Tuesday, January 22, 2008

Apple (AAPL) Beats by $0.14; Issues Typical Conservative Guidance

Apple (AAPL) reported another stellar quarter and their typical conservative guidance. I don't know why I even bother with the results because within 2 seconds they are "old news" and all anyone wants to talk about is next quarter guidance.

Let's talk about the guidance for next quarter first, since that's all anyone cares about. Apple says $0.94. Analysts have them pegged at $1.09. Ohh boo hiss, selloff - take the stock down 30%! Well what did they do last 90 days ago with guidance? [Apple Reports] They gave guidance of $1.42. And today's report came in at $1.76. Again, this company is lowball central.

Let's look at the rest of the earnings report, while people stress about how awful next quarter will be due to "low guidance".
  • The Company posted revenue of $9.6 billion and net quarterly profit of $1.58 billion, or $1.76 per diluted share. These results compare to revenue of $7.1 billion and net quarterly profit of $1 billion, or $1.14 per diluted share, in the year-ago quarter.
  • Gross margin was 34.7 percent, up from 31.2 percent in the year-ago quarter.
  • International sales accounted for 45 percent of the quarter's revenue.
So, we have revenue growth of 35% and profit growth of 54% (expanding margins)
We have gross margins up 3.5% year over year. And up from 33.6% last quarter (+1.1%)
We have a company that almost half of sales are now outside the US.
  • Apple shipped 2,319,000 Macintosh® computers, representing and 44 percent unit growth & 47 percent revenue growth over the year-ago quarter.
  • The Company sold 22,121,000 iPods during the quarter, representing five percent unit growth and 17 percent revenue growth over the year-ago quarter.
  • Quarterly iPhone(TM) sales were 2,315,000.
All the other consumer stuff gets the hype, but the computers are where the most potential long term profit is. Each % of worldwide market share they take is massive amounts of money to the bottom line. Looking at sales sequentially won't make sense due to holiday sales but again we see mid 40%s year over year growth. For a company this size, very impressive.
  • Looking ahead to the second quarter of fiscal 2008, we expect revenue of about $6.8 billion and earnings per diluted share of about $.94."
Again, people may obsess over this, but this is the Wall Street game - under promise, over deliver. They say $0.94... which means $1.10 or so in dog years. So the stock will tank. We'll look back in 3 months and see they squashed the $0.94 estimate just like they squashed their $1.42 estimate 3 months ago. But none of that matters now of course as in a nervous market, people will find any excuse to call for End of Days.

I'm not trying to spin it or justify the numbers; if things stink I'll say it. But this is just typical Wall Street gamemanship and in a nervous market you can't win for losing. For "stock performance" it would of been better to beat this quarter's estimates by say only $0.06 and then throw that extra $.08 into next quarter's "estimates" so the wolves on the Street are appeased. And the stock would be up, on a reasonable beat and better guidance.

Looks like Apple should be on target for $5.30-$5.40 for 2008 EPS (analysts currently have them at $5.14 but they beat this quarter by $0.14 which gives us $5.28 and then they'll magically keep beating the next 2 quarters as well).

So at $155 (today's close) it's 29x my 08 estimates. Not cheap, but not many $130B companies grow 40% year over year. At $136 which it is trading now in after hours, it's 25-26x my estimate. Or about 2/3rd of its current growth rate. And roughly in line for what it should be able to (at least) grow the next 3-5 years. For a premium franchise. But not enough to appease this ruthless market.

It appears "buy and hold" investing is going the way of the dodo bird - looking at a 1 year chart of Apple (AAPL) in the span of 3 weeks all gains since July 2007 are now erased. At the pace we are going every stock, even the best franchises, are going to be heading to 2006 levels.

Long Apple in fund; and in personal account

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