such matters but can only apply the common sense I know - and someone probably has great reasons why I'm wrong. But I'd be interested to hear them if so.
I think you got it.
Because if you have higher share values and better-looking accounts, don't you have to pay your shareholders more in dividends?
Apple dont pay dividends.
... but surely this might be a case of not counting your chickens, considering though users are legally locked into the iPhone contract, rather like the sub-prime housing market, if many defaulted as they couldn't pay their bills, Apple may end up declaring profits which never materialise. Now if that were to happen, people might invest / get paid bonuses / act on prospective cash, and then be upturned later if the predicted profits don't appear.
No, there is no risk to the income that Apple is deferring in this case, because Apple gets 100% of the money they'll ever earn from an iPhone from ATT (or other phone makers) at the start). Back before the 3G, what you said above could have been true, but not with the 3G.
This is precisely why people have been focusing on cash flow instead of income for Apple recently. The cash flow shows just what it sounds like - the flow of cash into Apple's account. While income numbers can be fudged and massaged with accounting tricks, cash flow is generally seen as more "real" and many experienced investors base their decisions on cash flow rather than reported earnings.
Share prices etc... obviously lots of you here have bought AAPL shares and it would be in your interests for the share price to rise as a result of the alternative accounting figures. But would this be in Apple's interests? Because if you have higher share values and better-looking accounts, don't you have to pay your shareholders more in dividends?
No, you don't HAVE to pay your shareholders anything in dividends, and Apple does not. However, there is the concept of dividend yield, which is basically the return you get on your dollar invested in Apple. If Apple stock costs $100 and they give you back $2 per year, the yield is 2%. If the stock doubles to $200, the yield drops to 1% if Apple does not increase the dividend. Some people (generally older people who need income from their investments) do make investing decisions based on dividend yield, but since Apple does not pay a dividend, that way of thinking does not apply to Apple.
Well, I have little knowledge and understanding of such matters but can only apply the common sense I know - and someone probably has great reasons why I'm wrong. But I'd be interested to hear them if so.
It was a good application of common sense, just not applicable in Apple's case.
Cameron
A good point for Andy M. Zaky, his statement that he is a long term investor in Apple stock, declaring his conflict of interest since he stands to benefit should Apple stock gain a higher price following his comments.
What these bullish analysts seem to miss about Apple is that investors have no patience with secretive companies and analysts who speculate on unannonced products and missing features.
Other investors will punish a company whose highher management receives billions of dollars in unwarranted bonuses to the detriment of investors.
Finally, prudent investors will stay away from a company whose stock is substantially held by hedge funds as there is no telling what hedge fund managers will do if they lose "visibility" of anticipated double digit returns, especially in a market downturn.
Personally speaking, I am not about to believe these prophets.
... but surely this might be a case of not counting your chickens, considering though users are legally locked into the iPhone contract, rather like the sub-prime housing market, if many defaulted as they couldn't pay their bills, Apple may end up declaring profits which never materialise. Now if that were to happen, people might invest / get paid bonuses / act on prospective cash, and then be upturned later if the predicted profits don't appear.
And that's why GAAP rules are Generally Accepted. They're really better in general than non-GAAP numbers.
But in this case the reason that GAAP forces Apple to use the subscription method of accounting for iPhone sales is utterly absurd and makes no sense at all. The reason they have to use the subscription method of accounting is because, under GAAP, you cannot say you have earned the revenues from something which you have not delivered. That makes sense. Now here comes the stupid bit: since Apple chose to make firmware updates for the iPhone free instead of charging a nominal fee (say $10), they are judged not to have "delivered" the phone in it's entirety, therefore they have to declare the revenues from it using subscription accounting. That is just plain ridiculous!
It's not (as both silent_surfer and synp seem to think) that revenues from iPhone sales trickle in over time, so they shouldn't "count their chickens" incase that revenues stops. Apple gets the full revenue for every iPhone sold the moment the phone is sold. All of it.
It's a mistake to confuse AT&T's revenues from iPhone contracts (which really are subscription based) with Apples revenues from selling the hardware, which are anything but subscription based.