Earth to Wall Street: Apple Always Understates Guidance

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UPDATE: Apple’s stock is being punished because of concerns about Steve Jobs’ health, plus the company’s cautious guidance about Q4. Jobs didn’t participate in the earnings call, leading analysts to ask whether he is OK. Apple CFO, Peter Oppenheimer dodged the question. As Wired.com reports: “Andy Hargreaves, consumer electronics analyst at Pacific Crest Securities, said the lack of response from Oppenheimer regarding Jobs’ health only adds to investors’ doubt. “Not addressing Steve Jobs’ health perpetuates the fear that it’s a real problem,” Hargreaves said.”

Well, Apple just had another record quarter, with earnings jumping by 31 percent and revenue by 38 percent. The company sold more Macs in the third quarter than it has at any point in company history. It is performing better as a company than it ever has, and in a down economy.

So how does Wall Street respond? By knocking the stock price down by more than 10 points. Why? Because Apple’s guidance, or “made-up numbers to please whiny Wall Street analysts,” is below where the analysts believe it should be. Now, this might seem like rational behavior. If Apple is below Street consensus, the company must be headed for unanticipated trouble, right?

No. Not at all. Apple always sets expectations low and then jumps way beyond them. Take this quarter. Apple set earnings guidance at $1 per share. Analysts pegged it at $1.10 per share. Instead, they managed $1.19 per share. And the same thing keeps happening as far back as you can look. As Andy Zaky notes, Apple does this all the time, and they always beat their own guidance and the Street consensus, too. It’s just how they roll.

So why is it obvious to everyone except Wall Street traders that Apple always understates its guidance? Power is one hell of a drug, I imagine.

Picture via Imageshack

18 responses to “Earth to Wall Street: Apple Always Understates Guidance”

  1. The Rude Bellman says:

    I KNEW this would happen. I’m glad I sold half my shares about ten days ago (needed some liquidity, i.e., gas money) and am disappointed I didn’t sell it all.

    With AAPL calling for $1.00 next quarter I predict they’ll do $1.25.

    They will have HUGE back to school sales of Macs. All the iPod Touches that go with student sales count as sales since it’s a rebate program and just after that program closes they will launch NEW product including the new MBP, new MB, a fully touch screen Nano AND the fabled tablet.

    The Rude Bellman know secrets but never tells how or where he learned them.

  2. lonbud says:

    The way Wall Street rolls is to shake out weak longs so the Big Boyz can add to their holdings at cheaper buy-in prices ahead of the big run, then to over-promote shares when prices are highest and book profits.

    See the way they drove the stock down from 200 to 120 in Jan/Feb and rode it all the way back up on the wave of iPhone launch hype. They will talk it all the way back down to 130 – 140 before Labor Day and it will be making new highs over 200 before the Holiday Shopping season begins after Thanksgiving.

    Jobs did not look well at WWDC, but as Leander wrote for CoM at the time, Apple will be fine without him.

  3. Olmecmystic says:

    Earth to everybody…I thought it was well known that Steve is a vegetarian and Buddhist. The man doesn’t eat meat, people! Apparently he’s also a jogger, hence the New Balance track shoes all the time.

    I know in today’s America it’s unusual to be lean and fit instead of sitting around on your fat ass analyzing stock all day, but this is ridiculous! If everybody on Wall Street stopped eating meat for the next five years, I bet you wouldn’t look the same, either.

    Peace.

  4. Thomas says:

    Love the update, it’s like a “Oh, hey, we didn’t know what we were talking about this time around but felt like posting. But don’t worry, someone corrected us and now it’s all good. Our bad :) “

  5. Thom says:

    Wall Street to Earth – It’s a Bear Market and you don’t lower margins in a Bear Market and expect to be rewarded for it.

    Love Apple but I love reality even more.

  6. Andrew DK says:

    @ Olmecmystic

    Second that.

  7. AAPLWatcher says:

    Uh, when was the last time Jobs participated in an earnings call?

    And while its understood Apple gives conservative guidance (which Wall Street does tend to freak out about), there is something weird about this one. Their Q4 guidance is LOWER than their actual Q3 numbers they just announced.
    Q3 had zero new iPhone revenues recognized (they were deferred from March to July), and is the “slow” season for hardware.
    Q4 will have the start of the iPhone 3G revenues (over 24 months), continued revenues from the original iPhone (over 24 months), and back to school hardware sales.

    Even given the lower profit margins projected because of secret products, its a bit weird the overall revenues would be lower, even given their conservativism.

  8. lonbud says:

    YOY 3Q was plus 38%, guidance for YOY Q4 was plus 26% or so. Lower in a way, but I don’t see APPL falling out of bed with 25+% YOY growth on a quarterly basis.

    On a revenue basis, 3Q was $7.46B with estimates for 4Q at $8B+, so that’s not really lower, is it?

  9. Gary L says:

    Go figure why, now looks like the time to buy.
    Here’s some insider info that any MAC user knows.
    There is no quit and there is no finish.
    Understand.