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


Anonymous said...

Good stuff. What is your revised 12 month target?

Daniel Tello said...

Anon, a very rough revision gives $527.

Anonymous said...

From your lips to Gods ears.

Roy said...

Congratulations, nevertheless, on being far closer than the Wall Street geniuses. As you said, as a shareholder, I don't have any complaints!

I looked up and saw that MSFT and CSCO were the first to reach $0.5 trillion market cap, back in 2000. AAPL is still at $222B. If it doubled from here, it would still be below CSCO at its peak ($550B). So a $500+ PPS is not outlandish by any means.


Anonymous said...

Congrats Deagol. I have been following your predictions and I am impressed that you put your neck out their with your aggressive predictions. This should serve as a a reminder on how analysts are pretty clueless about companies they cover. Most simply react rather then predict anything. Good job.

JavaJack said...

Thanks for all this information Deagol. Fascinating! I've been on the road and couldn't wait to get home to see the results and read your analysis.

Anonymous said...

Is the EPS midpoint $2.335 or $2.40? You seem to show two different Apple estimates.

Roy said...

No, what he said was his forecast of how Apple would guide the next Q was $13.2b revenue and $2.40 EPS. That was Deagol's forecast of the guidance Apple would provide. The actual guidance Apple gave was $13.0-$13.4b in revenue (mid point $13.2b, same as what Deagol said Apple would forecast), and $2.28-$2.39 EPS (midpoint $2.335, vs. the $2.40 Deagol said Apple would predict). Hope I cleared it.

Roy said...

Two psychological factors that could substantially add to the stock price: (1) a stock split; and (2) inclusion of AAPL into the Dow 30 (perhaps replacing AA).

Anyone with any thoughts?

Anonymous said...

Roy, both of them will do it and catapult it to 300. Stock split to 26 and to 30 from there looks easy ;)

Hope a split happens. It is about time.

Daniel Tello said...

Sorry, but I disagree with both. A split will only attract fickle traders and opportunists, and inclusion in the Dow has been kind of a jinx, if I remember some study I read about it correctly.

Stefan said...

Q3 profit margin forecasts:
Apple guidance - 16.8%
Concensus - 18.8%
Deagol - 20.3%

Q2 actual was 22.8%

I'm using a 40% GM for iPad which I expect is conservative. Even with the higher SG&A guidance, I get profit margin at 22.7%.

Deagol, How are you modeling the iPad GM and do you think your profit margin is conservative? Whatever iPad roll-out costs are, everything pales in comparison to their revenues and GM, so I don't see the big ding to profit margin that Apple is guiding to.

Regards, Stefan

Anonymous said...

$527 based on what tax rate, interest rate, gross margin, unit numbers,ASP's ? Thanks

David said...

Any idea why the Apple stock price is dipping over the past few days? I was expecting the stock to keep rising after the good news... What's your opinion?

Roy said...

The decline started for technical reasons - market overbought in the short term, huffing and puffing up on relatively low volumes. Scare of a default by Greece. Some profit taking, including some selling by a couple of insiders on Friday last week.

Today, 4/28, AAPL is down because of a new headline that says Microsoft is siding with HTC and Google against Apple. Why? Because Microsoft signed an unspecified licensing deal with HTC.

I think this is nuts - what this means is if HTC is successful, Microsoft becomes another toll collector. That means three mouths have to be fed - HTC, Google and Microsoft, and the Consumer has to eventually pay for this. With Apple, there is no second and third company to pay.

So I don't see how Microsoft is "siding with HTC" - they are not paying HTC money, they want to COLLECT money! Oh, well... somebody will eventually figure it out.

The bigger issue here is what the major indexes do. If the S&P and the Nasdaq drop, they will take AAPL and everything else in sight down with them.

My 2 cents.

Andy M. Zaky said...

Thanks for the comments you've taken the time to give me at my site. I made all of the relevant edits. Now here's what I'm going to do per your advice.

Normally, what I do is publish my earnings estimates early in the quarter. I then go through an make edits to those numbers multiple times throughout the quarter as data come in. Yet, i only publish the final numbers just days before Apple releases its earnings report.

Yet, this strategy does cause some problems whenever I write an article based on my edited numbers which aren't published anywhere for everyone to see.

While I can't edit the original article where my first quarterly estimates are published as my original estimates need to be saved for posterity, what I've decided to do is simply make a page that states my current model.

In this page, I'll publish my most current model, and post comments on each change I make to that model. Thanks for the recommendation. I think that should help keep everything more consistent.