Apple’s Earnings Fall Below Street Expectations(techcrunch.com)
techcrunch.com
Apple’s Earnings Fall Below Street Expectations
http://techcrunch.com/2011/10/18/apple-q4-2011-earnings/
50 comments
This is not a story about Apple Computer, this is a story about analysts who mis-predicted something
It cuts both ways though. Apple has routinely exceeded (i.e. underestimated) their own revenue numbers for the past few quarters. From Apple's perspective alone, that sounds good because it means their stock shoots up and they get good press. But it means that people who hedged based on the expected numbers got hurt. That annoys people trying to make a living trading (whether those people deserve to make a living trading is entirely a different issue).
So the analysts correct, and bake that offset into their estimates. And Apple "missed" based on those estimates. So people who hedged based on the new guesses have to dump the stock, and it drops.
That's just the way investment markets work. Apple can't ride the "unexpectedly good news!" waves without getting hurt by the "oops, not as insanely great as expected" quarters.
It cuts both ways though. Apple has routinely exceeded (i.e. underestimated) their own revenue numbers for the past few quarters. From Apple's perspective alone, that sounds good because it means their stock shoots up and they get good press. But it means that people who hedged based on the expected numbers got hurt. That annoys people trying to make a living trading (whether those people deserve to make a living trading is entirely a different issue).
So the analysts correct, and bake that offset into their estimates. And Apple "missed" based on those estimates. So people who hedged based on the new guesses have to dump the stock, and it drops.
That's just the way investment markets work. Apple can't ride the "unexpectedly good news!" waves without getting hurt by the "oops, not as insanely great as expected" quarters.
What you have to understand is that most of these artificially high estimates were created by hedge funds with short positions in AAPL.
1) release an artificially high revenue estimate 2) wait for actual results 3) wait for stock to dip when estimate > actual results 4) sell short positions 5) profit
These analysts are not actually idiots, they're evil.
1) release an artificially high revenue estimate 2) wait for actual results 3) wait for stock to dip when estimate > actual results 4) sell short positions 5) profit
These analysts are not actually idiots, they're evil.
That is a fascinating claim, and it certainly sounds possible. Do you have any evidence or sources to back it up?
I posted this on another thread.
"Seven Reasons the Shorts Love Apple" is an investor's must-read. Hedge funds: Riding the AAPL slingshot http://tech.fortune.cnn.com/2009/12/20/hedge-funds-riding-th...
Long nicknamed the “favorite yo-yo” of daytraders and hedge fund managers – Apple’s high beta of 1.43, its prominent position in finance media and its vulnerability to rumors has made it a choice stock in short term profits, both through long and short positions http://www.investorguide.com/article/6809/apples-aapl-mini-c...
Hedge Funds, Bloggers and the Origin of Apple Rumors http://tech.fortune.cnn.com/2011/03/30/about-that-iphone-5-d...
Samsung employee caught leaking information to hedge fund manager before iPad launch http://www.bloomberg.com/news/2011-09-14/ex-samsung-worker-s...
"Seven Reasons the Shorts Love Apple" is an investor's must-read. Hedge funds: Riding the AAPL slingshot http://tech.fortune.cnn.com/2009/12/20/hedge-funds-riding-th...
Long nicknamed the “favorite yo-yo” of daytraders and hedge fund managers – Apple’s high beta of 1.43, its prominent position in finance media and its vulnerability to rumors has made it a choice stock in short term profits, both through long and short positions http://www.investorguide.com/article/6809/apples-aapl-mini-c...
Hedge Funds, Bloggers and the Origin of Apple Rumors http://tech.fortune.cnn.com/2011/03/30/about-that-iphone-5-d...
Samsung employee caught leaking information to hedge fund manager before iPad launch http://www.bloomberg.com/news/2011-09-14/ex-samsung-worker-s...
Actually, from the sound of it, the iPhone 4S launch is not even in that quarter.
Wow, thanks for pointing that out. That completely invalidates one of invalidates one of the alternate headlines.
My reading-comprehension-fu must be weak right now.
My reading-comprehension-fu must be weak right now.
I think this is the key point here. I believe that these estimates would have been met had 4S sales been included in the earnings.
Did these analysts assume that 4S sales would be included? Are they simply overlooking those sales for next quarter?
Did these analysts assume that 4S sales would be included? Are they simply overlooking those sales for next quarter?
It is for this reason (amongst others) that companies like Warren Buffet's Berkshire Hathaway and Google do not give guidance.
I think the real story is "Analysts wrong again, this time the other way". Seriously. The analysts have _never_ been right on Apple.
"So why the miss? Well for one thing, Apple’s iPhone sales dipped over 3 million compared to last quarter. This is undoubtedly because the world was awaiting the next version, the iPhone 4S, which launched last week."
Exactly, indeed they sold 4M just in a weekend.
Exactly, indeed they sold 4M just in a weekend.
And these sales were not reported in the aforementioned quarter. I think this sell-off is extremely stupid and short-sighted. Q1 will be huge for Apple, especially with holiday sales.
"I think this sell-off is extremely stupid and short-sighted."
Taken at face value I think the whole thing is stupid too and I say that as someone who dislikes Apple and refuses to buy their products personally.
However, whether or not this situation is really stupid and short-sighted depends upon who you're talking about, the guys starting it off (evil, not stupid) or the herd who follows them (stupid).
The basic idea is this:
1) Initiate Apple sell-off (via analyst number games and maybe even selling off a small percentage of your own large holdings)
2) Wait for the herd to follow you, driving the price down significantly. Buy back during the dip.
3) Profit (as price goes back up to reality)!
I've heard from many different people in the finance sector that Apple stock is the go-to stock for large player manipulation these days.
Taken at face value I think the whole thing is stupid too and I say that as someone who dislikes Apple and refuses to buy their products personally.
However, whether or not this situation is really stupid and short-sighted depends upon who you're talking about, the guys starting it off (evil, not stupid) or the herd who follows them (stupid).
The basic idea is this:
1) Initiate Apple sell-off (via analyst number games and maybe even selling off a small percentage of your own large holdings)
2) Wait for the herd to follow you, driving the price down significantly. Buy back during the dip.
3) Profit (as price goes back up to reality)!
I've heard from many different people in the finance sector that Apple stock is the go-to stock for large player manipulation these days.
Impressive that iPhone sales, despite dipping vs. the previous quarter, were actually up 21% year-over-year. The year-ago quarter was the iPhone 4's launch quarter. If I'm remembering correctly, the iPhone 4 was supply-constrained around launch but could be found in stores somewhat easily by the end of August 2010.
Undoubtedly the presence of the Verizon iPhone accounts for most of this difference, but it's still very impressive that the iPhone 4 had many more sales in its last quarter (as the flagship phone) than its launch quarter.
Undoubtedly the presence of the Verizon iPhone accounts for most of this difference, but it's still very impressive that the iPhone 4 had many more sales in its last quarter (as the flagship phone) than its launch quarter.
"Apple’s own guidance for the quarter was $25 billion in revenue" - So they didn't miss their own goal.
Apple's guidance has historically been laughably low.
so a quarterly revenue of $25 billion is "laughably" low?
According to the analysts and shareholders, YES. Just because it sounds like a lot of money doesn't mean it isn't low if you are expecting it to be more.
No, an estimate of a quarterly revenue of $25 billion is laughably low for Apple.
No - it's saying Apple routinely lies about it's expected earnings so that every quarter there is a headline saying "Apple earnings beat expectations"
So the street takes Apple's figures and add 20% because they know Apple always understates by 20%, so on those figures Apple didn't do as well as they should have.
The problem is that you don't know if Apple really expected $30Bn and under-performed or really expected $25Bn and over-performed.
Apple is a public company with shareholders and has a legal(and moral) duty to actually produce honest figures. Ultimately massaging them down is just as bad for investors as talking them up.
So the street takes Apple's figures and add 20% because they know Apple always understates by 20%, so on those figures Apple didn't do as well as they should have.
The problem is that you don't know if Apple really expected $30Bn and under-performed or really expected $25Bn and over-performed.
Apple is a public company with shareholders and has a legal(and moral) duty to actually produce honest figures. Ultimately massaging them down is just as bad for investors as talking them up.
No there's a huge difference between lying and what Apple does. Apple produces extremely conservative figures that take into account all sorts of negative things that can impact the quarter like some Foxconn factory blows up or gets shut down.
If your estimates are always 20% under what you achieve every quarter then you are either deliberately underestimating or your CFO is an idiot.
If you are deliberately underestimating to be conservative - so if there is an earthquake in Japan you can still make the expectation, or you do it to produce a headline, it's equally bad for your shareholders.
Otherwise why not produce figures saying we might sell nothing next quarter -if an asteroid wipes out all life on earth.
Of course it's still a nice position to be in compared to a company lies about making a profit next quarter hoping for a miracle!
If you are deliberately underestimating to be conservative - so if there is an earthquake in Japan you can still make the expectation, or you do it to produce a headline, it's equally bad for your shareholders.
Otherwise why not produce figures saying we might sell nothing next quarter -if an asteroid wipes out all life on earth.
Of course it's still a nice position to be in compared to a company lies about making a profit next quarter hoping for a miracle!
these "estimates" are artificially inflated by hedge funds with short positions in AAPL.
AAPL didn't lie. they're just conservative.
AAPL didn't lie. they're just conservative.
Apple "lied"?? rofl.
wrong. read my other comment above.
wrong. read my other comment above.
OK, someone explain this to me because I've never understood:
1) Company says it's going to make $1.00/share
2) "Analysts" says it's going to make $1.10/share
3) Company actually makes $1.05/share
4) OMG sell the stock!!1! it missed some arbitrary number!1
I'm a libertarian, but crap like this really irks me.
1) Company says it's going to make $1.00/share
2) "Analysts" says it's going to make $1.10/share
3) Company actually makes $1.05/share
4) OMG sell the stock!!1! it missed some arbitrary number!1
I'm a libertarian, but crap like this really irks me.
Your sentiment is shared by so many people who deem this sort of thing "injustice". I think the problem is thinking that the stocks have an innate value, they don't, the value is completely determined by the market.
Compare and contrast with the following (too common, alas) scenario:
1) Student tells parents that he'll get a B on a course.
2) Parents just know that s/he can do better, so they expect A.
3) Student actually gets B+.
4) Student gets grounded, etc.
This would be different, since the grade that the student can "optimally" get from a course is determined outside of parents (simplistically speaking), so they are unjustified in having inflated estimations. That is, in this case, there's an actual quantity (the grade) that (i) is independent of the estimators and (ii) has a "true" value. Both of these assumptions fail for the stock example.
Another fallacy is, when reading news like "Markets slump, billions lost" to think that actually billions of dollars were lost. Money is lost when you drop it out of your pocket or when an asset is destroyed, e.g. by fire. In this case what is lost is the expectation of making money.
I'm just an engineer, this is my simplistic understanding of the matters.
Compare and contrast with the following (too common, alas) scenario:
1) Student tells parents that he'll get a B on a course.
2) Parents just know that s/he can do better, so they expect A.
3) Student actually gets B+.
4) Student gets grounded, etc.
This would be different, since the grade that the student can "optimally" get from a course is determined outside of parents (simplistically speaking), so they are unjustified in having inflated estimations. That is, in this case, there's an actual quantity (the grade) that (i) is independent of the estimators and (ii) has a "true" value. Both of these assumptions fail for the stock example.
Another fallacy is, when reading news like "Markets slump, billions lost" to think that actually billions of dollars were lost. Money is lost when you drop it out of your pocket or when an asset is destroyed, e.g. by fire. In this case what is lost is the expectation of making money.
I'm just an engineer, this is my simplistic understanding of the matters.
The current stock price is set by the market. It's (at least to a large degree) based on the market's best estimate of the future earnings of the company. This is certainly related to the company's public statements on the topic but as companies often "under promise so they can over deliver" it's not exact.
So now, new information has come in that slightly changes the market's view of the company's future.
How else do you think it should work?
So now, new information has come in that slightly changes the market's view of the company's future.
How else do you think it should work?
Why does this irk you? It's a (mostly) free market and people do as they please. The stock price follows that naturally.
Before the earning, the stock is priced in at the value from 2). After the earning, the stock drops down to the price that's valued with the actual earning numbers, which is lower than 2). This should not be a huge surprise to anyone.
The apple case here is only slightly exceptional in that Apple is known for giving very conservative guidances, which is why the analyst's estimates are almost always higher than the guidance. In the past quarters, even that number was exceeded. It's just not the case here and the stock drops accordingly.
I do think there is likely potential for future growth given the extremely high guidance given for Q1, which knowning Apple, is still conservative.
disclosure: i'm long aapl
Before the earning, the stock is priced in at the value from 2). After the earning, the stock drops down to the price that's valued with the actual earning numbers, which is lower than 2). This should not be a huge surprise to anyone.
The apple case here is only slightly exceptional in that Apple is known for giving very conservative guidances, which is why the analyst's estimates are almost always higher than the guidance. In the past quarters, even that number was exceeded. It's just not the case here and the stock drops accordingly.
I do think there is likely potential for future growth given the extremely high guidance given for Q1, which knowning Apple, is still conservative.
disclosure: i'm long aapl
Because it feels like irresponsible reporting.
Fine for the Wall Street Journal, I guess, since those readers know what it means.
I guess I should be happy if this is comparable to the "Apple is doomed!" stories that used to be in vogue.
Fine for the Wall Street Journal, I guess, since those readers know what it means.
I guess I should be happy if this is comparable to the "Apple is doomed!" stories that used to be in vogue.
The company has an incentive to under promise and over deliver. The analysts are morons.
read my comment above.
Time to buy Apple shares if you have any money to invest...
>"This is undoubtedly because the world was awaiting the next version, the iPhone 4S, which launched last week."
Apple announced their upcoming announcement on September 21.
The quarter ended September 24.
Soft sales for the quarter were almost certainly due to strong competition and a more commoditized market for smart phones.
The spike in 4S orders may be due to the T-mobile roll out and the fact that T-mobile has offered its subscribers no contract plans at a discount when the subscriber purchases their own handset.
I suspect the 4S is having the effect of converting many of those accounts to two year contracts and a meaningful fraction of 4S orders are a side effect of those conversions.
Apple announced their upcoming announcement on September 21.
The quarter ended September 24.
Soft sales for the quarter were almost certainly due to strong competition and a more commoditized market for smart phones.
The spike in 4S orders may be due to the T-mobile roll out and the fact that T-mobile has offered its subscribers no contract plans at a discount when the subscriber purchases their own handset.
I suspect the 4S is having the effect of converting many of those accounts to two year contracts and a meaningful fraction of 4S orders are a side effect of those conversions.
But people have been expecting an iPhone 5 all summer so they may have put off buying an iPhone 4 even before the official 4s launch.
If the market is efficient, then companies should fall below expectations exactly 50% of the time.
I think the most interesting thing is the number of iPads (11 mil up 20% from previous quarter).
Apple will need exactly 15 million in the holiday quarter to hit their 40 million goal for 2011.
I really didn't think they would make it after their ipad 2 supply problems in the Jan-Mar quarter where they only sold 4.69 mil but it looks like they may pull it out. Maybe someone's bonus is on the line if they don't ship 40 million :)
Apple will need exactly 15 million in the holiday quarter to hit their 40 million goal for 2011.
I really didn't think they would make it after their ipad 2 supply problems in the Jan-Mar quarter where they only sold 4.69 mil but it looks like they may pull it out. Maybe someone's bonus is on the line if they don't ship 40 million :)
The thing I noted was their guidance for next quarter which is $37 billion. That is a helluva lot of iPhones.
"25 billion iOS devices sold last quarter."
What?
What?
For the quarter, Apple posted revenue of $28.27 billion and net quarterly profit of $6.62 billion, or $7.05 per diluted share, compared to revenue of $20.34 billion and net quarterly profit of $4.31 billion, or $4.64 per diluted share, in the year-ago quarter.
Apple's yearly profit and revenue were company records with Apple reporting more than $100 billion in yearly revenue for the first time ever.
Typical BS. These are the same clueless analysts who predicted iPhone 4S sales were going to be a disaster.
This is a blockbuster quarter for Apple. They earned $8 Billion more than the year-ago quarter.
Apple's yearly profit and revenue were company records with Apple reporting more than $100 billion in yearly revenue for the first time ever.
Typical BS. These are the same clueless analysts who predicted iPhone 4S sales were going to be a disaster.
This is a blockbuster quarter for Apple. They earned $8 Billion more than the year-ago quarter.
This too.
Apple profits jump 54% on record sales
Only idiot Wall street analysts would be disappointed by a 54% jump in profit.
Apple profits jump 54% on record sales
Only idiot Wall street analysts would be disappointed by a 54% jump in profit.
If you expected a 64% jump in profits and bought the stock at a premium on the basis of that then you actually do have a right to be disappointed.
Apple isn't selling at a premium though. It has a pe of < 12 when you take out the cash. I agree that things go down when expectations aren't met, the thing is the expectations don't make any sense at all.
Apple is the only company in the world that could grow 54%, have a pe of 12, and still go down.
Apple is the only company in the world that could grow 54%, have a pe of 12, and still go down.
@clarky07 exactly. Apple's PE is unbeleivably low. if you put Apple on the same PE multiple it traded on in 2006, Apple's market cap would be $1 Trillion.
Why Apple might just be the first $1 trillion company http://blogs.reuters.com/columns/2011/08/09/why-apple-might-...
Why Apple might just be the first $1 trillion company http://blogs.reuters.com/columns/2011/08/09/why-apple-might-...
why would you buy stock at a premium unless you're buying put options?
I doubt anyone's disappointed that profits jumped 54%. The disappointment is that the earnings did not meet the street's expectations.
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Apple may be one of the only companies that can get away with this without being punished in stock price.
Down 23 points at the moment in after hours trading. http://finance.yahoo.com/q?s=aapl
The stock is down over 6% in after hours trading.
So why did this fall below the expectations of the analysts? The article gives one clue:
"Well, even though Apple’s own guidance for the quarter was $25 billion in revenue, analysts seem to have wised up to Apple’s always-low estimates and were projecting numbers far higher: they were looking for around $29.5 billion. Apple came in at $28.27 billion."
The analysts assumed that Apple would do so insanely well that the only way to accurately predict how well they would do was to wildly overestimate. Turns out, they did overestimate.
Here are a few alternate headlines that could be applied equally well to this story:
"The iPhone 4S launch gives Apple second best quarter ever"
or
"Apple exceeds their expected revenue by $3.27 billion dollars"
I'd rather read about what actually happened and why, then to read about how somebody misestimated what was going to happen.