Analyst: AAPL Accounting Changes Cloud Guidance

| Apple Stock Watch

Apple reported record breaking numbers during its first quarter earnings conference call on January 25, and also announced that it had implemented new accounting practices. As usual, Apple offered conservative guidance for its second fiscal quarter, but now that subscription accounting is out of the picture UBS analyst Maynard Um thinks the company's guidance many need to be reinterpreted.

"Given the change in accounting, the key questionis how conservative this guidance is given the difficulty of using historical outperformance to judge future potential performance," Mr. Um said.

Apple previously used subscription accounting to report iPhone and Apple TV sales, which spread the per-unit revenue out over 24 months to account for major software upgrades. The new accounting practices let the company account for sales in the quarter they were made.

Based on the new accounting rules, Apple's guidance is still likely to be conservative, and Mr. Um expects UBS's estimates may be conservative, too.

"Although 'new' guidance brings some new uncertainty (hence, initial sell off aftermarket), margin guidance of 39 percent implies 500bps of margin pressure in Macs and iPhones, which is likely unrealistic," he said. "Our March Mac units are also likely conservative, potentially by about 200,000 units, or about $0.08 in EPS."

Analysts are also watching to see what Apple introduces at its special media event on January 27. The general consensus is that Apple will finally show off its rumored tablet form factor device, but that doesn't necessarily mean it will ship right away.

Mr. Um is projecting Apple will show about US$0.01 EPS for each 100,000 tablets sold, and that Apple plans to make about 900,000 tablets during its initial rollout. If Apple does release its tablet during the March quarter, Mr. Um expects that will make his current earnings estimates low.

He is estimating Apple will report $11.5 billion in revenue for its March quarter with a 42.1 percent margin. For fiscal 2010, he is predicting Apple will report $52.1 billion in revenue, and $56.6 billion in 2011.

Mr. Um is maintaining his "Buy" rating and $280 target price for Apple's stock. Apple is currently trading in the pre-market at $207.75, up 4.68 (2.30%).

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6 Comments Leave Your Own

Constable Odo

I thought Andy Zaky said that once Apple changed its accounting principles it would make things clearer to WS, but somehow it’s making things fuzzier.  It really is amazing that Apple’s accounting practices seems to be unfathomable to nearly everyone.  From what I’d heard, the accounting change would nearly halve the P/E or something like that.

It appears, so far, Apple’s spectacular numbers haven’t done anything for it’s share price unless they’re keeping the share price from going down even further.

trrll

The notion that the market is so irrational that a change in the accounting scheme, with no change in underlying financials, would lead to a bump in the stock price always struck me as doubtful. A change introduces uncertainty, which always produces downward pressure. Apple clearly recognized this by recalculating past earnings, but it will still probably take the market a day or two to figure out how to respond to Apple’s guidance. In any case, the current stock price is dominated by a run-up based on anticipation of the supposed tablet, offset by doubt that Apple really can sell an expensive tablet. The earnings report did not shed light on either of those.

Bosco (Brad Hutchings)

Apple’s P/E is still completely out of whack. Market-share wise, it is a consistent 4th place company in everything it does, with some new contender shooting past it to the #2 spot every year. Last year, it was Acer in personal computers. This year, it will be Google Android in smart phones. Symbian remains #1 worldwide thanks to Nokia’s strong worldwide sales.

Look at this chart of Apple competitors. Notice the operating margins and P/E ratios. For AAPL’s price to continue to climb, you have to believe that Apple can be more than a #4 in the PC or smart phone markets. And yet, every year, some upstart just whizzes by it in some market, by exploiting some obvious market-specific weakness in Apple’s whole widget model (netbooks, open development, etc.)

AAPL still doesn’t pay a dividend, unlike HPQ and MSFT. If you invest in AAPL now, you’re hoping the price goes up. That only happens if the hype increases, and it’s hard to imagine how it could increase any more without Apple being satisfied with being the #4 player in fairly saturated markets. I look for APPL to remain between $190 and $210 until its earnings catch up and bring its P/E down to 28 or so. By 2012, AAPL’s P/E should be comparable to MSFT’s.

starman4

Curent P/E is being misreported by Yahoo and Bloomberg (and others?) as 33.36.

More accurate GAAP numbers revealed yesterday have current P/E at 20.5.

Neil Carvin has done the numbers right:

http://public.sheet.zoho.com/public/ncarvin/aapl-income-statement-2009q4-restated?mode=html

http://www.financial-gauges.com/2010/01/aapl-income-statement-analysis-for.html

daryl

Apple?s P/E is still completely out of whack. Market-share wise, it is a consistent 4th place company in everything it does, with some new contender shooting past it to the #2 spot every year. Last year, it was Acer in personal computers. This year, it will be Google Android in smart phones. Symbian remains #1 worldwide thanks to Nokia?s strong worldwide sales.

Look at this chart of Apple competitors. Notice the operating margins and P/E ratios. For AAPL?s price to continue to climb, you have to believe that Apple can be more than a #4 in the PC or smart phone markets. And yet, every year, some upstart just whizzes by it in some market, by exploiting some obvious market-specific weakness in Apple?s whole widget model (netbooks, open development, etc.)

uh, yeah some upstart like acer or google wink

gslusher

Apple?s P/E is still completely out of whack. Market-share wise, it is a consistent 4th place company in everything it does, with some new contender shooting past it to the #2 spot every year. Last year, it was Acer in personal computers. This year, it will be Google Android in smart phones. Symbian remains #1 worldwide thanks to Nokia?s strong worldwide sales.

Not quite, Bosco. Apple is far and away the #1 manufacturer of personal music players AND sells more music than anyone else, including Wal-Mart.

Acer is ahead of Apple in unit sales, to be sure, but not revenue and especially not profit. Acer operates on thin margins with low-priced products.

As for smartphones, Apple’s profit from the iPhone is greater than the entire profit of RIM—and probably Nokia, as well.

More to the point, where is Acer or Netflix in smartphone sales? Where is RIM or Google in laptop sales? Where are any of those—or Nokia—in music sales? The answer is pretty much NOWHERE. Apple may be 3rd in smartphone sales and 4th or 5th in PC sales, but it’s BOTH, PLUS the MP3 player & music markets, plus TV shows & movies and it operates the most profitable per sq ft retail stores in the world.  No other manufacturer has such good positions in a wide range of markets.

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