Thursday, December 23, 2010

Fiscal 1Q 2011 Final Estimates

Apple now trading at 12.9 times my fwd EPS estimate (10.5x after excluding cash)

I might adjust things a bit if there's any announcement in January.

3mo ending Dec-2010   Rev($M)   EPS($)
-------------------   -------   ------
Apple guidance         23,000     4.80
Analysts consensus     24,110     5.29
Deagol estimates       26,071     6.23

Wednesday, October 20, 2010

Fiscal 4Q '10 actual results vs. estimates

I'll have to fine tune the iPhone and iPad projections. Everything else came in a bit soft, with iPod and iTunes the weakest. On the income statement, I started with a relatively small $219m (1.1%) revenue shortfall, but made it worse at every step (most impact was from guessing GM a bit high) and it widened to $403m (7.4%) shortfall in pretax income. Fortunately this was almost all offset by a much lower tax rate than estimated, resulting in actual EPS only 9 cents short of estimated, or within 2%. Guidance for the current quarter was impressive.
Here's all the details. I've included the combined iPad+iPhone figures to highlight how those two big errors balanced out.

Saturday, October 16, 2010

Deagol vs. Market... vs. Apple

Back in April I posted a couple of charts showing how my "fair value" and "target" forecasts compared to AAPL's price history over the last few years. Several readers have asked for an update, and I said I'd do one when AAPL made a credible move to catch up with its fundamentals, which is the basis for my FV and target forecasts. Seeing as AAPL has run about 80 points in 7 weeks, I was also curious to visualize how far towards a fair valuation has this recent attempt taken it.

Saturday, October 2, 2010

Fiscal 4Q 2010 Final Estimates

Apple now trading at 12.7 times my FY2011 EPS (10.5x after excluding cash)
3mo ending Sep-2010   Rev($M)   EPS($)
-------------------   -------   ------
Apple guidance         18,000     3.44
Analysts consensus     18,610     3.99
Deagol estimates       20,562     4.73

Monday, September 13, 2010

iPad to exceed Mac revenue in 2012

And no, it's not because I think it'll eat into Mac's growth (average about 25% growth in units, 20% in revenue for the next couple of years). But by Sep 2012 (ttm) iPad would grab the #2 spot as a revenue driver within Apple, behind the iPhone. If we annualize the current quarter's estimate it already exceeds annual iPod revenue, which was the #3 driver up to now (this even after taking into account the December seasonality which benefits the iPod).
Back in early April, before few had any clue how big the iPad would be, I had this very ambitious forecast for it, along with all other Apple product lines. I was way off in underestimating its contribution (as well as iPhone's). Here's an update to that chart:

Tuesday, August 24, 2010

Gross margin key for EPS estimate

Duh! Ok, maybe some didn't know this. Anyway, I've done some sensitivity analysis on my model by changing one variable at a time by 10%, and looking at the resulting percentage change in EPS.
First, I simply adjusted the variable by 10% and froze all the other variables, noted the EPS change, and moved on to adjust the next variable (resetting the previous one to how it was originally). Here's a couple of charts for that (click to enlarge):

Thursday, July 29, 2010

It'll be OK

It's ok that Apple's selling all the iPhones and iPads that it can make.
It'll just make some more. Who wants to have made more than it can sell?

It's ok if there's more competition. Choice is good. And people will keep choosing Apple.

It's ok that some or most media outlets get a kick out of bashing Apple.
That's just how journalism works: "If it bleeds, it leads."
It's ok that Apple makes them look like idiots, time and again.

It's ok that Apple's the second largest and soon THE largest company by market cap. It deserves it.
It's ok if it sells just a tenth of what XOM sells. It sells "magic," while XOM sells nasty crap.
Out of every dollar worth of "magic" it sells, it gets to keep more than 3 times what XOM keeps
of its dollar's worth of shit. And the "magic" sales are growing while the other crap's in decline.

It's ok that Steve Jobs is mercurial, and snarky, and boastful. If anyone has earned that right, it's him.
And it's ok that he's getting older, and wiser. His asset is his mind, not his body.
And when he decides to retire, be that in 5 or 10 years or whenever, it'll be ok.
Whoever takes his place will surely have logged thousands of hours with a great mentor, and Apple will do fine.

It's ok that Apple keeps tight control over its platforms. Everyone does.
Ask "open-loving" Google if they'd be willing to share, not the free apps and services, no,
their search algorithms, which drive their ad platform, with competitors. It'd be the most idiotic thing.
Just like Microsoft's "industry standard" Windows and Office are closed games, and everyone pays to play.

It's ok that Apple hoards $46b in cash, and that it keeps adding to the tune of $500 per second.
I don't care for a dividend (it gets taxed, and Apple has much better ideas how to use it than I)
or a stock repurchase (its shares really don't need such an artificial prop, and cash is cash).

It's ok that AAPL is not part of the Dow Industrials. I see no benefit in that.
Why should it be? That's a bunch of established, mature, sometimes dying old farts.
Apple is quite the opposite: "the largest startup."

It's ok if everyone already has some AAPL. Everyone will soon wish they had more.
It's ok if it'll set them back $260 (or soon $400). It's more than worth it. I don't care for a split.

It's ok if yesterday and today AAPL fell 1% more than the market did.
It's UP a gazillion more than the market over the last 6 months, a year, 2, 5, 10 years,
or any other period longer than a few days. And it'll keep doing that for years to come.

It's ok if the sling-shot game is on. Otherwise we couldn't take advantage of it.

I'm not an Apple apologist. I'm a "fanboy" to the extent that the term implies admiration and satisfaction derived from the object of fandom, not of blind faith or sheep-like subservience. These are not by any means excuses made to justify or disregard any short-comings from Apple or AAPL. All of these, to me, are pluses.

Call me a contrarian if you want. It's worked out quite nicely for me.

Tuesday, July 20, 2010

Oh Oh, It's Magic

Oh, I got a hold on you
Got a hold on you
I've got a hold on you... tonight

The instant my forecasts are finally good enough to match or slightly exceed Apple's performance, Apple then goes and makes me eat dust in my guidance estimates.
This revenue guidance is just astounding, going by historical guidance patterns it suggests over $20b revenue for September. Analysts are at $17b. Would mean an upside adjustment for them of $4b for 3Q and 4Q combined, delivered in a single day by Apple. All of that well before Santa comes for 1Q. But I'm sure they'll drag their feet and cry all sorts of foul before updating their models to reflect this (just like a few analysts simply refused to consider iPad units above the 3m announced by SJ with 5 days remaining in the quarter).
Looks like bloggers kicked some pro analyst ass in that smack-down we all participate at Apple 2.0. And the winner is...
Thanks for the recognition PED. And thanks to Fortune/CNN/Money/TWX. There is no other mainstream media helping the small investor like this, for free. It's not that surprising, given Fortune's history (Forbes would never go with it), but it's quite refreshing to see this sort of thing these days.
Anyway, on with my take on the current competition. Last time I made a list of all analysts with the average error over all categories. PED did a similar thing this time (see article linked above) but only using the revenue and EPS categories, which put me on top. Woo! Haha ok that's cool, but I still went and did it for all categories as before, given that the unit forecasts are ignored in PED's ranking (although I agree that top and bottom line are the most important things to get right). Here's the ranking based on all forecasting categories:

Rank Err% Analyst, Affiliation
---- ---- ----------------------------------------
1 1.93 Horace Dediu, Asymco
2 2.84 Alexis Cabot, Apple Finance Board
3 2.85 Yair Reiner, Oppenheimer
4 3.32 Daniel Tello, Deagol's AAPL Model
5 3.67 Richard Gardner, Citigroup
6 3.94 Andy Zaky, Bullish Cross
7 4.17 Jeff Fosberg, Apple Finance Board
8 4.21 Robert Paul Leitao, Apple Finance Board
9 4.39 Scott Craig, Merrill Lynch
10 4.45 Turley Muller, Financial Alchemist
11 4.48 Mike Abramsky, RBC Capital
12 4.83 Doug Reid, Stifel Nicholaus
13 4.96 Nehal Chokshi, Technology Insights
14 5.23 William Fearnley, Janney Capital
15 5.28 Chris Whitmore, Deutsche Bank
16 5.48 Jeff Fidacaro, Susquehanna
17 5.67 Vijay Rakesh, Sterne Agee
18 5.97 Brian Marshall, Gleacher & Co.
19 6.27 Ralph Schackart, William Blair
20 6.40 Toni Sacconaghi, Bernstein Research
21 6.45 Keith Bachman, BMO Capital
22 6.57 Kathryn Huberty, Morgan Stanley
23 6.65 Gene Munster, Piper Jaffray
24 6.89 Dennis Hildebrand, Apple's Gold
25 7.19 Shaw Wu, Kauffman Bros.
26 7.36 Tavis McCourt, Morgan Keegan
27 7.37 Nicolae Mihalache, Trader's Neighborhood
28 7.57 Mathew Hoffman, Cowen & Co.
29 7.78 Ben Reitzes, Barclay's Capital
30 7.99 Rajesh Ghai, Think Equity
31 8.07 Ashok Kumar, Rodman & Renshaw
32 8.77 Mark Moskowitz, J.P. Morgan
---- ---- ----------------------------------------
9.9 4.35 Bloggers
19.1 6.08 Professionals
---- ---- ----------------------------------------
40% Pros error increase % on bloggers

Click on image to enlarge. Compared to last time (see link above), everyone improved in their forecasting, almost cutting the error in half on average. The best improvement comes from Gardner (moved from last to 5th), Reiner, and Cabot, all of them cutting their average error by more than 70%, with Craig (from bottom feeder to top-ten) close behind cutting it by two thirds. Kumar had the worst sequential change in performance (from 5th to penultimate), failing to improve his accuracy at all. Next worst improvements come from Moskowitz, Reitzes, and Muller, who only managed to shave off 1/4 off of their respective average forecasting errors.
I welcome the few pro analysts stepping up to the plate and competing more seriously; Rainer, Gardner, and Craig from the broader perspective of my ranking. Rakesh in my opinion is just a fluke. He figured in the top ten in PED's ranking (garnering him a mention) just because he got closest in EPS. This is accidental, since he underestimated revenue by more than $1b, but his red-flagged (worst), outrageously high gross margin ultimately lucked him out on the bottom line. I'll give him props for almost getting the Mac units right. The rest of the lot, come on, it's not hard. Just don't estimate less than 3m iPads when Jobs already told you they had sold more than that a week before the end of the quarter. Neither go crazy and estimate triple the run rate for those last 5 days (yes, that's you, last-ranked Moskowitz).
Moving on to the details on my own forecasts, I did great on the top and bottom lines despite being somewhat off in the unit forecasts.
Apple came in 644 thousand iPhone units short (downside of about $400m mostly compensated by higher iPhone ASP leaving a $122m net iPhone shortfall), 718 thousand iPod units short (about $110m), and soft peripherals and iTunes sales (another $113m), for a total revenue downside of about $345m. This was mostly compensated by Mac upside of 134 thousand units and higher Mac ASPs ($274m combined effect), as well as minimal iPad and SW upside ($21m), leaving a negligible $50m overall revenue shortfall (0.3%).
From there, I veered off a bit by underestimating costs (both COGS and opex) resulting in my operating income estimate swelling to $169m above what Apple reported. But then I lucked out (kind of like Rakesh but on much tighter range lol) by overestimating the tax rate, resulting in a net income "miss" by Apple of just $51m, keeping my EPS estimate within 2% of the actual number (6 cents). Here are all the details.

Products         Est       Act       Err      Err%
Units(K) ------ ------ ------ ------
Mac 3,338 3,472 - 134 - 3.9%
iPad 3,258 3,270 - 12 - 0.4%
iPhone 9,042 8,398 + 644 + 7.7%
iPod 10,124 9,406 + 718 + 7.6%

ASP($) ------ ------ ------ ------
Mac 1,236 1,267 - 31 - 2.5%
iPad 660 662 - 2 - 0.4%
iPhone 603 635 - 32 - 5.0%
iPod 163 164 - 1 - 0.5%

Revenue($M) ------ ------ ------ ------
Mac 4,125 4,399 - 274 - 6.2%
iPad 2,150 2,166 - 16 - 0.7%
iPhone 5,456 5,334 + 122 + 2.3%
iPod 1,655 1,545 + 110 + 7.1%
iTunes 1,258 1,214 + 44 + 3.6%
SW 641 646 - 5 - 0.8%
Periph 465 396 + 69 +17.4%

P&L($M) ------ ------ ------ ------
Revenue 15,750 15,700 + 50 + 0.3%
COGS 9,497 9,564 - 67 - 0.7%
GM 6,253 6,136 + 117 + 1.9%
OpEx 1,850 1,902 - 52 - 2.7%
OpInc 4,403 4,234 + 169 + 4.0%
OI&E 62 58 + 4 + 7.6%
Pre-tax 4,465 4,292 + 173 + 4.0%
Tax 1,161 1,039 + 122 +11.7%
NetInc 3,304 3,253 + 51 + 1.6%
Shrs. 925 927 - 2 - 0.3%
EPS($) 3.57 3.51 + 0.06 + 1.8%

Ratios ------ ------ ------ ------
GM% 39.7% 39.1% + 0.6% + 1.6%
OpInc% 28.0% 27.0% + 1.0% + 3.7%
Tax% 26.0% 24.2% + 1.8% + 7.4%
NetInc% 21.0% 20.7% + 0.3% + 1.3%

Guidance ------ ------ ------ ------
Rev($M) 16,450* 18,000 -1,550 - 8.6%
EPS($) 3.27* 3.44 - 0.17 - 4.9%

* These were my PO-LowBall™ guidance estimates for 4Q.
My real estimates were $18.3b in revenue and $4.46 in
EPS, obviously to get revised soon.

Great stuff, Apple. Best thing: that sweet guidance. This stock, at these levels, is the opportunity of a lifetime. It's now up to investors (big and small) to step up to the plate... Apple has already loaded the bases for you (and the pitcher is, like, drunk).

Bloggers vs. Pros Earnings Smack-down

Later this afternoon is Apple's earnings day. This is when all of us analysts earn our salary (haha sarcasm). To me, it's very important to keep track of my accuracy compared to other analysts not because I need to earn a salary, but because I simply need to get my modeling relatively right for my investment objectives to work.

So as I'm sure you know, PED does this earnings smack-down thing, pitting professional analysts against bloggers. Think of WWE, but better (without the predetermined outcomes). Lol ok, it's not nearly as exciting or entertaining, but it's as close as it will ever get in the investment analyst world. It's been a couple of years now, and it's been really fun. Thanks PED.

Go there and see the awesome table PED's meticulously crafted. I thought I'd try to get the revenue and EPS columns in some kind of visual form. So I went and calculated standard scores on everyone for revenue and EPS and ranked them all on the combined score. Then try to chart it, highlighting and contrasting the pro/blogger dimension. I came up with this (click to enlarge):

I decided to highlight the 3 most bullish and bearish professional analysts, and one of each extreme for the bloggers, as well as the mean for each group. I also highlighted Munster (because his EPS is so out of whack and I wanted to show that) since his combined score represents the median analyst (that is, if his revenue and EPS estimates actually cohered with the mid point of those two extremes). Oh, and myself, uh, because this is my blog.
If you ask me, this looks ugly. Ha. I don't know if I could've enlightened the data in a different way, but to me it's not a nice visualization of it. I couldn't think of anything else and the report is almost here, so there you have it.
Here's the raw data for the chart:

Analyst (ranked from most ----- z-scores ----
bearish to most bullish) Rev EPS Comb
-------------------------------------------- ----- ----- -----
1 Ben Reitzes, Barclay's Capital -1.31 -1.13 -1.22
2 Mathew Hoffman, Cowen & Co. -1.13 -1.09 -1.11
3 Tavis McCourt, Morgan Keegan -0.80 -1.28 -1.04
4 Keith Bachman, BMO Capital -1.31 -0.76 -1.04
5 Shaw Wu, Kauffman Bros. -1.31 -0.73 -1.02
6 Toni Sacconaghi, Bernstein Research -0.93 -0.91 -0.92
7 Doug Reid, Stifel Nicholaus -0.91 -0.80 -0.86
8 Kathryn Huberty, Morgan Stanley -0.58 -1.06 -0.82
9 Ralph Schackart, William Blair -0.64 -0.76 -0.70
10 Brian Marshall, Gleacher & Co. -1.13 -0.21 -0.67
11 Mark Moskowitz, J.P. Morgan -0.57 -0.69 -0.63
12 William Fearnley, Janney Capital -0.47 -0.54 -0.51
12.3 Professionals -0.42 -0.47 -0.45
13 Ashok Kumar, Rodman & Renshaw -0.04 -0.65 -0.35
14 Richard Gardner, Citigroup -0.04 -0.36 -0.20
15 Rajesh Ghai, Think Equity 0.29 -0.65 -0.18
16 Chris Whitmore, Deutsche Bank 0.07 -0.36 -0.15
17 Gene Munster, Piper Jaffray 0.87 -1.13 -0.13
18 Nehal Chokshi, Technology Insights 0.18 -0.43 -0.13
19 Mike Abramsky, RBC Capital 0.14 -0.36 -0.11
20 Vijay Rakesh, Sterne Agee -0.80 0.63 -0.08
21 Turley Muller, Financial Alchemist 0.05 0.19 0.12
22 Scott Craig, Merrill Lynch 0.00 0.45 0.22
23 Jeff Fidacaro, Susquehanna -0.24 1.26 0.51
24 Dennis Hildebrand, Apple's Gold -0.08 1.18 0.55
25 Yair Reiner, Oppenheimer 1.12 0.08 0.60
26 Andy Zaky, Bullish Cross 0.36 1.15 0.75
27 Alexis Cabot, Apple Finance Board 0.90 1.23 1.07
27.2 Bloggers 1.07 1.21 1.14
28 Daniel Tello, Deagol's AAPL Model 1.14 1.00 1.07
29 Horace Dediu, Asymco 0.73 1.55 1.14
30 Jeff Fosberg, Apple Finance Board 1.67 1.63 1.65
31 Robert Paul Leitao, Apple Finance Board 2.38 1.51 1.95
32 Nicolae Mihalache, Trader's Neighborhood 2.37 2.07 2.22

Good luck to everyone!

Wednesday, June 30, 2010

Fiscal 3Q 2010 Final Estimates

Apple now trading at 12.1 times my FY2011 EPS (9.8x after excluding cash)

3mo ending Jun-2010 Rev($M) EPS($)
------------------- ------- ------
Apple guidance 13,200 2.34
Analysts consensus 14,604 3.05
Deagol estimates 15,750 3.57

3mo ending Sep-2010 Rev($M) EPS($)
------------------- ------- ------
Apple guide (est.) 16,450 3.27
Analysts consensus 16,453 3.69
Deagol estimates 18,271 4.46

12mo ending Sep-2011 Rev($M) EPS($)
-------------------- ------- ------
Analysts consensus 71,225 16.16
Deagol estimates 83,993 20.48

Valuation (12mo beginning on) EPS($) 25x 20x
----------------------------- ------ --- ---
Trailing (Jul-2009) 13.34 334 267
Fair value (Jul-2010) 19.05 476 381
1yr target (Jul-2011) 24.23 606 485

Revenue breakdown:
Mac 4,125 ( 3,338 @ $1,236)
iPad 2,150 ( 3,258 @ $ 660)
iPhone 5,456 ( 9,042 @ $ 603)
iPod 1,655 (10,124 @ $ 163)
iTunes 1,258
Software 641
Periph 465

Income statement:
Revenue 15,750
COGS 9,497
GM 6,253
OpEx 1,850
OpInc 4,403
OI&E 62
Pre-tax 4,465
Tax 1,161
NetInc 3,304
Shrs. 925
EPS 3.57

GM% 39.7%
OpInc% 28.0%
Tax% 26.0%
NetInc% 21.0%

Check out these fellow bloggers' estimates:
Jeff Fosberg: AFB's user Mercel
Alexis Cabot: AFB's user awcabot
Turley Muller (by way of PED): How Turley Muller calls Apple

And PED's smack-down is on:

Thursday, June 17, 2010

Apple randomizes web order numbers

Sometime around the middle of May I started receiving submissions of web order numbers that were out of sequence. After a major batch of contributions from June 15, I've concluded Apple has now successfully randomized these in such a way that I no longer can derive (nor estimate in any meaningful way) a count of web orders from any two or more numbers and date-time values, as I've done for 5+ years.

Here's a scatter plot of the contributions for June 15:

Here's a frequency histogram including a few more web order numbers from before and after those shown above:

And here's the raw data, in case anyone somehow mines some pattern out of it:
Timestamp(PDT)  Web number  Contributor
--------------  ----------  ------------------
05/09/10 06:11  W299136XXX  macnmaine
05/10/10 03:52  W2477497XX  michelc
05/10/10 05:48  W2293963XX  CdnPhoto
05/14/10 15:19  W2916900XX  Ghh008
05/16/10 17:40  W215139XXX  macnmaine
06/02/10 11:55  W2769957XX  centex
06/06/10 15:49  W292153XXX  macnmaine
06/14/10 18:58  W2856025XX  centex
06/15/10 09:30  W263697XXX  cotten999
06/15/10 12:51  W2462125XX  hltr
06/15/10 13:35  W2771715XX  The Scorpion Files
06/15/10 14:53  W2436969XX  braney
06/15/10 15:55  W2736754XX  DSO
06/15/10 16:22  W2670179XX  parkslope2006
06/15/10 16:32  W2755113XX  DSO
06/15/10 17:07  W216414XXX  nontekkie
06/15/10 17:12  W2488284XX  $ Bill Yall
06/15/10 18:00  W2831010XX  jamesd
06/15/10 19:19  W2111939XX  centex
06/15/10 19:22  W2659075XX  cranjo
06/15/10 19:29  W2705339XX  tradervic
06/15/10 19:30  W2562092XX  cranjo
06/15/10 19:31  W2357239XX  sensiblethoughts
06/15/10 20:00  W219790XXX  organicandnoworms
06/15/10 23:29  W2940290XX  fhatta
06/16/10 09:46  W2300058XX  Probe

This is unfortunate, but of course it won't prevent me from continuing to analyze Apple's business. I have to thank Apple for letting me get away with it for 5+ years, but most of all I'd like to thank all the fellow AAPL investors for their voluntary contributions to this effort. And Steve "Caligula" Evans for coming up with the idea in the first place and compiling those very early numbers.
But now it's time to fly solo, and hope I don't disappoint. Third quarter final estimates in a couple of weeks. They look great but I'm still tinkering with things, and we'll surely get some more info on iPhone 4 sales over the next couple of weeks. Stay tuned!

Thursday, June 3, 2010

iPad web usage passes iPod

So my prediction from six and a half weeks ago came through, with a couple of days to spare. iPad has surpassed iPod in web traffic. It took only two months and two million units, compared to almost 3 years and about 40 million iPod touches out there. That means iPads use the web roughly 20 times as much as iPod touches.

Also, not only has iPad more than doubled Android 2.1's share, it's now past all Android OS's combined. No idea how many units make up the Android installed base. See the whole two-month-long comparison below.

Data provided by Net Market Share

July 1st Update, they're a month late on it, but Net Market Share is mentioning it now: iPad Blows Past Android and iPod Touch in Browser Usage

Tuesday, April 20, 2010

Apple beats up everyone

Pro analysts 51% worse than amateurs

Apple today reported $13.50b revenue, $3.33 EPS, 8.75M iPhones, 10.89M iPods, 2.94M Macs, and 41.67% gross margin, beating everyone down to a pulp.

I took PED's estimates compilation of amateur and professional AAPL analysts, computed each estimate's percent error against Apple's actual numbers, averaged the six categories' errors for each analyst, and ranked them all from best to worst. I also averaged the errors for the six amateurs and the 19 pros, and calculated how much worse these did in relation to us amateurs. Here's the table.

 %Err  Analyst, Affiliation
----- ---------------------------------------
5.9% Turley Muller, Financial Alchemist
7.2% Daniel Tello, Deagol's AAPL Model
7.2% Robert Paul Leitao, Apple Finance Board
7.3% Andy Zaky, Bullish Cross
8.2% Ashok Kumar, Rodman & Renshaw
8.7% Bill Shope, Credit Suisse
8.8% Patrick Smellie, Apple Finance Board
9.6% Alexis Cabot, Apple Finance Board
9.9% Yair Reiner, Oppenheimer
10.1% Mike Abramsky, RBC Capital
10.3% Ben Reitzes, Barclay's Capital
10.3% Jeff Fidacaro, Susquehanna Financial
10.6% Toni Sacconaghi, Bernstein Research
10.8% Peter Misek, Canaccord Adams
11.8% Mark Moskowitz, J.P. Morgan
11.9% Chris Whitmore, Deutsche Bank
11.9% Tavis McCourt, Morgan Keegan
12.1% Gene Munster, Piper Jaffray
12.3% Doug Reid, Thomas Weisel
12.3% Shaw Wu, Kauffman Bros.
13.3% Keith Bachman, BMO Capital
13.4% Scott Craig, Merrill Lynch
13.7% Brian Marshall, Broadpoint AmTech
14.1% Kathryn Huberty, Morgan Stanley
14.3% Richard Gardner, Citigroup
----- ---------------------------------------
11.6% Professionals
7.7% Amateurs
----- ---------------------------------------
51.4% Pros error increase % on amateurs

Clearly Steve Jobs, the sneaky rascal, punked us all with his announcement of 50M total iPhones.

I came $905M (-6.7%) below actual reported revenue mostly due to huge iPhone and iPod upside, but also all other revenue sources except Mac which almost compensated for these. ASPs came in higher than expected for iPod but Mac and iPhone were lower. I keep underestimating peripherals by a relatively significant amount (-12.8%) although it's not significant in absolute terms.

Fortunately I guessed right at gross margin percentage, so this near $1b error comes down to almost $0.4b beat in operating income. Now, if one were to apply a normal tax rate to that, my net income would have come only $280M below, resulting in an EPS beat of 30 cents. But a 24% effective tax rate (630bps below normal) turned it into a 56 cent beat. That's 46% of the upside caused by an unpredictably low tax rate. How is one supposed to model for this, if Apple itself can't even guide within 20% of the effective tax rate? In any case, as a shareholder I won't complain.

Complain? Are you nuts? $333, baby. Come on. Right now. Hell yea! lol

. Est Act Err Err%
. ------ ------ ------ ------

Units (K):
Mac 2,949 2,943 + 6 + 0.2%
iPhone 7,500 8,752 -1,252 -14.3%
iPod 10,400 10,885 - 485 - 4.5%

ASP ($):
Mac 1,320 1,278 + 42 + 3.3%
iPhone 635 622 + 13 + 2.1%
iPod 162 171 - 9 - 5.5%

Revenue breakdown ($M):
Mac 3,893 3,760 + 133 + 3.5%
iPhone 4,764 5,445 - 681 -12.5%
iPod 1,681 1,861 - 180 - 9.7%
Music 1,238 1,327 - 89 - 6.7%
Perph 412 472 - 60 -12.8%
SW 608 634 - 26 - 4.2%

Income statement ($M):
Revenue 12,594 13,499 - 905 - 6.7%
COGS 7,367 7,874 - 507 - 6.4%
GM 5,227 5,625 - 398 - 7.1%
OpEx 1,631 1,646 - 15 - 0.9%
OpInc 3,595 3,979 - 384 - 9.6%
OI&E 35 50 - 15 -29.8%
Pre-tax 3,631 4,029 - 398 - 9.9%
Tax 1,089 955 + 134 +14.1%
NetInc 2,541 3,074 - 533 -17.3%
Shrs. 918 923 - 5 - 0.5%
EPS 2.77 3.33 - 0.56 -16.9%

GM% 41.5% 41.7% - 0.2% - 0.4%
OpInc% 28.5% 29.5% - 0.9% - 3.1%
Tax% 30.0% 23.7% + 6.3% +26.6%
NetInc% 20.2% 22.8% - 2.6% -11.4%

One last thing, Apple guided for $13.0b to $13.4b in revenue, midpoint $13.2b, and $2.28 to $2.39 in EPS, midpoint $2.335. This was my guidance prediction made a week ago:
3mo ending Jun-2010   Rev($M)   EPS($)
------------------- ------- ------
Apple guidance (e) 13.200 2.40
Analysts consensus 12,913 2.63
Deagol estimates 14,675 3.21

Monday, April 19, 2010

iPad web usage already beats Droid, iPod in sight

I predict iPad passes iPod before June 3. Link here or click on the image above. Please note that at some odd hours the last data point may still require an adjustment (this is a live chart, automatically updated daily), I believe based on their relative geographic presence in the parts of the web they see, or something.
Currently, Android's 2.1 installed base is probably made up of mostly Motorola Droid phones, at least for now. Some others are HTC Nexus One, their recent Desire and Legend, and their upcoming Incredible and Evo 4G. And a whole bunch of phones by others soon. See the compared web usage for all the Android versions here.
Data provided by Net Market Share

Saturday, April 17, 2010

Deagol vs. Market

Click to enlarge. Not sure if it needs any more explanation. It's kind of complicated, yet simple. Ask in comments if you have any question.

Update: A reader requested earlier forecasts. Here's a sloppy zoom-in showing those (click to enlarge).

Tuesday, April 13, 2010

Fiscal 2Q 2010 Final Estimates

3mo ending Mar-2010   Rev($M)   EPS($)
------------------- ------- ------
Apple guidance 11,200 2.12
Analysts consensus 11,960 2.44
Deagol estimates 12,594 2.77

3mo ending Jun-2010 Rev($M) EPS($)
------------------- ------- ------
Apple guidance (e) 13.200 2.40
Analysts consensus 12,913 2.63
Deagol estimates 14,675 3.21

12mo ending Sep-2010 Rev($M) EPS($)
-------------------- ------- ------
Analysts consensus 55,091 12.01
Deagol estimates 59,721 13.66

Valuation (12mo beginning on) EPS(e) PPS(25x)
----------------------------- ------ --------
Trailing (Apr-2009) 11.22 281
Fair value (Apr-2010) 15.72 393
1yr target (Apr-2011) 19.82 495

How many iPhones did Apple sell?
How many Macs did Apple sell?
How many iPods did Apple sell?
How big was Apple's second quarter?

Revenue breakdown:
Mac 3,893 ( 2.95M @ $1,320)
iPhone 4,764 ( 7.50M @ $ 635)
iPod 1,681 (10.40M @ $ 162)
Music 1,238
Software 608
Periph 412
-------- ------
Total 12,594

Income statement:
Revenue 12,594
COGS 7,367
GM 5,227
OpEx 1,631
OpInc 3,595
OI&E 35
Pre-tax 3,631
Tax 1,089
NetInc 2,541
Shrs. 918
EPS 2.77

GM% 41.5%
OpInc% 28.5%
Tax% 30.0%
NetInc% 20.2%

Friday, April 9, 2010

Another revenue segments visualization

Before I post my Q2 predictions next week, I thought I'd entertain those who are a bit anxious with yet another visualization of Apple's various revenue sources (click to enlarge):

First thing you should notice is the log scale. Second, you don't get a legend for the colored lines. Ha! [Update: game over, see the 10 year projection above] It occurred to me as a fun and educational research activity to leave it like that and let you work out which color is which product segment. It shouldn't be hard if you remember your Apple products history. And as an incentive, I'll send you the continuation of the graph with my estimates for the next 10 years (yea I know 10 years is crazy but whatever) if you email me the correct color/product matching. Don't spoil it for others in the comments, please!


Well, 15 readers have played along and correctly cracked the color key (with just a little help for a few), and are enjoying the prize. The toughest part seems to be how to name those colors! Blame it on the mischievous guys and gals from the MacBU at Microsoft for picking those default colors for charts in Excel for Mac.
These were the names readers used for just two of them:
teal, turquoise, blue-green, light blue, bright blue, mid-tone blue (teal)
gray, blueish gray, light blue, light purple, purple, lightest blue (lavender?)
Yikes! I wonder what they called them at the MacBU. Probably something impossible like 'Blue Chill' and 'Blue Haze'.
Good job everyone. And if anyone's stuck... get a clue already. :P
Earnings estimates tomorrow afternoon (Tuesday).

Sunday, April 4, 2010

Ten weeks later, AAPL numbers elude financial web sites

Closing in on ten weeks since Apple's last report where they "cleared up" any confusion about accounting rules, most financial sites still show incorrect data on their profiles for Apple.

So what the f**k is AAPL's P/E??

Turns out I was being unfair to Yahoo! in singling them out. This is a generalized industry problem and not exclusive to a few bad sites. Out of the 16 major sites I looked at (2 good ones submitted by readers), only 7 have managed to update their historical financials with the retrospective amendments freely available from Apple's Investor Relations site. Even though 11 do report somewhere the correct trailing P/E ratio, in some cases they still quote a wrong P/E (perhaps derived from their outdated financials) on a different section of the site, or even on the same page. Finally, a couple of sites have simply stopped providing analysts estimates for Apple (Forbes and Yahoo!).

Here's a table with all the sites and data I checked.

Site ttmEPS P/E Fncls Ests
----------- ------ ---- ----- ----
Forbes $ 8.17 28.9 Wrong N/A
CNN Money N/A 28.9 Wrong Ok (incorrect expectations history)
SmartMoney $ 8.17 28.9 Wrong Ok
Nasdaq $ 8.17 28.9 Wrong Ok
Zacks $ 8.17 28.9 Wrong Ok
Yahoo! $10.27 23.0 N/A N/A Ok! (fixed as of 4/15, 11 weeks later!)
CNBC $10.25 23.0 Wrong Ok
FOXBusiness $10.25 22.7 Wrong Ok
MarketWatch $10.25 23.0 Wrong Ok
Google $10.25 23.0 Ok N/A
Reuters $37.33? 23.0 Ok Ok (missing March quarter!?)
MSN Money $10.25 23.0 Ok Ok
Scottrade $10.25 23.0 Ok Ok
Fidelity $10.24 23.0 Ok Ok
Ameritrade $10.25 23.0 Ok Ok (excellent tool!) $10.25 23.6 Ok Ok

Please add links in the comments for any other financial research site's flawed Apple numbers, or to let me know if any of these have fixed theirs.

Friday, March 26, 2010

Two weeks of iPad pre-orders: 240,000

Here's a two-week update: 240 thousand iPad units pre-ordered online for delivery (doesn't include reservations).

A quick recap: 190k first week, 120k first day.

Quick rates:
120k units on first day
70k/6 12k units/day over first week excluding first day
50k/7 7k units/day over second week.

One week to go.

Sunday, March 21, 2010

Revenue and growth prospects by product segment

This discussion inspired me to make a few charts. The data used for these are based on a trailing 1-year moving window of revenue by segment, which is why they come out so smooth without the December cycle spikes. Enjoy!

(click to enlarge)

Take the stuff beyond 2011-2012 with a grain of salt.

Thursday, March 18, 2010

History vs. current events

More charts!

This one shows the whole history of web order data I have, at the finest granularity available (between a week or two since 2005 and perhaps months before 2005). Data from 2001 to 2004 compiled by Steve Evans (aka Caligula). The value charted is the 30 day moving average of the daily rate, on a forward looking basis (i.e. the average for say April 1 to April 30 would be plotted on April 1 along the horizontal axis) in thousands of orders per day.

Here we see the blue line representing the same web order data, but aggregated on a quarterly basis, and also the data for quarterly revenue as reported by Apple (red line) and the ratio of Revenue/Orders (green line). Smoothing was applied because it looks really cool.

As for current events, it seems I've created some sort of controversy by reporting data that showed a steep fallout in sales velocity after the first day of iPad pre-orders, which was of course expected. Maybe some people are better off not knowing precisely at what level and how fast things reach a stable point and would prefer being told a big round number in a month or two, with no interest in the internal dynamics of an event driven launch. A suggestion, don't read these updates if you don't like such fine-grained data analysis, ok? Just wait until my pre-earnings report in mid-April.

It seems this image was a favorite among fellow bloggers. Here it's updated up to the latest order we have, for yesterday around noon Friday morning.

Now the thing with this image is that it shows the total number of web orders, not just those that include iPads, and there's no way of discriminating these through the factual data. But it's a nice image, and I'm not surprised that people are latching on to it. Now, as shown above I have a rich history of web order data going back years, and have several "sample datasets" for the month of March and for various types of product intros. What I've been doing in this case is assuming the week-long measurement of the rate just before the iPad was available for pre-order has been relatively constant except for a slight increase due to the higher traffic and interest, and subtracted this value from the observed rate.

Doing this definitely introduces some uncertainty, but there's no reason why the non-iPad orders should be getting more or less volume now, except a sensible proportion due to the increased traffic (someone came to the store interested in iPad, saw all the other goodies, and decided NOT to pre-order the iPad but to order something else). Notice that if someone decides to ADD other non-iPad stuff to their iPad pre-order it still counts as an iPad pre-order.

Well, there you have it. That's my update for the week: 180 thousand units pre-ordered online as of noon yesterday. [Update, 190k as of Friday morning, exactly a week after becoming available for pre-orders.] It obviously doesn't include store pickup reservations, nor will it include store sales after April 3 (if I'm still getting order submissions and bothering to track these). That's it. Based on this, and using my intuition and experience, and voodoo or however you want to call it, I'm sticking to my prediction of 1 million sold by mid-April.

As you can see, that conclusion amounts to not much more than my opinion. But the data in the first three graphs is factual, not opinion or estimates. Thus, my recommendation is that you come to your own conclusion as to how this might measure against expectations, both short and long term (although I would advise against putting too much weight into short-term market predictions) and decide for yourself, regardless of whether I'm right or wrong in my opinion-based prediction.

Thanks for all contributions.

Monday, March 15, 2010

Sexy model curves on iPad pre-orders

No this is not some spam post offering a pseudo-porn iPad app. Just go read my previous post to see what this is about. Also, don't miss PED's quoting my random musings on this stuff (and outing me! LOL):

PED: Apple iPad orders drop sharply

On to the "sexy" curves, click to enlarge (hey, some extra hits due to my title shenanigans can't hurt, and maybe someone somehow learns something new thanks to my mischief).

This one's pretty self explanatory. A nice, round rump evolves after 12 hours into a relatively straight line slightly sloping up. I'll just add that this slope will increase in the next few hours and days, that is, the line will curve in the opposite direction right about now (72 hours) and get steeper, and then it'll become straight once again for some time. Once we get past 100-150 hours, I expect a new, more subtle rump to form in which the slope will very slowly get shallower as the days and weeks pass.

This one's also easy to read. It's an attempt to measure the value of this slope over time (an approximation since I can't actually do infinitesimally small intervals), also called the first derivative, or rate of change. It simply represents the order volume rate per hour. Notice the sharp drop off early on and then it manages to maintain that small value for a longer period of time. The flat part here corresponds with the straight slope upwards of the previous curve.

Please don't pay attention to that harsh bump at 10 hours as it's due to a noisy sample most likely off by a few minutes from its true time value as recorded in Apple's servers.

Again, this curve will start to creep back up just a bit over the next few hours, and maintain a higher plateau for a longer period of time, and then after a few days keeping its ground it'll start showing a very slight decline only noticeable over much longer periods.

I'd also like to mention here that I left out a few points that would go in the tiny sliver of space between the vertical axis and that first point up there at 70 thousand. These points would plot much higher, higher than 100, and one of them was over 500 (that is, half a million orders per hour, but of course there never was half a million orders placed, just that the time span during which this happened was a minute or two, so 500,000/60 minutes lasting for a minute or so would generate something like 8-10 thousand orders).

The problem with including these points on the chart (despite them being really fun to look at) is that in order to show them so high up there, the zooming out of the vertical scale would have made the later part of the curve where it's more stable as if it was laying flat against the horizontal axis, thus potentially misleading one into thinking that the order rate just died. It did not die, it's oscillating a couple of times at around one thousand orders per hour without falling further, which is quite respectable for a weekend.

But that part is still really hard to see, like, those oscillations are important as they show the day/night volume patterns, and it'd be nice to get a closer look at those values. That's the motivation for the next chart.

I think this is the coolest one. Please ignore those two outliers at a value of 1, which correspond with that noisy sample I was talking about before. As to what the values on the axes mean, well it's just the logarithm of the same values plotted previously. Something similar would happen if you used log scales on both axes, except the normal values for hours and thousands of orders would show at different spacings.

To help you find your place there, remember that log(1)=0, log(10)=1, log(100)=2, etc. So, on either axis where the zero is, it's the 1 hour point in time or 1k orders/hour level. Where the 1.0 is shown, it's the 10 hour point, or the 10 thousand level, the 2.0 is where we'll get to the 100th hour or when the rate was 100k orders per hour (only during the first 19 minutes of sales, which is 0.32h and log(0.32) is right around -0.5 which is the left side of the graph so those very early orders are not shown). As to what this curve is saying, what it means, I'll leave it up to you to interpret. Why do the dots fall much more in line? What would it mean if future dots suddenly stop falling or start turning up? All I'm going to say is, don't think those last few dots where it shows a temporary recovery for a cluster of them near the right side of the curve are noisy data points. These points are several hours and thousands of web order numbers apart, so a couple of minutes off creates no noise here. And there are several dots plotted at the temporary recovery (during daytime on Saturday and Sunday).

Finally, this last graph (also shown in PED's article) is similar to the second one, except here I've only used a few points spaced out about 12 hours apart. A clarification is needed about the yellow label there which says "iPad sales" which should have said "iPad unit sales" so it's not showing $ sales. But the most important addition here is I show my estimated volume rates for orders that don't include an iPad pre-order.

Wow this turned out to be quite a long post. Sorry if you were expecting some hot chicks in bathing suits, but if you read all the way through here, I appreciate your effort and I'm glad I could keep your attention this far.

Stay tuned over the next week or two.

Friday, March 12, 2010

How many iPads pre-ordered?

We've been trying to estimate how many iPad pre-orders have been placed simply by counting web orders from user contributed web order numbers. I have more than 5 years experience working with these, correlating them to overall sales, and gauging product introductions.

It's not an exact science though. This web order sequence of course includes all Apple products sold through the US Online Store. But for today, this is relatively insignificant when compared to the iPad orders. The average daily order volume from January 16 to March 5 was about 16 thousand orders per day. From March 5 until the first order submitted after the store opened today it was about 14.5 thousand per day.

But today, that's a drop in the iPad bucket. The other products would account for 600 orders per hour, assuming the base rate continues the same. Yet for the first 6 hours since the store opened, we've seen the sequence increase by more than 88 thousand orders in total. That's the baseline daily volume, per hour! For the last 2 or 3 hours the rate has moderated to about 7 thousand per hour, from more than a thousand per minute in the first 15-20 minutes.

Additionally, an important proportion of iPad orders are for two units, which for now I'm counting as just one until I get a bigger sample.

I'll keep an eye on this rate and the estimated total over the next few weeks.

Thanks for everyone's submissions,

Thursday, February 4, 2010

So what the f**k is AAPL's P/E??

Not just the P/E. It's mainly the ttm EPS, but also the real historical growth rate, all the financials, even analysts estimates are missing. I mean, come on, it's been 10 days since the report. What a mess.

Wasn't the internet supposed to be the realm of immediately updated information available to all for free?

What's the point of having Yahoo! Finance, Capital IQ, or even Thomson-Reuters services for that matter, keeping track of companies and estimates for the public, when they happily publish erroneous data for days or weeks and no one can do anything about it?

Does anyone even care? Where's the f**king SEC?

Yahoo! data still a mess. See
Let them hear it using this form (make reference to ticket number 3385526).
It's been three four six seven! weeks since the report and yahoo's still a mess. Anyone, how do we fix this:
Well, it took them seven weeks, but they finally did it!
And they f'd it up again! Amazing. Eight weeks now.
And now it's good again, hopefully for more than two days. Two months to fix this...
And it's bad again. More than 9 weeks. Got tired of updating so here's a day counter for this.

Fixed! Good job, Yahoo! Finance, despite the 11 weeks your users were in the dark. Unfortunately, some who might have wanted to jump in at $190 are now looking at $247. Not to worry Yahooers, it's still going to double in a year or two.

Wednesday, January 27, 2010

Fiscal 1Q '10 actual results vs. estimates

Apple beat my revenue estimate by $666M (hmm), an understatement of 4.2% on my part. Source of this is relatively evenly shared between all three main product lines, with Apple's solid crush of Mac units estimate partly compensated by my overshooting the ASP a bit. On a relative basis, most significant is the -6.5% error (-$221M) in iPod revenue which came from compounding a -2.2% error in estimating units (-470K) with a -4.4% error in estimating ASP (-$7). Finally, a 13.9% underestimation of Peripherals revenue is not as critical in absolute $M, but is still quite a nice surprise as this is the second consecutive quarter Apple crushes my peripherals estimate, so I'm now giving a boost to my model's longer-term attach rates for peripherals. Surely some sort of magic going on there.

Over to the income statement, an overshoot in GM% practically erased all of those mistakes in the revenue breakdown. Apple came in 150bp below my admittedly optimistic 42.4% GM estimate (I was tired of hearing PO's excuses for lowballing on this, and decided to completely ignore his air freight and component warnings). Thankfully it saved me from another embarrassing miss, and allowed me to waltz through most of the rest of the income statement line items within a percentage point or so of the actual figures. The only small issues I have is with OpEx which came a little too high (even a tad higher than Apple's guidance which is unusual), and OI&E for which I had ignored Apple's $30M guidance as silly given its cash position. It's inconsequential for now, but I do want to be able to model this based on interest rate trends and Apple's cash and equivalents, for the time when interest rates get back to normal and OI&E becomes a significant contributor to EPS. No luck so far. Finally, the net margin, 130bp below my hugely optimistic 22.8%. I should learn not to get carried away like that, as Apple did awesomely at 21.5% net margin. This was the first thing I noticed since I got crushed on revenue but Apple missed my EPS (and it worried me a bit at the time). I'll have to tone down the scorching profitability level very slightly.

Congrats to those who correctly guessed that Apple would make the accounting change in Q1. Yes, I got it wrong (and no, my reasoning wasn't at all based on any presumption that Joan Hoover would just tell me, a nobody, about such an important news item). I truly believe this was not the best way to go about it. For one thing, this report's figures have no clear relationship with what Apple had guided for back in October. Thus, not only the official record of Apple beating their own guidance is broken (of course they beat, but it's not "officially" sanctioned as in verifiably coming from Apple's own language in its reports), there's also no clear way to go about any top-down guidance analysis for it. You know, the thing many of us do in which we take Apple's lowball guidance, add back an average historically-derived "PO's lowball factor" to it, and aim our sights so our revenue and EPS estimates fall close to that. Not this time, Apple simply trashed their previous guidance for last quarter.

A similar disconnect is happening with investors, analysts, and financial reporters' interpretation of the numbers, in particular when trying to compare them to analysts consensus estimates. Obviously analysts mostly gave the old GAAP figures, some of them gave non-GAAP or new-GAAP, but the most quoted figure by the media was the old GAAP consensus. Turns out Apple by doing it like this has also trashed that gauge, it's no longer a comparable way to measure Apple's supposedly huge beat. So how do we know they really beat? and by how much? Well of course we know Apple, if it had reported based on old GAAP, would've easily beat even that "whisper" thing at $2.30, but people in general don't know and don't care to figure this out themselves (even I had a little conundrum in figuring that out). Apple clearly simply doesn't care for those old metrics anymore. That may be understandable given how those understated the company's performance, but why not provide a mechanism for a smooth transition? I say, respect the previous guidance that Apple itself gave to us, and also respect the analysts' consensus, even if it's way off, because no matter how wrong them analysts are, the consensus is the most quoted figure investors hear and read about, and investors rely on that mechanism for gauging any report against market expectations.

So people are naturally skeptical about all this, and some are assuming there are accounting tricks in play. Surely Apple's performance is quite jaw-dropping, looks highly suspicious to most in the face of the economic crisis, and to top it all most of the public know about the accounting scandals and simply distrust anything remotely reminiscing of an accounting sleigh-of-hand. To those that don't know about Apple's financial reporting preferences and style, I suppose this report can only make sense to them as a trick, after Enron, Worldcom, and all the recent banks shenanigans. Let's not forget Apple itself had it's own accounting scandal. No it wasn't overstating financial metrics to meet or beat expectations, but options. Still, that reinforces doubt. Well, the thing with this one is that it's just the opposite of that stereotype. Apple management tends to act, with regard to the stock, as understated as possible. The CFO and other executives tend to paint things in the least favorable way from a shareholder point of view. Who knows why, maybe they figure it's better to lay low and downplay your stock, perhaps to avoid attracting all sorts of curious eyes (competitors, the SEC, tax audits, envious freaks, and whatnot). Put it all together and you can see how the stock may have reacted as oddly as it did AH and the day after, wavering around $200 when this stock should be worth at least $288 today. It's clear to me the stock is reflecting this self-inflicted fear, uncertainty and doubt (self-FUD, although this time I think unintended).

Anyway, a smooth transition would have been achieved by only issuing new guidance based on the new accounting scheme. Obviously the same question would have come up regarding how to gauge the strength of such guidance against consensus expectations for Q2, and that's why my assumption or recommendation was to report and issue guidance this time as old GAAP, then sometime in the middle of the quarter announce the accounting change, making clear they would restate the last 3 years and forget all about that GAAP/non-GAAP stuff, and leave plenty of time for most analysts to realize they can throw away their old GAAP models and start talking their new GAAP models, and for the media to pick up on this and update the consensus data for the quarter, the fiscal year, and beyond. A bonus of doing it for Q2 is that the GAAP vs. non-GAAP discrepancy would be minimal for this quarter and for the next. So, even if some analysts don't bother or can't figure out how to make the switch, it still doesn't make the consensus worthless, because the effect is minimized. Thus, investors would have been much better able to appreciate Apple's beat. Only then, you would have a sensible way to measure whatever Apple reports against the market expectation. This, what they did, wasn't a trick of course, some of us know. But there's no clear and indisputable way (through official company filings) to tell exactly by how much it isn't one.

My performance details below. Apologies for the estimate fudging. It's all derived from what I published a few days ago, and a couple of things from my spreadsheet as it stood back then. Read the notes to see how.


. Est(*) Act Err Err%
. -------- ----- ---- ------

Units (K):
Mac 3184 3362 -178 - 5.3%
iPhone 8650 8737 - 87 - 1.0%
iPod 20500 20970 -470 - 2.2%

ASP ($):
Mac 1354 1324 + 31 + 2.3%
iPhone 619(1) 638 - 20 - 3.1%
iPod 155 162 - 7 - 4.4%

Revenue breakdown ($M):
Mac 4312 4450 -138 - 3.1%
iPhone 5351(*) 5578 -227 - 4.1%
iPod 3170 3391 -221 - 6.5%
Music 1177 1164 + 13 + 1.1%
Perph 404(2) 469 - 65 -13.9%
SW 604 631 - 27 - 4.3%

Income statement ($M):
Revenue 15017(*) 15683 -666 - 4.2%
COGS 8657(3) 9272 -615 - 6.6%
GM 6360(*) 6411 - 51 - 0.8%
OpEx 1625 1686 - 61 - 3.6%
OpInc 4734(*) 4725 + 9 + 0.2%
OI&E 55 33 + 22 +67.8%
Pre-tax 4790(*) 4758 + 32 + 0.7%
Tax 1365(*) 1380 - 15 - 1.1%
NetInc 3425(*) 3378 + 47 + 1.4%
Shrs. 915 920 - 5 - 0.5%
EPS 3.74(*) 3.67 +.07 + 1.9%

GM% 42.4% 40.9% +1.5% + 3.6%
OpInc% 31.5% 30.1% +1.4% + 4.6%
Tax% 28.5% 29.0% -0.5% - 1.7%
NetInc% 22.8% 21.5% +1.3% + 5.9%

(*) Shows differences in these estimates compared to previously published estimates due to accounting change. See corresponding explanatory notes for special cases below (all other new figures marked with (*) are derived by applying already derived new estimates as inputs in its standard formula, e.g. newTax = newPretax * oldTaxRate).

(1) iPhone ASP - Looking forward, it makes sense to include "other" iPhone-related revenue (carrier payments and iPhone accessories) by rolling it into the ASP for simplicity of calculation and the subscription accounting requirement to separately calculate the handset hardware revenue recognition having been removed. Also, I've decided not to estimate the precise effect of deferring the $25 value of the rights to upgrade the iPhone software ($10 for Apple TV), and instead assume the recognized portion of this as attached to just the current period's units, also for simplicity and because the differences are relatively meaningless when compared to the aspired accuracy in estimates. This last simplification tends to penalize the ASP on those quarters with much stronger unit sales when compared to the trailing 2-year average, somewhat offsetting the first assumption which rolls in related revenue that isn't necessarily attached to each unit sold. For this F1Q2010, an originally estimated $247M worth of "other" iPhone related revenue (about $29 per estimated unit) that had been excluded from the original $590 ASP estimate has been added back, yielding $619 estimated ASP including all iPhone related revenue sources. Notice Apple stated an iPhone ASP of about $620, so backing that out of the $638 ASP as I'm modeling it, it reveals $18 per unit (about $160M) of this "other" stuff, which is well below the $29 per unit ($247M) I was estimating.

(2) Peripherals and Other Hardware revenue estimate now includes full recognition of ATV sales. This is derived by subtracting all other estimated revenue sources, including the new iPhone and Related Products and Services revenue estimate based on the new ASP estimate explained in (1) as an input, from the estimated non-GAAP total revenue published previously ($15,017M).

(3) New COGS estimate is derived by estimating a similar proportion as in previous company reports for the old non-GAAP adjustment to COGS over non-GAAP adjustment to revenue (close to 30%), as follows: take 30% of the difference between the original and the new estimates for iPhone and Related Products and Services revenue (.3*[5351-2815]=761), and 75% of the difference between the original and new estimate for peripherals revenue (.75*[404-392]=3) as representing the iPhone and ATV adjustments to COGS, respectively, and add these to the original COGS estimate of $7,893M, resulting in 7893 + 761 + 3 = $8,657M. There are many other ways to derive a non-subscription accounting estimate for COGS based on iPhone revenue and estimated gross margins, so feel free to try them out and let me know what you come up with. It shouldn't be too far off if you stick to sensible estimates for iPhone GM%.

Monday, January 18, 2010

Fiscal 1Q 2010 Final Estimates

PED's now probably back from vacation and if he links here, well, thanks Philip. And a warm welcome to anyone coming from Apple 2.0. I appreciate being included with all the other big-shot analysts in the previews there over the last couple of weeks for our Mac, iPhone, and iPod unit estimates.

Final numbers below. But first I'd like to update that "Filling the GAAP" thing I did last time, except this time I've decided to do it on a trailing basis to avoid the confusion of having my estimates creep back into the past (although in my opinion the PEs are more stable on a forward-looking basis). The accounting "arbitrage" situation is a little more promising given the improved iPhone estimates. But still, when using forward valuation, the biggest opportunity remains in the past. However, the market still hasn't caught up with my forward valuation (it's getting close though) which means there's a nice $80 upside before AAPL starts trading close to my non-GAAP fair value. That should be the value NOW, forget about the 1-year target. Click to enlarge:

3mo ending Dec-2009 Revenue($B) EPS($)
. ------------- ------------
------------------ ----- ------ ---- ------
Apple guidance 11.45 N/A 1.74 N/A
Analysts consensus 12.01 ? 2.05 ?
Deagol estimates 12.47 15.02 2.35 3.74

3mo ending Mar-2010 Revenue($B) EPS($)
. ------------- ------------
------------------ ----- ------ ---- ------
Analysts consensus 10.33 ? 1.75 ?
Deagol estimates 10.69 11.34 1.94 2.29
Apple guidance (e) 10.15 10.90 1.51 1.85

12mo ending Sep-2010 Revenue($B) EPS($)
. ------------- ------------
------------------ ----- ------ ---- ------
Analysts consensus 45.05 ? 7.85 ?
Deagol estimates 46.67 51.50 8.63 11.18

Stock valuation: EPS(e) PPS(25x)
. ------------ ------------
Window 12mo starting GAAP n-GAAP GAAP n-GAAP
------ ------------- ---- ------ ---- ------
Trailing Apr-09 7.46 11.29 187 282
Fair value Apr-10 9.70 11.66 243 292
1-year target Jan-11 11.53 13.42 288 335

Revenue breakdown:
Mac 4,312 ( 3.184M @ $1,354)
iPhone 2,815 ( 8.650M @ $ 590)
iPod 3,170 (20.500M @ $ 155)
Music 1,177
Software 604
Periph 392
-------- ------
Total 12,469

Income statement:
Revenue 12,469
COGS 7,893
GM 4,576
OpEx 1,625
OpInc 2,951
OI&E 55
Pre-tax 3,006
Tax 857
NetInc 2,149
Shrs. 915
EPS 2.35

GM% 36.7%
OpInc% 23.7%
Tax% 28.5%
NetInc% 17.2%

PS: Right now I'm kinda sick of forums so if anyone cares feel free to post this in either/both. Apologies if anyone misses it.