Wednesday, January 23, 2013

Much work ahead

Today, Apple essentially met conservative WS consensus estimates, but missed on almost every single product when compared to my estimates, resulting in an overshoot of roughly 10% in EPS. If that weren't enough, Apple has now reclassified the operating segments (Greater China representing 12.5% of total revenues during last quarter has split out of Asia/Pacific) and product revenue breakdown (merged iTunes with Software and Services, and Accessories previously included but not broken out within their respective product line are all now mixed with Peripherals) all of this starting last quarter and historically for only the last couple of years. Needless to say, both issues (yet another "transitional" shortfall and product/segment reporting shifts) will be a pain to reconcile in my model. Not nice, Apple. However, after I get it all clicking once again, it may result in a slightly simpler model.

Main highlights:

iPhone units came in at 47.8m vs. my expected 53m (I was 10.9% too high)
iPad units at 22.9m vs. my 25m forecast (9.4% too high)
Mac units at 4.06m vs. my 5.18m (a whopping 27.5% too high)
iPod units at 12.7m vs. my 14m (10.4% too high)
iTunes/Software/Services revenue of $3.7b vs. my $3.5b (6% too low)
Newly combined Peripheral/Accessories revenue of $1.8b can't be compared to my published forecasts.

Recognized hardware revenues and ASPs by product are not comparable to my forecasts, except perhaps for the Mac (revenue of $5.5b vs. my $6.9b forecast which was 24.7% too high, and Mac ASP at $1,359 vs. my $1,329 estimated which was 2.2% too low). However, even after shedding the accessories contribution, all ASPs still came out higher than modeled (with accessories) which suggests a more favorable mix than expected.

Total revenue was $54.5b vs. my $58.6b forecasted (7.5% too high)
GM% was 38.6% vs. my 39.5% forecast (84bps too high)
Diluted EPS of $13.81 vs. my 15.20 estimate (10.1% too high)

Cash per share is at $145 vs. $140 estimated, meaning I need to puzzle out yet another detail.

Trailing valuation (10x ttm EPS + cash + ttm divds) is now $441+145+5=$591. The forward projections will have to wait for the reformulation in terms of the reclassified revenue sources, and a thorough reexamination of all the longer term assumptions.

Apologies for getting it wrong once again.


El-Visitador said...

Wow, quick analysis. Much appreciated.

Look, someone should write a paper about the importance of the mainstream media on public perception.

I had always known the mainstream media has awesome power over low-information consumers, but at a time when other companies trade at 15x, 20x, 100x (depending on industry, of course), whereas AAPL, a trades under 10x ex-cash, it just seems that the power of the media is much more than what I had figured it out.

Currently the stock is -10% in after hours trading. This for a company that just reported 17% Y-O-Y revenue growth. The margin compression is alarming, but is it because of the 80% product overhaul? Or is this a more ominous sign?

RussianDoc said...

it as tremendous growth deceleration. nothing else.

RussianDoc said...


artman1033 said...

IMHO: Apple needs to increase their buyback of AAPL. $45 Billion over 3 years is simply not fast enough. BUT, There is no reason to believe Apple Management will do that. Apple Management does not care about the short term (less than 1 year) price of AAPL.

There is nothing to "apologize" for. You are in great company. Wong Way Wu was the winner. That says it all.

JavaJack said...

Looking forward to the forward looking projections when you have chance to do this.

Anonymous said...

FYI - from yesterday's conference call:

"In the past we provided a single point estimate that was conservative. This quarter and going forward, we are going to provide a range of guidance that we're likely to report within." -Peter Oppenheimer

It appear that Apple is abandoning their longstanding strategy of under promising and over delivering, and instead just meeting their original guidance.

To me, this basically says that blowout quarterly results will become a thing of the past, and going forward we will have a much more stable and predictable financial result.

So, if Apple is guiding for $41b - $43b next quarter, odds are it's going to come in at $42b.



Anonymous said...

Daniel, first, thank you for posting your projections and insanely great followups. You are providing a great resource for those of us following $AAPL.

With that in mind, I wonder if you would consider sharing your opinion about the value of analysts's estimates in general.

$AAPL seems to be particularly influenced by benchmarks set by analysts, and the nature of their estimates seem to have shifted 180-degrees in the last 12-months, from habitually coming in short, to now setting the bar a bit too high, despite Apple's stellar guidance performance.

No worries either way, but I thought it was worth requesting.

Anonymous said...

Your comments are always useful to many.

This has been a disaster for many professional and retail holders alike, but we are within days and a few bucks of the end now as people stop hanging off the boat and begin to think things through more rationally.

Biryni had some great comments Friday about AAPL (superb company, owned since 2003, going to be fine when dust settles, etc), so did Gamco's haggerty this morning. AAPL is now trading at a cash flow multiple of five (5) on ttm. That is nonsense.

Yes margins are compressed from last year, and yes we are missing the operating leverage of the i4S launch in mid Oct 2011, and yes we are missing a week of sales in the FY1Q '12 (or at least the full week of ave sales, either of which adjustments would have driven your ~53m iPhones... but that is the key here. It may take another few days from here, but the reality is that the street needs to settle down that it will be hard to beat last year's margin for the Dec and March Qs -- but almost so what? They did guide to 36% on the host of haircuts and then report 38.7%, and now they guide to 36-38% range and will likely beat that despite protestations that they are now guiding "more conservatively".

The street also needs to think through that the stock is trading at cheaper relative multiples than at anytime since the stock last traded for $90, and that right now truly is a historic buying opportunity. C'mon now -- they just went from 24 to 60 LTE networks WW last week, they have just delivered new, best in class products (i5 and now Mini and ipad4) to more than new 30 markets WW, and many of those new, faster growing and important strategic markets weren't going until mid December!

I'm also relieved they beagn buying in shares -- hopefully they spend that this week and add another $30B plan over the next three years. THAT would make a statement, so would a big dividend. They need to defend the shares and they need to protect employee morale. If they do not, employees will leav and loyal Apple customers and shareholders will lose some of the love that has driven Apple's and AAPL's success.

Anonymous said...

Hey Daniel,

Reeeeaaaally looking forward to an update of your current thinking!

Marcelina Z said...

Great post :) very detailed analysis and it's worth reading :)
I know this is a huge favour but could you please consider adding a link to my Apple blog on your blog? Thanks :)

Anonymous said...

Any comments on Q1 Daniel?

Anxious. Very anxious.

JavaJack said...

I'm anxious, too. Looking forward to your thoughts.