All eyes on Apple's earnings – Update
Apple (AAPL), one of the most closely watched stocks on the Nasdaq — and one of the engines driving the market's midsummer rally — reports its fiscal third quarter earnings today.
None of the three dozen analysts who follow the stock think it will have any trouble beating its guidance numbers. The question is by how much.
The consensus, as reported by Thomson Financial, has been inching up and stands this morning at $1.17 earnings per share on revenue of $8.2 billion. As usual, the unaffiliated analysts — a ragtag group of bloggers, day traders and amateur analysts who track the stock as closely, if not more so, than the professionals — are considerably more bullish, predicting earnings in the $1.27 – $1.35 range. (See the chart below the fold.)
There is actually surprising agreement among both groups on the number of iPhones, iPods and Macs Apple sold this quarter. So why do their earnings numbers diverge so sharply?
Gross margins. Many of the pros seem to be following Apple's guidance (33%). The amateurs believe the company's margins will prove to be considerably higher — in the 35% – 37% range — thanks largely to the mark-up on the iPhone and the complicated way Apple books that revenue. (See How to predict Apple's gross margins.)
"If you look at the past three years of earnings," says Bullish Cross' Andy Zaky, "there has never been an instance where Q2 gross margin percentage surpassed Q3 gross margin percentage."
MacBooks flying off the shelves
Apple's gross margins in Q2 were an enviable 36.4%. Zaky is putting his bet for Q3 on 36.9%, which would translate to an EPS of $1.34.
Below: The published estimates of 17 professional analysts — updated to include several reports issued Tuesday — and three closely-watched amateurs. To find out who was closest to the mark, tune in here after the markets close.
Props to @Turley Muller for nailing earnings at $1.35 and total rev – $8.3 billion versus $8.34 actual. I believe that is the second quarter in a row that Turley Muller has bested all analysts.
PED I am getting pretty fed up with the commentators trying to use your site as a method of promoting their apps. Hey guys, everytime you mention your apps here you are ensuring that I will not be buying it.
As for the second quarter and the Season of it it is related to the summer and at this time spending isnt for the educational level but rather for a consumptional level i give more weight to this perhaps this will lead to a higher proftibilty level and i agree to this statment 1.27-1.35 would be a good target level.
@ Alechemist-
Totally agree that iPhone revenue recognition is not wacky, or made -up, YET, Actually the impetus for the 24 deferral has to due with free updates to the OS, not actually related to the service contract with the carrier.
AT&T offers a no-commitment option, where there is no contract lock-in, thus customer can terminate at anytime. However, that comes with a $400 higher price tag for there isn't any subsidy applied.
In several other markets, unlocked iPhones are available and service plans without commitments.
Since Apple promises free OS support over the expected useful life of the device, it hasn't completed the delivery of the full value of the sale when a consumer purchases the hardware.
Essentially, the consumer pre-pays for the OS upgrades, thus Apple owes the consumer for future software.
Because Apple charges for new OS versions for iPod touch (2.0 & 3.0) and not for iPhone, Apple can recognize full sale of the touch, same holds true for Macs, Apple charges for Tiger, Leopard, Snow Leopard etc.
Don't you think it is time to change the "reality distortion field" bit? It seems like people around the world are all agreeing with him now. So maybe it is just a "reality field" and the nay-sayers are the distortion.
damnit, looks like abramsky copied my sheet… lol
uh… dude in SF, the difference is pay: 6-figures vs. zero
I've said it before here and I'll say it again. Apple's iPhone recognition is NOT wacky. It's not made-up. It's not arbitrary. It's correct.
Because the data contract is unbreakable, the iPhone has a useful life of 2 years (24 months). Since there is an ongoing commitment on the part of the consumer, the phone is being used over 24 months so you recognize the revenue over 24 months. This is not like a computer when you would sell it and book all the revenue at the sale because that's the last time you see the consumer.
The flip side of this is that business ALWAYS amortizes the cost of equipment like computers and phones over their useful life (3-5 years, depends).
Simple accounting, folks. Not like Apple isn't *trying* to make sure folks don't pay attention to it, but they are doing the right thing.
The non-GAAP earnings are what matter most. These include Apple's revenue that is not yet accounted for due to the wacky 2-year vesting iPhone revenue accounting model. A few of these analysts say Apple will earn $2.00/share non-GAAP. This is huge, 33% higher than non-GAAP. This indicates to me Apple should be trading 33% higher than it is right now to give it fair value.
With great new Apps like 'MadLipz' and 'iSoundz' now available on the iTunes App store – it's no wonder Apple earnings continue to climb!
The scary thing is seeing perma-bull Gene Munster with the lowest estimates on the list. Lower than Abramsky by 0.25, lower than Huberty by 0.14? This is a strange world suddenly. I guess Gene's low Mac number and taking Apple's gross margin number as accurate help create this very unsettling estimate.
Love the scorecard PED, thanks for tracking this and hopefully continuing to show us that the "Pros" either know half as much as the bloggers or that there are other influences that mean they aren't even trying to make accurate estimates.
With the app store Apple has given independent software developers the chance to enrich themselves and Apple shareholders. I have seen first hand how profitable it can be to sell an app for 99 cents. For just $99 and a little time invested learning the tools, anyone can join Apple's team to create useful and innovative products. My unique approach to the mortgage payment calculator may not be getting 1000s of downloads a day, but it doesn't need to in order to make Apple or myself a profit since the cost to get started is so little! for those interested: Slider Calc at the App Store