How Apple is gaining on Microsoft
Both companies beat expectations last week, but only one of them was growing
Click to enlarge. Source: Company reports, Oct. 2009.
A year ago we ran a bar graph similar to the one at right. It showed that Apple (AAPL), despite the Mac's tiny market share compared with Microsoft (MSFT) Windows, was gaining on the software giant. The main reason: revenue pouring in from the iPhone but hidden as deferred earnings in Apple's balance sheet. (That chart is posted below the fold.)
Last week Apple and Microsoft once again reported quarterly earnings — and enjoyed nice pops on the stock market. But their growth rates turn out to be very different.
This quarter, deferred iPhone revenue isn't as big a deal for Apple as it was last year (non-GAAP earnings actually grew more slowly than GAAP; see here for why). Ironically, it was Microsoft that had to use deferred revenue from Windows 7 to show any growth at all. Otherwise, Microsoft's revenue for the third quarter was down 14% year over year and its earnings down 17%.
Apple's revenue, meanwhile, grew 25% and its income 46.6%.
Apple earnings: How the analysts got it so wrong
Everybody failed to predict Cupertino's blowout quarter, but some failed worse than others
Smackdown: See full spreadsheet below
"Well, that was quite embarrassing!" writes "deagol," a widely read amateur analyst whose estimate of Apple's (AAPL) fourth quarter earnings fell 16% short of the record profits the company reported Monday.
The irony is that deagol, who filed a long post-mortem mea culpa on his website Monday night, had less to be embarrassed about than 18 of the 19 Wall Street analysts we polled in advance of Apple's fiscal 2009 4Q earnings report. (See The Street awaits Apple's earnings.)
Once again, the amateurs and independents out-performed the professionals in our quarterly Apple analyst bake-off. The color-coded spreadsheet is pasted below the fold.
But first, some general comments about why everybody failed to predict that Apple's profits would grow 46% or that the company would sell a record 3 million Macs — up 17% in a quarter in which its competitors, selling cut-rate Windows boxes at razor-thin profit margins, grew an anemic 2%. (See here.)
The key misses:
Apple earnings set new record; shares explode in after-hours trading
So much for expectations. Apple (AAPL) blew past them all — its own and those of a crowd of increasingly bullish analysts — by reporting its most profitable quarter ever, earning $1.82 a share on revenue of $9.87 billion for the fourth fiscal quarter of 2009.
The Street was expecting quarterly earnings of $1.42 on revenue of $9.2 billion, according to Thomson Financial.
Apple's shares exploded in after-hours trading. Having closed at $189.86, shares leaped more than 13 points in the next hour and 40 minutes to $202.87 — one thin dime away from the all-time high of $202.97 set in intraday trading on Dec. 27, 2007.
Sales for the year were a record $36.5 billion, up 12.5% from 2008. Earnings per share for the year topped $6.29, up more than 17% from the year before.
Strong sale of iPhones — following price cuts and the introduction of a new model — helped boost Apple's earnings.
But the big surprise was the Macintosh. Apple sold 3.05 million Macs for in Q4 — a 17% increase from same quarter last year — thanks to its new Snow Leopard operating system, re-energized back-to-school sales and a big order from the state of Maine.
"We are thrilled to have sold more Macs and iPhones than in any previous quarter," said Steve Jobs in a prepared statement."
Highlights from Apple's earnings report include:
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.)
Will iPhone sales disappoint investors?
Production "hiccups" may depress next week's earnings, warns one analyst
Compared with the increasingly sunny predictions streaming from his competitors, the note Oppenheimer's Yair Reiner sent clients Friday morning was something of a buzz kill.
"We believe Apple could report in line to slightly disappointing [fiscal fourth quarter] revenue," he wrote, advising investors to hold off buying shares until after Monday's quarterly earning's report.
The focus of his concern: the iPhone.
Reiner's estimate for Apple's fourth quarter iPhone sales was already the lowest of all the analysts we surveyed — 6 million, compared with a consensus just over 7 million and a high estimate (from Citibank's Richard Gardner) of 8.05 million.
But even 6 million, he says, could prove too high, due to what he calls "component/manufacturing hiccups."
Report: iPhone margins are nearly 60%
Turley Muller has been arguing for more than a year that Wall Street seriously underestimates the impact of the iPhone on Apple's (AAPL) bottom line.
Muller, a former mortgage trading analyst, currently unemployed, tracks Apple's performance in his blog Financial Alchemist, where his estimates of Apple's earnings put the Street's consensus to shame. Over the past four quarters, he has missed reported EPS by 4 cents, 2 cents, 1 cent and 0 cents, respectively. (In those same four quarters, the Street underestimated Apple's EPS by 15 cents, 40 cents, 24 cents and 18 cents.)
In fact, in our latest Analyzing the Analysts report, Muller's predictions were closer to actual results than any other analysts' in four categories out of seven — including the tricky non-GAAP revenues non-GAAP earnings.
On Wednesday Muller issued his third detailed report on the iPhone's profit margins, and it's an eye opener. Bottom line: Apple's gross margins on the iPhone are now so high — Muller's estimate is 58.4% — that the company can use them to subsidize price cuts on the rest of its product line without any noticeable impact on overall gross margins.
Apple's Q3: Analyzing the analysts
Tuesday was not a good day for professional analysts as a class — and Merrill Lynch's in particular.
Not only were most caught off guard by the strength of Apple's (AAPL) record third-quarter results — see here — but the men and women who track the company for banks and brokerage houses were bested once again by a bunch of bloggers, day traders and amateurs analysts.
In the color-coded chart excerpted above — and pasted in full below the fold — the estimates that were closest to the mark are highlighted in green and the worst highlighted in red. More
Apple reports record Q3 earnings
Apple (AAPL) blew past expectations — its own and Wall Street's — to report record third-quarter earnings Tuesday.
Buoyed by strong sales of its new iPhone, an explosion of iPhone applications and price cuts on its flagship MacBook line, the company earned $1.35 per share on revenue of $8.34 billion — up nearly 12% year over year.
Analysts were expecting earnings of $1.17 on revenue of $8.2 billion, according to Thomson Financial.
Apple's shares, which had closed at $151.51, down 0.91% for the day, rose sharply in after-hours trading. By 5:49 p.m. its shares had climbed 4.3% to $158.03.
The stock has been one of the market's best performers of 2009, having risen nearly 80% against the Nasdaq's 21%.
The strong results in the face of a global economic slump could be viewed as vindication of the company's decision to stay out of the market for low-cost netbooks — which now dominate the consumer PC business and are squeezing the profit margins of Apple's competitors. More
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.)
