What does $37B revs and $9.30 EPS get you?  Another classic Oppenheimer Sandbag?

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    Posted: 19 October 2011 03:55 PM

    Please feel free to combine this post with another topic as appropriate, but I thought it might be constructive to look into management’s guidance a bit more.

    Given part of the clues of Tim Cook and Oppenheimer and making very reasonable assumptions as informed by the Q4 2011 data, what would it take to get to $37B in revs and $9.30 in EPS?

    [updated thought exercise below]

    Don’t anybody worry.  Oppenheimer did NOT miss the quarterly sandbag sale.

    Let me just say this:  People, this holiday quarter is gonna be massive like you’ve never seen.

    [ Edited: 20 October 2011 04:05 AM by Mav ]

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    Posted: 19 October 2011 04:10 PM #1

    Mav - 19 October 2011 06:55 PM

    ... “Fixing up” the numbers to better reflect reality will take more time, but let me just say this:  People, this holiday quarter is gonna be massive like you’ve never seen.

    What happen to the idea that guidance will affect stock price more than the result?  So far AAPL is influenced more by the “missed consensus” result and the market than by the extremely bullish guidance.

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    Posted: 19 October 2011 04:33 PM #2

    Looking past all that.

    I still subscribe to the theory that AAPL will not trade below a certain laugh zone.  It’s actually held kinda true so far this year.

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  • Posted: 19 October 2011 04:44 PM #3

    Mace - 19 October 2011 07:10 PM
    Mav - 19 October 2011 06:55 PM

    ... “Fixing up” the numbers to better reflect reality will take more time, but let me just say this:  People, this holiday quarter is gonna be massive like you’ve never seen.

    What happen to the idea that guidance will affect stock price more than the result?  So far AAPL is influenced more by the “missed consensus” result and the market than by the extremely bullish guidance.

    It was always a crazy premise from the start and just part of the game of AAPL.  If it hadn’t been the phone miss it would have been something else that would have been blamed for the sell off.  You and I are both common holder longs and speaking for myself the ONLY thing I’ve learned in watching this Shakespearean play for a decade is that sooner or later a descent price shows up should one be interested in selling.  Peter Lynch couldn’t call this puppy on a daily basis.

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    Posted: 20 October 2011 02:49 AM #4

    I ran the numbers again with my base assumptions, but with all of Oppenheimer’s guided profitability metrics included.

    This time around, I forced the revenue number to hit 37B in the most plausible way possible.

    >28.39M iPhones ($640 ASP - probably higher this quarter)
    >12M iPads ($610 ASP - average-to-conservative price estimate)
    >4.7M Macs ($1270 ASP)
    >15M iPods ($166 ASP as per ASP reduction in this fiscal quarter)

    >I added all fiscal Q4 totals for Other Music, Software, Peripherals, and used Oppenheimer’s guided OI&E.

    GM - 40%
    OpEx - 8.8%
    Tax Rate - 24.25%

    This yields results of:  $36.9956B and $9.36 EPS (941M shares).

    Let’s start playing, “what the heck is wrong with this picture.”  (To keep the post relatively compact for now, I’ll give the quick summary of my thoughts and explain more fully later as needed.)

    First:  GM and OpEx are clearly sandbagged.  Let’s look at fiscal Q1 2011.  Guidance of 36% GM vs. 38.5% actual.  Back then, iPhones were 39.1% of total revenue and iPads at 17.2%.  Based on guidance this year, iPhones could probably be in the neighborhood of 49% of all revenue, with iPads at 19.8% (under different circumstances, Oppenheimer and Cook might have a hard time suppressing chortles).  Did I mention that iPods will thin out margins less than ever before?  Given this incredibly margin-rich mix “based on” guidance alone, I call BS on Oppenheimer and am putting the GM floor at 42.5%. 

    On to OpEx.  Oppenheimer guided to an OpEx ratio of 10.9% for fiscal Q4 2011 vs. 9.4% actual.  Oppenheimer guided to an OpEx ratio of 10.1% for fiscal Q1 2011 vs. 9.2% actual.  Oppenheimer, AFAIK, always goes too high on OpEx (not necessarily for tax rate, so I’m leaving it alone for now).  iPhones sell themselves without too much SG&A expense required.  Let’s go with an OpEx of 8.3%.

    Run those new. more reasonable numbers:  EPS finds its way to $10.25 without adding a single dollar of revenue.  We’re just getting started…

    [ Edited: 20 October 2011 03:12 AM by Mav ]

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    Posted: 20 October 2011 02:58 AM #5

    Mav - 20 October 2011 05:49 AM

    I ran the numbers again with my base assumptions, but with all of Oppenheimer’s guided profitability metrics included:

    Again, my base assumptions were: 

    >29M iPhones ($640 ASP - probably higher this quarter)
    >12M iPads ($610 ASP - average-to-conservative price estimate)
    >4.7M Macs ($1270 ASP)
    >15M iPods ($166 ASP as per ASP reduction in this fiscal quarter)

    >I added all fiscal Q4 totals for Other Music, Software, Peripherals, and used Oppenheimer’s guided OI&E.

    GM - 40%
    OpEx - 8.8%
    Tax Rate - 24.25%

    Great retrofit, Mav

    So, looking at the revenue, earnings and your components to get there, and staying pretty conservative, I think iPhones can be higher by 1.75 million, Macs up by .2 million, GM up .5 percent. Everything else staying as you suggest…...we see earnings move up significantly. And I don’t think anything is stretched. Certainly iPhone could be MUCH higher without stretching credulity much.

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    Posted: 20 October 2011 03:10 AM #6

    Hang on!  I’m changing things up still.  Quote the new stuff, please.  LOL

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    Posted: 20 October 2011 03:51 AM #7

    Part 2:  Where were we?

    >28.39M iPhones ($640 ASP - probably higher this quarter)
    >12M iPads ($610 ASP - average-to-conservative price estimate)
    >4.7M Macs ($1270 ASP)
    >15M iPods ($166 ASP as per ASP reduction in this fiscal quarter)

    >I added all fiscal Q4 totals for Other Music, Software, Peripherals, and used Oppenheimer?s guided OI&E.

    GM - 42.5% (my base projection, +2.5% from guidance) - anyone from the AFB is welcome to educate me on why currency fluctations would hold down GM in the face of ultra-high-margin iPhones taking up a larger share of total revs than ever before
    OpEx - 8.3% (my base projection, -0.5% from guidance)
    Tax Rate - 24.25% (left alone)

    Results of:  $36.9956B, $10.25 EPS.

    Let’s get after iPhones first.

    What do 28.39M iPhones represent?  75% YOY rate of growth (16.235M iPhones sold in year-ago quarter). 

    Who are you trying to fool, Oppenheimer?  You guys just let iOS 5, iCloud and rampant rumors derail your smartphone growth rate and after “over 4.x million 4S” handsets sold in 3 days (a giant sandbag in itself considering the 4Ses that were backordered or not yet delivered, to say nothing of cheaper iPhone 4s/3GSes not counted in that number), and you only plan to follow it up by probably just matching the smartphone rate of growth?

    Try again - Let’s do a 100% YOY growth rate considering you guys probably sold or could bank as sold 6 or so million iPhones in a single week  (I’m betting more like 7-8).  32.47M iPhones sounds more reasonable. 

    Onto iPads.

    I think we’ve established that 28.4M iPhones sold in the fiscal quarter is a tough sell.  But we had to go to that low a number just to fit Oppenheimer’s guidance.  So now we move to iPads.  All this enthusiasm about iPads and we’ll go from…11.1M iPads to 12M iPads?  Wow, epic.  63% YOY growth (vs. 7.33M)?  Epic sandbag!  Also, I see iPads as having some of the iPod seasonality’s halo.  iPads will be one heck of a hot holiday gift.  Given all this, I’d say 14.66M iPads (a growth slowdown to 100% YOY) is quite reasonable. 

    Onto Macs.

    0% sequential growth in Macs?  Not in fiscal Q1 2011, where sequential growth was 6% by units and 11% by revs!  Or fiscal Q1 2010 (10% unit growth sequentially).  Also, 4.7M Macs implies 14% YOY growth.  Let’s bump the growth number to 20%, for 4.92M Macs (5% sequential growth).

    Put all those numbers in?  $41.5B, $11.50 EPS, $10.817B net income, net income ratio of about 26%.  And I consider the iPhone/iPad thought exercise numbers to be on the lower end.

    Wait, what?  26% net income per revenue dollar when Apple managed 25.5% net income per revenue dollar in the last iPhone-rich quarter, fiscal Q3 2011, with only $28.57B in revs? When revenue leverage will be way, way north of 30% better than fiscal Q3 2011, and when Apple is so masterful at driving down the cost curve?  And when Apple has iPhones going up to $849 in price (non-contract)?

    I could go on, but I think that’s enough for today…

    [ Edited: 20 October 2011 04:03 AM by Mav ]

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    Posted: 20 October 2011 04:58 AM #8

    Mav - 20 October 2011 06:51 AM

    Part 2:  Where were we?

    >28.39M iPhones ($640 ASP - probably higher this quarter)
    >12M iPads ($610 ASP - average-to-conservative price estimate)
    >4.7M Macs ($1270 ASP)
    >15M iPods ($166 ASP as per ASP reduction in this fiscal quarter)

    >I added all fiscal Q4 totals for Other Music, Software, Peripherals, and used Oppenheimer?s guided OI&E.

    GM - 42.5% (my base projection, +2.5% from guidance) - anyone from the AFB is welcome to educate me on why currency fluctations would hold down GM in the face of ultra-high-margin iPhones taking up a larger share of total revs than ever before
    OpEx - 8.3% (my base projection, -0.5% from guidance)
    Tax Rate - 24.25% (left alone)

    Results of:  $36.9956B, $10.25 EPS.

    Let’s get after iPhones first.

    What do 28.39M iPhones represent?  75% YOY rate of growth (16.235M iPhones sold in year-ago quarter). 

    Who are you trying to fool, Oppenheimer?  You guys just let iOS 5, iCloud and rampant rumors derail your smartphone growth rate and after “over 4.x million 4S” handsets sold in 3 days (a giant sandbag in itself considering the 4Ses that were backordered or not yet delivered, to say nothing of cheaper iPhone 4s/3GSes not counted in that number), and you only plan to follow it up by probably just matching the smartphone rate of growth?

    Try again - Let’s do a 100% YOY growth rate considering you guys probably sold or could bank as sold 6 or so million iPhones in a single week  (I’m betting more like 7-8).  32.47M iPhones sounds more reasonable. 

    Onto iPads.

    I think we’ve established that 28.4M iPhones sold in the fiscal quarter is a tough sell.  But we had to go to that low a number just to fit Oppenheimer’s guidance.  So now we move to iPads.  All this enthusiasm about iPads and we’ll go from…11.1M iPads to 12M iPads?  Wow, epic.  63% YOY growth (vs. 7.33M)?  Epic sandbag!  Also, I see iPads as having some of the iPod seasonality’s halo.  iPads will be one heck of a hot holiday gift.  Given all this, I’d say 14.66M iPads (a growth slowdown to 100% YOY) is quite reasonable. 

    Onto Macs.

    0% sequential growth in Macs?  Not in fiscal Q1 2011, where sequential growth was 6% by units and 11% by revs!  Or fiscal Q1 2010 (10% unit growth sequentially).  Also, 4.7M Macs implies 14% YOY growth.  Let’s bump the growth number to 20%, for 4.92M Macs (5% sequential growth).

    Put all those numbers in?  $41.5B, $11.50 EPS, $10.817B net income, net income ratio of about 26%.  And I consider the iPhone/iPad thought exercise numbers to be on the lower end.

    Wait, what?  26% net income per revenue dollar when Apple managed 25.5% net income per revenue dollar in the last iPhone-rich quarter, fiscal Q3 2011, with only $28.57B in revs? When revenue leverage will be way, way north of 30% better than fiscal Q3 2011, and when Apple is so masterful at driving down the cost curve?  And when Apple has iPhones going up to $849 in price (non-contract)?

    I could go on, but I think that’s enough for today…

    Good analysis, although I disagree on the Macs - last year saw the new September released MacBook Air Reach widespread availability in FQ1, whereas this year we don’t have any impetus for a sequential uptick (yet).

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  • Posted: 20 October 2011 06:13 AM #9

    Just for the record, PO beats his guidance, routinely.

         
  • Posted: 20 October 2011 09:00 AM #10

    Mav - 20 October 2011 06:51 AM

    Part 2:  Where were we?
    I could go on, but I think that’s enough for today…

    Excellent work Mav (glad to see someone else can’t sleep either).

    For everything except iPhones and iPads, I used the average percentage growth rate of the last 3 December quarters, to calculate units and ASPs.

    I got:
    Macs
    Units 5.4 million
    Rev $7.1 billion

    iPods
    Units 13.8 million
    Rev $2.4 billion

    Music $1.83 billion
    Peripherals $678 million
    Software $772 million

    OIC I took PO’s guidance

    I’ve already shared how I estimated iPhones and came up with:
    Units 31.9 million
    Rev $21.1 billion

    iPads, basically, are a WAG (there just isn’t enough historical data).  That said I’m calling for 37% QoQ growth.
    Units 15.2 million
    Rev $8.5 billion

    GM 41.1%
    OpEx 7.27%
    Tax 24.1%
    Net Income 25.2%
    Shares 941 million

    5 minutes in my Hamilton Beach mixer and I get $42.4 billion revenue and $11.60 EPS (80% YoY growth).

    EPS represents a 25% beat over guidance.  I’m having a real problem with that due to PO and TC’s “confidence” statements, coupled with FQ4/11 beat of 28% (lowest of F2011).  Just applying the average F2011 beat (37%) to guidance gets us to $12.74 (which I feel may be conservative).  Even after getting burnt with FQ4 results I’m more comfortable with $12.74, than I am with $11.60.

    Now would $11.60 be enough to satisfy WS?  NO.  I’m not even sure $12.74 would satisfy them.  I can envision their unpublished expectations being mid $13.00.

    It’s 5:00 AM PST.  Good night, err morning, everyone.

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    Posted: 20 October 2011 11:20 AM #11

    Mav - 19 October 2011 07:33 PM

    Looking past all that.

    I still subscribe to the theory that AAPL will not trade below a certain laugh zone.  It’s actually held kinda true so far this year.

    I disagree because there are some stiff econ headwinds building right. Can the ECRI and others be so wrong? 

    http://www.zew.de/en/press/1823/zew-indicator-of-economic-sentiment—-economic-expectations-weaken-once-again

    My current (subject to change) plan: I’ll be going slightly defensive over the next month or so. i.e. sell into any pop. Currently at ~70% long but looking to edge down to ~50% (core) long position in the short run with an “expectation” (not hope) that aapl will trend into the mid 300’s sometime before the next earnings call. Will add and ramp back up to 80+% when/if aapl goes on sale.

      cheers
        JohnG

         
  • Posted: 20 October 2011 11:51 AM #12

    Mav - 19 October 2011 07:33 PM

    I still subscribe to the theory that AAPL will not trade below a certain laugh zone.  It’s actually held kinda true so far this year.

    I agree, and I believe this is a fundamental new dynamic for AAPL going into 2012. 

    In the last few years, fear in the markets trumped improving Apple fundamentals, causing continuous PE compression.

    The fear sentiment hasn’t improved, but it’s ability to cause further compression may be near hitting a floor.  While Apple’s current PE makes no sense to ME, it would make no sense to ANYBODY to have Apple’s PE below S%P and DOW PE averages for extended periods. 

    Industry average PE’s may go down further next year, but not by very much absent something unprecedented. 

    With Apple earnings continuing to rise fast, and little room for further PE compression, AAPL should do very well in the next 12 months, even with no improvement in overall investor sentiment.

    And SOMEDAY, investor sentiment reverts to the norm, and when it does, that rally monkey is going to get mighty tired.

         
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    Posted: 20 October 2011 12:23 PM #13

    adamthompson3232 - 20 October 2011 03:09 PM

    ... I think it actually does make sense for some people to see Apple’s P/E below the market P/E. Apple’s future earnings have NEVER been in doubt more than today by the mainstream media, individual investors, and likely some institutions. I don’t agree with it but I said it a few weeks ago here after SJ’s passing - TC is going to have to prove himself for at least a few quarters before P/E might expand. Maybe I’m wrong but I think we’re already seeing it.

    Agree with your view.  Also, the extremely bullish guidance can backfire as it means Apple would be building hell of a lot of inventory, what if can’t sell as much because of global economic downtrend?  TC is pretty gutsy.  If he is right, would be a gap up after Jan earning.  Worth a bet* to buy very OTM Apr calls.  *As in excessively risky bet.

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  • Posted: 20 October 2011 12:44 PM #14

    adamthompson3232 - 20 October 2011 03:09 PM

    Apple’s future earnings have NEVER been in doubt more than today by the mainstream media, individual investors, and likely some institutions.

    I agree, BUT Apple’s anticipated growth rate, even from the perspective of the conservative pro analysts, would support a PE in excess of 30, so the doubt you refer to should bring that down to 20-25. 

    Not all doubt is the same.  There is reasonable doubt and unreasonable doubt.  Bringing a PE of a company growing over 50% a year below the PE of companies growing 10% per year is unreasonable doubt.  While investors will get as close to acting unreasonably as they can, I think there is a psychological barrier for Apple PE crossing below index PE’s for other than blip durations.

         
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    Posted: 20 October 2011 09:17 PM #15

    adamthompson3232 - 20 October 2011 03:09 PM

    I think it actually does make sense for some people to see Apple’s P/E below the market P/E. Apple’s future earnings have NEVER been in doubt more than today by the mainstream media, individual investors, and likely some institutions. I don’t agree with it but I said it a few weeks ago here after SJ’s passing - TC is going to have to prove himself for at least a few quarters before P/E might expand. Maybe I’m wrong but I think we’re already seeing it.

    Expand to _what_?  15?

    It makes sense that AAPL haters/doubters/FUDsters/short-siders have a lot of ammo right now, yes.  Nothing here that forces me to recalibrate my expectations.

    Fundamentals will continue to force AAPL higher.  We’re looking at a ttm EPS of 30.56 just based on Oppenheimer’s guidance.  Before anyone gets too worried about iPad (SPOILER ALERT:  Apple is probably going to have “disappointing” iPad sales in Q2 2012 with sequentially lower sales in the 10-12M range), iPad 3 should get the tablet market re-ignited nicely again.  And look out competition if Apple decides to keep a cheap iPad 2 around.

    [ Edited: 20 October 2011 09:32 PM by Mav ]

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