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.

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.

PED: Apple sells 50,000 iPads in two hours

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.

PED: Day 1 estimate: 120,000 iPads sold

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

Thanks for everyone's submissions,
-d

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?

Updates:

Yahoo! data still a mess. See http://finance.yahoo.com/q/ae?s=AAPL

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.

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.

Cheers!

-d

.            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%

Ratios:
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%

Notes:
(*) 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%.

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($B)       EPS($)
.                    -------------   ------------
F1Q10                 GAAP  n-GAAP   GAAP  n-GAAP
------------------   -----  ------   ----  ------
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($B)       EPS($)
.                    -------------   ------------
F2Q10                 GAAP  n-GAAP   GAAP  n-GAAP
------------------   -----  ------   ----  ------
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($B)       EPS($)
.                     -------------   ------------
FY10                   GAAP  n-GAAP   GAAP  n-GAAP
------------------    -----  ------   ----  ------
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


Ratios:
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.