The Apple Analyst Sandbag Factor

Each fiscal quarter Apple 2.0's Philip Elmer-DeWitt provides an index of quarterly estimates that include numbers from a select group of bloggers and numbers from Wall Street pros. For the September quarter, the differences in the estimates from the bloggers and the pros have the widest divergence since the quarterly indexes began. This quarter the gap is so pronounced it might best be described as a chasm. Revenue estimates range from a high of $37.19 billion from Mark Beauch of the AAPL Independent Analysts group to a low of $26.36 billion from Morgan Stanley's Kathryn Hubert. On earnings per share, the estimates range from a high of $10.01 put forward by this author to a low of $6.30 also from Kathryn Huberty. 

The table below lists the average revenue and eps estimates from the 16 bloggers and the 28 pros who submitted revenue and eps numbers. 

The Apple Analyst Sandbag Factor

There's more to the difference in the average eps estimates from the two groups than the difference in revenue estimates. This difference is what I call "The Apple Analyst Sandbag Factor."

The purpose of this exercise is to remove differences in the revenue estimates from the numbers submitted by the individual analysts and compare each analyst's eps outcome to their respective revenue estimate, using Apple's June quarter results as a constant in the review. The outcome of the analysis indicates the Wall Street analysts are forecasting a significant deterioration in Apple's net income and eps performance per revenue dollar based on their own revenue and eps numbers. This anticipated deterioration in net income and eps performance represents the "Sandbag Factor."

The chart below lists the September quarter estimates from the analysts. The content is courtesy of Apple 2.0 and is from the article titled, Wall Street Still Doesn't Understand Apple published on October 11, 2011. The analysts are ranked by revenue estimate. The bloggers are highlighted in green and the Wall Street pros are highlighted in blue.

The AAPL Independent Analysts FQ4 Estimate Index

On October 18th Apple will announce results for the company's 4th fiscal quarter ended September 24th. To gauge expectations for the quarter, we asked members of the AAPL Independent Analysts group on Linkedin and members of the Apple Finance Board who have participated in prior quarterly indexes to submit estimates of the company's 4th fiscal quarter performance. 

Among the fourteen individuals who submitted estimates for this September quarter index are well known independent analysts Horace Dediu and Daniel Tello, returning analysts Navin Nagrani and Patrick Smellie and newcomers Michael Cranston and Martin Epstein. Collectively these individuals represent a cross section of the AAPL independent analyst community and come from various professional backgrounds and career interests. 

On average index participants anticipate the following September quarter unit sales results:

	Macs	4,677,500			20.40% YOY Rise
	iPhones	23,765,071			68.52% YOY Rise
	iPods	7,158,857			20.91% YOY Decline
	iPads	13,624,214			225.32% YOY Rise

Notes on the Unit Sales Numbers:

Mac sales: Over the first nine months of FY 2011, Macintosh unit sales rose 21.1%. The index average is inline with the recent unit sales trend and reflects confidence in Mac sales during the recent back-to-school season.

iPhone sales: The index average reflects expectations of a slower rate of growth in iPhone unit sales in the 4th quarter due to the release of the iPhone 5 in the holiday quarter. During the first nine months of the fiscal year iPhone unit sales rose 113%. 

iPod sales: The Apple iPod remains in a state of steady unit sales decline. The iOS-based Apple iPod touch remains the biggest revenue generator among the available iPod models. Apple's decision this year to offer $100 in iTunes content to students purchasing a new Mac versus a free iPod touch will influence iPod unit sales results in the quarter. 

iPad sales: The index average suggests anticipation of strong iPad unit sales in the September quarter as Apple strived to resolve the challenge of constrained product supplies. Index participants expect a rise in unit sales of 225% over the prior-year period. 

The AFB AAPL FQ3 Estimate Index

The Apple Finance Board (AFB) is home to many AAPL traders, investors and Apple product enthusiasts. Among the members of the AFB are well know independent analysts Daniel Tello (deagol), Horace Dediu (aysmco), Turley Muller and Andy Zaky. I serve as the moderator of the AFB under the DawnTreader moniker. 

AFB AAPL FQ3 Estimates

Each fiscal quarter active members of the AFB are polled for their estimates of Apple's quarterly performance based on product unit sales and financial outcome. This article highlights the anticipated financial outcome for the three-month period ended in late June (Apple's FQ3 2011). Tomorrow I will post the unit sales estimates from each index participant by product line that underpin these financial performance estimates. 

On average the 30 active AFB members participating in the June quarter index estimate Apple will report the following results for the company's third fiscal quarter:

AFB Member AAPL FQ3 Estimate Averages:

Revenue			$26,556	69.14%	(% YOY Revenue Growth)
Gross Margin			10,714	40.35%	(% of Reported Revenue)
Operating Expenses			2,542	9.57%	(% of Reported Revenue)
Pre-Tax Income			8,235	31.01%	(% of Reported Revenue)
Tax Expense			1,987	24.12%	(% of Pre-Tax Income)
Net Income			6,248	23.53%	(% of Reported Revenue)
EPS			6.66	89.61%	(% YOY EPS Growth)

All numbers in thousands except per share data.

During the first six months of the current fiscal year Apple's revenue rose 76.2% and eps rose 83.2% in year-over-year comparisons. As a group AFB members estimate the pace of revenue growth in the June quarter will have slowed slightly to 69.14%. However, the pace of eps growth is estimated to rise above the performance of the first six months of the current fiscal year to 89.61%.

Factors Impacting the June Quarter Financial Performance

The June quarter represents the first fiscal quarter in which Apple iPad sales are a factor in the prior-year performance. This factor alone will will have an impact on year-over-year revenue growth. iPad unit sales and the resulting revenue were not a factor in the prior-year financial performance comparisons in the December (FQ1) and March (FQ2) quarters.

Apple has effectively managed the growth in operating expenses relative to revenue growth. The company's ability to keep this major expense segment under 10% of reported revenue and the rate of growth of operating expenses well below the rate of growth of revenue is having a significant and positive impact on the company's earnings per share performance. AFB members are estimating the percentage of revenue that flows to the net income line will reach above 23.5%.

Robert Paul Leitao

Disclosure: The author is long AAPL shares

The AFB AAPL Price Target Index - June 2011 Edition

The Apple Finance Board is home to some of the best known and hardest working independent AAPL analysts on the blogosphere. As a service to the members of the AFB, a popular and well respected discussion board, I'm hosting the index of AFB AAPL price targets and share price forecasts developed by the members. 

Index participants submitted AAPL price targets for the first trading day of the month following the release of Apple's quarterly earnings reports through May 1, 2012 and associated ranges for the share price. The dates chosen for the quarterly price targets represent the first trading day of the month following the release of Apple's quarterly earnings reports, providing time for the markets to adjust the company's valuation based on the the most recent quarterly numbers. 

Comments on the index can be made at the bottom of this post and for registered members of the AFB in the topic created specifically for this discussion.  

The graphs and data table below indicate the average AAPL price targets of the index participants. The price targets and price range forecasts of each of the participants is listed below the averages. Thank  you to the AFB members participating in the index for the benefit of our readers.

	AFB	Index	Averages
	Date	Low	High	Target
	Aug 1, 2011	352	418	397
	Nov 1, 2011	394	470	445
	Feb 1, 2012	438	518	498
	May 1, 2012	478	558	547

Thank You to PED And The Active Members Of The AFB

I'd like to extend a thank you to Philip Elmer-DeWitt at Apple 2.0 for another compelling quarterly comparison of AAPL estimates from the bloggers and the Wall Street pros. Over the past several quarters Mr. Elmer-DeWitt has been the catalyst for transforming AAPL analysis into a participatory sport.

As the moderator of the Apple Finance Board (AFB) I'd to thank my fellow AFB members and independent bloggers Horace Dediu, Dennis Hildebrand, Turley Muller, Daniel Tello and Andy M. Zaky for their participation in the Apple 2.0 quarterly estimate comparisons as well as AFB members Jeff Fosberg, Alexis Cabot, Luke Kittell, Chas McKenna, Patrick Smellie, Adam Thompson and Mark Beauch. This quarter I'd like to see more of the AFB members participating in the quarterly analyst comparisons enter the blogosphere. Each of you are standouts and should more actively publish your insights and analysis.

The purpose of Posts At Eventide is to provide a wide range of information and analysis on the performance of Apple Inc. Thank you to all of the active members of the AFB mentioned above for being an inspiration to continue the hard work.

Robert Paul Leitao

AAPL FQ2 Analyst Estimates: The Revenue And Net Income Test

On December 19th, 2010 I published a post titled Apple: Testing Analyst EPS Estimates With Revenue Forecasts. In that post I demonstrated a fairly easy method to test the relationship between an analyst's revenue and eps estimates. 

In Apple's 1st fiscal quarter of FY 2011 (the December quarter) roughly 22.45% of each revenue dollar flowed to the net income line. In this post I'm comparing the March quarter revenue and eps estimates of 14 unaffiliated analysts and 34 Wall Street analysts as published by Philip Elmer-DeWitt at Apple 2.0 to determine each analyst's net income to revenue ratio.

Bloggers Versus The Pros
Each quarter Apple 2.0 publishes analyst estimates and categorizes the estimates based on the affiliation of the analysts on the list - professional Wall Street analysts or unaffiliated analysts such as myself. My March quarter estimates are published in a separate post at Posts At Eventide and are included in the list. There's usually a wide gap in the average revenue and eps estimates between the members of the two groups. The gap in the March quarter estimates between the professional Wall Street analysts and the unaffiliated analysts illustrates this consistent trend. Not only is there a gap in the average revenue and eps estimates, there are also gaps in the estimated percentage of revenue the analysts suggest will flow to Apple's net income line.

Revenue and Net Income Estimates By Analyst
To determine the percentage of revenue each analyst estimates will flow to the net income line, I multiplied the published eps estimates as provided by Apple 2.0 by a constant of 937.5 million shares (an estimate of the number of fully diluted shares in the March quarter) and then divided that outcome by each analyst's revenue estimate that had been rounded to the nearest $100 million.

With the exception of Scott Craig, Andy Hargreaves, Toni Sacconaghi and Mike Abramsky, the Wall Street pros expect Apple's net income to revenue ratio in the March quarter to be below the FQ1 performance. The estimates from Mike Abramsky and Brian Marshall hover around the December quarter's net income to revenue performance along with the estimate from unaffiliated analyst and Apple Finance Board (AFB) member Mark Beauch.

Among the unaffiliated analysts Turley Muller estimates net income to reach about $.2413 of each revenue dollar while bloggers Andy Zaky, Daniel Tello, Robert Paul Leitao and Horace Dediu estimate net income to reach above the $.23 per revenue dollar threshold along with Nicolae Mihalache and AFB members Jeff Fosberg, Alexis Cabot, Luke Kittell, Patrick Smellie, Adam Thompson and Chas McKenna. Please see the table of analyst estimates below the break. The revenue estimates listed are in billions of dollars. 

The AFB AAPL FQ2 Estimate Index

The AFB AAPL FQ2 Estimate Index

The active members of the Apple Finance Board are best described as an assemblage of talented individuals with colorful personalities. They are outspoken, hardworking and focused on understanding everything there is to know about Apple and the company's financial performance.

As a service to the members of the AFB, a popular and well respected discussion board, I'm hosting the revenue and earnings estimates for Apple's second fiscal quarter developed by members of the community. As the host of the index and commentator on the members and their entries I've published my quarterly estimates in a separate blog entry at Posts At Eventide. 

This is the second consecutive quarter AFB member quarterly estimates have been collected and published. Although several members are new to the quarterly estimate development process newness to publishing estimates belies years of studying Apple as a company and years of familiarity with the company's popular and award-winning products. 

The average estimate of the 24 AFB members participating in the FQ2 index indicates expected revenue of $25.746 billion and earnings per share of $6.39. This is in contrast to the current Wall Street consensus of $23.15 billion in revenue and eps of $5.32. The AFB member revenue estimate represents an expected 90.7% rise in revenue in the quarter and eps growth of 91.9% over the prior-year period. All numbers in the chart below are in millions except per share data. 

Knowing the active members of the AFB from years of moderating the discussion board, it's a pleasure to host the FQ2 index at Posts At Eventide. Comments on the index can be made below and for registered members of the AFB in the topic created specifically for this discussion. 

Robert Paul Leitao


(Post edited 04/10/2011 to include estimates from Andy M. Zaky)

The AFB AAPL Price Target Index - February 2011 Edition

The AFB AAPL Price Target Index - February 2011 Edition

The Apple Finance Board is home to some of the best known and hardest working independent AAPL analysts on the planet. As a service to the members of the AFB, a popular and well respected discussion board, I'm hosting the index of AFB AAPL price targets and share price forecasts developed by the members here at Posts At Eventide.

This post is an update to the initial AFB AAPL Price Target Index published in January. The participants in this index represent a cross section of AFB members ranging from well known AAPL analysts Horace Dediu, Daniel Tello, Turley Muller and Andy M. Zaky, to long-time AFB members Mark Beauch and Ron Smith and newer members such as Dennis Hildebrand. In all, twenty four (24) members of the Apple Finance Board are represented in the index.

AFB AAPL Price Target Index Averages

Index participants submitted AAPL price targets for the first day of the month following the release of Apple's quarterly earnings reports through February 1, 2012 and submitted associated ranges for the share price. Comments on the index can be made at the bottom of this post and for registered members of the AFB in the topic created specifically for this discussion.  Thank you to the index participants for submitting their share price targets and anticipated trading ranges. 

The graph and data table below indicate the average AAPL price targets of the two dozen index participants. 

AAPL Estimates: Have The Wall Street Pros Gone Crazy?

One of the more interesting features of Philip Elmer-DeWitt's Apple 2.0 column is the recurring quarterly comparisons of the revenue and earnings estimates of a select group of independent analysts and bloggers and the numbers put up by the Wall Street pros. 

The comparison of estimates for Apple's fiscal fourth quarter that ended in September illustrates how differently the independent bloggers and analysts view Apple and the company's prospects for strong revenue and earnings growth in the iPhone and Apple iPad eras. In reviewing the numbers one question leaps to mind: Have the Wall Street pros all gone crazy or have they been wilderness camping together since the Apple iPad's release? 

A quick look at the average estimates of the 31 analysts and the averages of the two sub-groups:

Average Revenue Estimates

All Analysts (31):                  $19.34 Billion

Independent Analysts (9): $20.32 Billion

Wall Street Pros (22):         $18.95 Billion

Average EPS Estimates

All Analysts (31):                          $4.28 

Independent Analysts (9):          $4.71

Wall Street Pros (22):                  $4.10

Apple's Guidance For The September Quarter

For the September quarter Apple CFO, Peter Oppenheimer, offered guidance of $18 billion in revenue and earnings of $3.44 per share. Historically Apple's guidance isn't guidance at all. It's a statement of guaranteed results. Guidance has markedly trailed actual results over the last several quarters. 

Apple's guidance for the September quarter suggests revenue growth of about 47.5% and eps growth of 24.2% over the fourth fiscal quarter of 2009. This contrasts with revenue growth of 46.2% for the first nine months of fiscal year 2010 and earnings per share growth of 66.8% over the same period.

However, in the June quarter, the first quarter with Apple iPad revenue and earnings in the mix, Apple realized revenue growth of 61.3% and earnings per share growth of 74.6%. It appears management's September quarter guidance does not reflect anticipated revenue and earnings per share growth from the Apple iPad in the July to September period.

Thank You!

Thank you to all of the active members of the Apple Finance Board for your support, feedback and camaraderie. Entering a public comparison of AAPL earnings estimates against many of the best minds on Wall Street was something I figured was akin to singlehandedly taking on the 101st Airborne Division armed only with a pitchfork. A suburban husband and father equipped with an iMac, pad of paper and Internet access to read the news, download financial statements for analysis and moderate an AAPL-discussion board are my claims to resources. Yes. I have a background in finance and accounting and a passion for the intuitive and revolutionary products produced by a company that takes its name from a fruit. Still, this was a challenge by nature I'd ordinarily avoid. I didn't expect my estimates to finish at or around the top. At best I expected a respectable showing. I'd like to thank each of you for being that added resource through your camaraderie and support that prompted me to publicly post estimates and do the hard work involved to produce them.  

Congratulations to Turley Muller on his top placement, to Daniel Tello for his excellent showing and his ongoing examples of hard work and diligence, and Patrick Smellie , Andy Zaky and Alexis Cabot for their fine showings and making the outcome a virtual shut out for the bloggers and unaffiliated analysts. A special thank you to Philip Elmer-DeWitt for not only including my numbers in his comparisons but also for choosing to use my given name. It was a bit startling to see my name in digital print outside of ATPM, the few comments I make on Apple 2.0 columns, and years ago the financial reports and columns I wrote for The Mac Observer. Perhaps for too long I've hidden behind that thin veil of pseudo anonymity that I crafted with the DawnTreader moniker. 

The results of the analyst comparisons can be found in this Apple 2.0 column.

Sincerely, 

Robert Paul Leitao (aka DawnTreader)