Summing Up The Crazy: What Today's Apple Quarterly Earnings Actually Means | Cult of Mac

Summing Up The Crazy: What Today’s Apple Quarterly Earnings Actually Means



Today at 2PM Pacific/5PM Eastern, Apple will announces its 2013 first quarter earnings. Cult of Mac will, of course, be covering it live, but here’s a very brief primer of what to expect.

First of all, “pessimistic” doesn’t even begin to describe what Wall Street is feeling towards Apple right now. Despite the fact that carriers are selling more iPhones than ever, many on Wall Street believe that Apple will post its first quarter of negative income growth for a decade today.

That belief is driving Wall Street bonkers. Apple’s stock price has plunged through the floor, dropping below $400 to a sixteen month low. And you’ve got investors openly plotting regicide against Tim Cook.

For Apple to perform as badly as some Wall Street yabbos think it will, Apple will have to post zero growth year-over-year in iPhone sales. Not only is that absurd — we already know from AT&T and Verizon’s numbers that iPhone sales are on the rise in the United States — but it would count as one of the biggest disasters in the history of smartphones: a travesty of mismanagement that hasn’t been seen since Nokia openly started talking about how lame their own smartphone operating system was back in 2011.

More measured opinions of Apple’s Q2 earnings are that Apple will post net income of around $9.53 billion, an 8% increase in revenue to $42.4 billion, and earnings at $10.02 a share. That would be bad: it would be the first time in a decade that Apple’s quarterly results would have fallen in a decade, falling year-over-year by 18%.

The thing to keep in mind, though, is that Wall Street’s expectations here aren’t actually deranged. In fact, last earnings call, Apple basically told everyone not to expect a great quarter, saying they anticipated earnings of between $9.23 and $10.23 per share on sales of $41 to $43 billion.

But Apple always hedges its bets on its own guidance. In Q2 of 2012, Apple posted earnings of $11.6 billion on revenue of $39.2 billion, earning $12.30 per share. Comparatively, the previous quarter, Apple only predicted revenue of $32.5 billion, and earnings-per-share of $8.50. Apple beat its own predictions by about 17%, and earnings-per-share by about 31%. And in the past, Apple has beat its own predictions by even more.

So how will Apple perform today? Unless some sort of disaster has struck, Apple is going to perform better than Wall Street expects, because what Wall Street expects is essentially Apple’s own guidance for Q2 2013… and Apple makes a point of blowing its own guidance out of the water.

But the truth is that Apple’s not as good as it used to be eking the maximum amount of profit out of the devices it sells. Last quarter, while Apple’s revenue exploded, the company’s profit barely year-over-year. It’s this fact that is causing Wall Street — which once looked at Apple as some sort of obsence, profit-making apparatus — to lose its confidence in the company.

It’s not that Apple isn’t obscenely profitable, it’s that investors by stocks against the prospect of future growth, not past success. And Apple’s profits leveling off is a troubling indicator for Wall Street that growth might have leveled off.

So what’s the takeaway here? The truth is that it’s likely to be a very rocky day for AAPL on Wall Street, but that Apple will likely do quite a bit better than what both Wall Street and their own guidance on the quarter would suggest. It won’t be a disaster, and in fact, you’ll see a press release from Apple later today crowing about another “record” quarter.

But what Apple will be calling a “record” quarter will be an increase in revenue, not profitability. If Apple manages to grow its profitability year-over-year from 2012, its likely to be by a squeak, and its net profit margin — how well Apple converts revenue into profit — will almost definitely be down from a year ago. Apple will still be one of the most profitable companies, but it will be less profitable than the Apple of 2012, 2011 and so on.

That’s what Wall Street is worried about. They worry Apple’s epic run of year-over-year net margin growth is over. So when you see headlines and tweets later today, wondering how Wall Street can be this stupid when Apple has another “record” quarter, keep in mind that any stat can be a new “record”, but there’s only one stat Wall Street really cares about. That’s why it’s unlikely that Apple’s earnings today will stick it to all of the Wall Street nay sayers: in fact, I’d say it’s likely that Apple’s share price is likely to keep on tumbling over the coming months.

We’ll be reporting Apple’s Q2 2012 earnings call live later today, so be sure to check in with us then.