The Street awaits Apple's earnings
What's Wall Street expecting this quarter? The 22 analysts we polled are all over the lot
Merck, McDonalds, Microsoft, Boeing, Coca Cola, Dupont and AT&T are among the bellwether companies reporting earnings next week, but when the markets close on Monday, all eyes will be on Apple (AAPL).
Wall Street blows hot and cold on Cupertino. Apple shares have been on fire for most of the year, and after see-sawing for much of the day they rose up sharply in late afternoon trading to close at $189.86, up 0.96%. The stock has rocketed more than 120% since January, outpacing the Dow by nearly 9 to 1 and leaving analysts scrambling to keep up. Nearly all have adjusted their estimates in advance of Monday's report, some rather dramatically (one of them raised his price target from $70 a share to $250 in the space of seven months).
Apple analysts scramble to catch up
With the stock hovering within 10 points of its all-time high ($202 per share, set nearly two years ago), the question for many traders is whether it has much further to go — which is one of the reasons they'll be closely watching Monday's earnings report.
The Street is looking for Apple to earn $1.42 a share on revenue of $9.2 billion, according to Thomson Financial's consensus, although the revenue estimates of the 20 analysts we polled ranged from $8.37 billion to $9.72. That's a difference of $1.35 billion — enough to fund a small land war — but this time the most optimistic estimates come from big Wall Street firms, not the unaffiliated analysts who have tended in the past to be the most bullish on Apple. (See chart below the fold.)
The biggest discrepancy in the chart below is the column showing estimated iPhone unit sales. Since June, when Apple introduced the iPhone 3GS and lowered the iPhone 3G's price to $99, the company hasn't been able to make the things fast enough to meet demand.
Whether that is good news or bad remains to be seen. The bulls are looking for Apple to report sales of 7.5 million to 8.02 million iPhones — numbers that would both boost its revenue and sweeten its gross margins. The bears are expecting unit sales in the range of 5.2 million to 6.0 million. If the numbers are that low, you can expect the stock to get clobbered in after-hours trading.
Will iPhone sales disappoint investors?
Another number to watch Monday is Apple's so-called non-GAAP revenue, especially now that the generally accepted accounting principles (GAAP) rules have been rewritten to allow the company to book revenue from iPhone sales as it comes in, not spread out over two years. Not every analyst publishes non-GAAP revenue numbers, but those that do are looking for them to come in somewhere between $10.4 billion and $11.65 billion. Anything more than $11 billion — even though that's less than the "truly stunning" $11.68 billion Steve Jobs reported last year when deferred revenue for the original $599 iPhones were still pouring in — would probably be considered a pretty strong showing.
Apple's gap is closing quickly
Finally, there's Apple's guidance to consider, which as usual is anybody's guess. Piper Jaffray's Gene Munster, for one, is expecting Apple's predictions for the December quarter to be typically conservative. He's looking for them call for earnings-per-share around $1.68 (12% below the Street's $1.91 consensus) on revenues of $10.98 billion (4% below the Street's $11.44 billion).
After falling nearly two points in early morning trading, Apple bounced back at $189.86, up 1.81 points (0.96%). The company's shares had closed Friday at $188.05, down 2.51 points (1.32%), and fell another 0.45% in after-hours trading. Traders may have been spooked by one analyst's report — given prominent play on cable TV Friday night — that production "hiccups" could have cut into iPhone sales last quarter. (See here.)
Below: The published estimates of 19 professional analysts — updated to include several reports issued Monday morning — and three closely-watched independents. To find out who was closest to the mark, check in here after the markets close.
Revenue in billions; earnings in dollars/share; unit sales in millions; Gross margin in %. Source: Philip Elmer-DeWitt
Apple is scheduled to report its earnings for fiscal Q4 and 2009 after the markets close Monday, Oct. 19. A conference call with analysts is scheduled to begin at 5 p.m. Eastern (2 p.m. Pacific) and will probably last about an hour. Tune in here for our analysis.
[Follow Philip Elmer-DeWitt on Twitter @philiped]
wait, now you have Reiner's rev at 9.44? that was Abramsky's fix, Reiner's figure was 9.06. his units are fine. all this according to the stuff you sent me.
and now it seems the units for Bachman changed (you had 6.30, 10.25, 2.70 before this last update). was that another correction or what?
ex ped: Fixing Reiner. Thanks. Yes, Bachman came in with new numbers Monday AM.
Reiner's units were ok (you sent it to me! lol). But those GAAP numbers were way off. No wonder they seemed weird to me given his high GM.
Some statistics on all 20 including us 3 independents:
GAAP non-GAAP Units
———- ———– —————–
Stat Rev EPS Rev EPS iPod iPhn Mac GM%
——– —- —- —– —- —- —– —- —–
Mean 9.22 1.46 11.03 2.36 7.00 10.36 2.78 35.9%
StDev 0.19 0.09 0.37 0.19 0.67 0.34 0.08 0.8%
%SD/mean 2.1% 6.3% 3.3% 8.0% 9.5% 3.3% 3.0% 2.3%
I think some of those show a remarkable consistency. But I didn't use the most recent ones you mentioned had updated their stuff.
With all of the fuss over GAAP/non-GAAP in the past two years, why is no one indicating that Apple could take a huge one-time revenue this quarter thanks to the change in GAAP rules? I haven't seen anyone mention it.
Or am I off base? Is the GAAP change only applicable to future reports and previous revenue has to continue to be dispersed over 24 months? If it can be taken now, that could be a massive one time profit.
More fixes!
Abramsky: rev (GAAP): $9.44b, Macs: 2.86m (rounding consistency with others).
Reiner: rev (GAAP): $9.06, EPS (GAAP): $1.50 (no idea where you got those, looks like the previous quarter?), rev (non-GAAP): $10.36b (rounding consistency with others).
ex ped: Got those. Do you have Reiner's unit estimates? Meanwhile, three more analysts have weighed in this morning. Now I'm scrambling to catch up!
PED, Scott Craig's non-GAAP revenue estimate is $10.85b.
I think Gardner's GM is 35.5%, although the note isn't completely clear about it.
ex ped: Thanks!
To Frank from Santa Clara-
I have to disagree with your assumption about Mac computers. Acer has now passed both Dell and Apple to take 2nd spot on computer sales.
The problem with Apple, like some other big companies, is that they have all of their manufacturing plants in China and pay slave-labor wages. Whatever happen to the Presidents pledge to bring American jobs back home? Some of these companies whether in China or India have low labor costs, and no legacy costs. If you compare profits as a % of sales you see a huge difference in the Tech field (which has led the way overseas)and Insurance companies or even the oil companies.
Apple contractor contract was cancelled because they replaced a part without telling Apple. The contract was given to another PC maker; but the new supplier could not deliver; so the contract went back to the original. So Apple earning will disappoint for last quarter. But this quarter production was set to ~9 million iphone per quarter. With 5 million iphone one time purchase for China Unicom.
Here's the problem. Apple is trading at nearly 30x times future earnings. Even if they beat by $0.20, they're still trading at over 25x future earnings. Relative to Google, which is trading closer to 20x future earnings, Apple is overvalued. I totally agree Apple is a $300 stock, but unfortunately not in these market conditions. I think Apple will pull back after earnings because I agree the iPhone sales might come in light.
This article is way off base – iPhone sales are just gravy for AAPL; their core business is computers and the Mac is taking market share like crazy. It's those millions of Macs that will drive top line growth and bottom-line profits. To ignore that and worry about iPhones is folly. The author nshould focus on Mac sales grwoth if he wants to write something worth reading.
The iPhone hitting china, which is a known fact, should already be priced into the current stock price.
I am more looking toward possible 'unknown' future products like tablets and the like.
As long as the strong sales continue for Apps like iSoundz, iZinger and MadLipz – Apple earnings will definitely be an upside surprise.
To all the financial analyst and the know it all researcher, My wife buy 100 share of Apple 10/04/00 @ $ 11.625 up 1,470.35% year to date :40 share of (MSFT)04/14/99 @ $46.00 down 42.26% year to date She ask me to belive in Apple aks Big Mac .R.I.P love I do belive
ex-ped or others,
China Unicom must have purchased
some unknown amount of iphone before sept30,
althought it is not selling it until oct. would this purchase be counted on
Apple's monday report ?
I think this is very significant for weather it would be above or below the 7.5 million expected unmber !
I am not a financial analyst or savvy market researcher, but I am a computer user. It seems to me that that what the analysts just do not see or know is the feeling on the street. When you go into a Sony store these days it is usually almost empty. When you go into an apple store it is chaos, full and bustling with customers. And these are not just youthful customers. There are middle aged persons and seniors. Though one encounters the occasional person who is lukewarm about Apple products, the vast majority of users are enthusiastic. I cannot recall meeting anyone who is enthusiastic about Microsoft or Dell or HP. To anyone who has watched the Apple offerings over the past 5 years, this is a company on creative fire. And they do not appear to be letting up. Looking at the numbers is important, but it does not really capture the essence of the company. I think Apple will be at $500 within five years, regardless of Mr jobs' health.
ex ped: Some of these analysts do visit Apple stores from time to time. Gene Munster's team at Piper Jaffray, in particular, counts heads to gauge sales of iPhones and iPods.
After buying Apple at $13 a share and watching and holding my shares since, you would think that I would be ready to pull the trigger and cash in my profits. But Nope, I believe this dog has some more runnin to do.
When I first bought the stock at the same time I bought my first iMac, I told friends and co-workers that we would all be using Apple products someday.
They have stopped laughing at me and I am too polite to laugh at those that did buy some shares and sold them at $50.
It would a lot more useful to get analysts track record versus their prediction. To really understand if the analyst has a clue is to look over the last 4-8 quarters on percent error on Apple quarterly earning and stock assessments. The analysts with a consistently accurate records should then be clearly differentiated to add some perspective on quality of their predictions.
PED said, "and a pair of closely-watched independents."
Ha. I like "independents" a little more than "amateurs" 
Still, I would like to clarify that I'm not a professional, don't have a CFA or CPA or any such degree (I studied engineering), and do this mostly for my own investment benefit. Hope you all can take advantage of it too.
@David Huntsville: I didn't consult with Turley although he follows my blog where I posted my numbers on Thursday. Of course he wouldn't just copy my estimates (he's got a business degree and working on his CFA and has tons more real-world financial experience than me). Notice the other analysts are pretty consistent as well except for a couple outliers (no idea if they follow my blog lol).
Things that don't matter to analysts. Apple being a debt-free company, very high amount of reserve cash, expanding retail stores, being able to employ people when jobs are tight, high quality products, good customer support, products that are basically boosting both the smartphone and NAND industries. All these factors are contributing to the economy. Somehow Google ad clicks are far more meaninful. Beats me.
I can't imagine how Apple would sell less than 7.5 million iPhones and I believe that Reiner is a damn fool or a manipulating liar only making this call days before earnings when he supposedly heard the supply rumor in August. The iPhone has relatively conservative hardware, so I don't what this supposed parts shortage would be from that they wouldn't have seen coming.
The only reason why Apple is down as low as it is would be because the DJI is at 10,000 when in 2007 it was around 14,000. Even now, surely Apple is worth $200 a share. Well, we'll all know Monday evening, won't we. I think Apple will beat all expectations, but that conservative guidance thing will continue to be a problem. How they can offer low guidance for the Christmas season on top of China Unicom's bulk purchase of iPhones is beyond me.
I bought Apple aover a year ago @ $187 and when I justified my reasons for it, I got slammed by readers who were helped by the ongoing fall of the stock to below $100. But I held firm, justified in the long term view of the stock AND WHEN it passes $200 on Monday after the earnings are reported, I will sit and bask in my profits!
Apple was at $202/share two years ago BEFORE iPhone. The share price was unfairly punished (manipulated?) down to about $78/share. Apple's earnings have been INCREASING since then over two recessionary years to record levels while competitors had shrinking revenues and profits. You cannot deny that Apple produced spectacular performance under tough economic times. Now, at about $187.20/share and the economy out of recession and sales to China about to begin, you cannot say that the stock is ahead of itself and be telling the truth. This current iPhone sales numbers speculation to lower the price of Apple stock is another attempt at price manipulation that for some crazy reason seems to be succeeding for the moment. If the demand is so great for the iPhone that Apple could not meet demand when there were no production problems other than they could not make them fast enough and had to increase capacity OVER projected planned volumes, it is unbelievable to me that traders can talk Apple's stock price down by scaring shareholders.
ex ped: When Apple hit 202 in intraday trading in Dec. 2007, the iPhone had already been out for almost six months.
"If the numbers are that low, you can expect the stock to get clobbered in after-hours trading." Are you kidding? This is Apple. Regardless of WHAT Apple reports, the stock's heading down. Apple could report earnings of $20B, but some ANALyst somewhere would find a weakness in some obscure number somewhere, which a skittish market would jump on and then trash the stock. Come on. Get real! It's going down!
Nothing from fan favorite Andy Zaky this q?
You can put me down for 1.62 (looking for better than expected non US numbers)
Those waiting for Cramer's Tuesday pullback will find themselves chasing if they want in.
ex ped: Zaky, alas, was otherwise engaged.
Deagol,
Do you and Turley consult with each other before arriving to your numbers? If you 2 don't talk before posting your numbers using your own independent analysis, then you 2 have to be right on again. Your numbers this quarter seem closer together than I recall in the past.
Buy now or you will never see 200 again because the earnings report will blow away the stocks past 202. Remember if it was soaring when the economy was bad 2 quarters ago. How much more when its getting better. Don't wait for the earnings report. Play for the upside. Buybuybuy.
If the share price pulls back, I'm selling the farm to buy more as this would be the last dip before iPhone enters China.
I could care less if it goes down a few percent after BLOWING AWAY all estimates. I am NOT selling to the manipulators. It will only rise again until the next earnings report, far beyond what it is today.
No other company has 10th the things going for it.
Only for Apple would too much demand be a 'problem'. Apple is however about the only company that would sacrifice sales to keep their quality standard.
Look at the rest of the computer and cell phone and media industries. Pathetic by comparison, especially the so-called computer industry which is mostly Microsoft (worst software on the planet) and the cloners (who only cobble together generic parts). There is no synergy to any of that.
And if you do sell, remember that the iTablet could come out the next day, or Apple could announce a split, dividend, or a cloning program. So be careful, and don't let the manipulators take your stock.