Q4 earnings: A guide to Apple's guidance
Apple guides conservatively — which is to say it low-balls its earnings and revenue numbers for the coming quarter so that it can blow them out of the water three months later. It's a game the company plays every quarter, but the market never seems to learn; Apple's shares invariably take a hit in after-hours trading.
To help his clients get a handle on this phenomenon in advance of Apple's fourth-quarter earnings report — scheduled for release Tuesday afternoon — Piper Jaffray's Gene Munster has issued a handy guide to Apple's guidance, complete with charts going back eight quarters.
Bottom line: on average over the past two years, Apple (AAPL) has guided earnings per share 9% below Street expectations and revenue 4% below. Then when it reports its actual earnings, it beats the Street's consensus 27% on EPS and 4% on revenue.
There's some variation, as you can see from the charts below. Apple actually guided higher than the Street's expectations for the December quarter last year, triggering a run on the stock that took it to over $200 a share. Munster doesn't expect a repeat of that this year. In fact, given the dismal economic climate, he warns that Apple's guidance could be even more conservative than usual. Specifically, he expects the company to guide EPS 5% below consensus to about $1.41 and revenues 15% below consensus to about $10.1 billion.
Piper Jaffray's (PJC) estimates for Q4 remain unchanged and are summarized in the chart below. Meanwhile, Munster is sticking stubbornly to his target of $250 a share, resisting the recent downgrade trend (see here). For a table comparing Munster's Q4 estimates with those of other leading Wall Street analysts — and a few unpaid analysts who claim to have a better track record than the professionals — see Apple Q4 earnings smackdown.
Apple has scheduled an earnings conference call for Tuesday at 5 p.m. ET. We'll be listening in and live blogging here.
As a shareholder and long time supporter of Apple I sure hope they blow past their usually above forecast earnings, otherwise the stock will go to $80. Two questions will take center stage, Steve Jobs health and International growth. The answers to these questions will determine the share price direction
Rev and Earnings are good but for Apple I'm more interested in its growth in Cash flow. We all know that earnings from the iphone is spread out over 24 months which leads to distored earnings.
No one will be ignoring Cash Flow once Apple post 35 Billion in cash or equivalence next year.
Unfortunately, in the mean time, Analyst will be using the earnings as the key investment matrix–how ever wrong it is.
You could make this piece even more interesting by showing Apple's stock price in the hours before and after their reports.
The way Apple doesn't care how investors think tells me that the company is very confident about their future. There are probably many wonderful products being developed.
As a long time long I've learned not to get excited about quarterly earnings. Wall Street can't ignore Apple's gains in market share forever. At some point the share price will get rolling and the shorts will be punished.
I wouldn't give much consideration to what an analyst says. I'm long on Apple because they have a multi-front product mix that's gaining market share rapidly. There competition is leveled out and failing to innovate. I don't care about expectations and wild guesses that continuously prove to be wrong.
And for those who can see through FUD, and are willing to hold a phenomenal company over the long term… It is an opportunity to build some wealth (old school investing)
Ken,
If you actually analyze what the analysts have been saying over the last 20 quarters, You'll note that they by in large are always so wrong it's pathetic.
It's as if wishing could make it so and yet it doesn't.
The worst is Katherine Huberty, when you study her analyses, you'll discover that overall, she actually hasn't been right about Apple, ever.
Apple is a conservative company and doesn't predict big profits and huge numbers.
Apple's guidance states pretty much the worst case scenerio is and so far, the results are always better.
That's not playing, they are being conservative to the point of never disappointing their stockholders.
The real problem is the shorts, the "analysts" that work with them to create the uncertainty by belaboring false information or supposition that gets press but that for some reason never bears fruit.
Personally, I believe that the SEC should investigate them all, there aren't enough of these guys in prison cells yet, but there should be.
Here's perhaps the most worthwhile stock in the market being misunderstood by 'analysts, and manipulated by shorts through distortion campaigns, lies, and innuendo.
If the SEC had any value whatsoever….
Because it's SO much better when executives irrationally inflate the earnings estimates?? I don't see a big problem with regularly exceeding expectations, especially with a product as potentially volatile as 'cool' technology. Supply-chain issues, someone else's cooler idea, intellectual property flaps have affected ALL of the hardware vendors at various times(obviously: including Apple). Unless, of course, you are SHORT, I don't see why anyone would mind that much that the guidance is rationally conservative….
Maybe you should ignore guidance, Ken, and look at the health of the company. As we've learned, the analysts are always off on everything. And upgrades/downgrades follow the trend up/down of the stock at the time… not any careful analysis.
If Apple wants to play games with guidance, the shareholders might play a game called "selling and staying out."
realitybites wrote: "Apple’s guidance states pretty much the worst case scenerio is and so far, the results are always better. That’s not playing, they are being conservative to the point of never disappointing their stockholders.
The real problem is the shorts, the “analysts” that work with them to create the uncertainty by belaboring false information or supposition that gets press but that for some reason never bears fruit.
Personally, I believe that the SEC should investigate them all, there aren’t enough of these guys in prison cells yet, but there should be."
Could not agree more: analysts who inflate estimates beyond the companies' own EPS/Rev./guidance – without rock-solid facts to back their deviations, should be prosecuted for fraud and illegal attempts to influence share price. Their links to owners of options contracts should be closely monitored, also. Clearly the leverage there makes it very profitable to steer prices to new lows once thought unimaginable.