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.

The Apple iPad Factor

The release of the Apple iPad has dramatically changed the prospects for Apple's revenue and earnings growth for the next few years. Removing the impact on revenue from the Apple iPad from the June quarter, revenue from all other sources grew by 39.8% in the June period and 39.4% for the first nine months of the fiscal year. 

Apple's guidance of $18 billion in revenue for the September quarter represents little more than an additional 8.1% gain on revenue from the prior-year period from what would be expected based on the company's performance over the first nine months of the fiscal year if the Apple iPad was not in the market. 

In the June quarter and in limited release, the Apple iPad generated $2.166 billion in revenue and alone represented 13.8% of Apple's reported revenue of $15.7 billion. Applying the average rate of revenue growth for the first nine months of the fiscal year absent the impact of the Apple iPad yields a revenue estimate for the September quarter of just over $17 billion. 

The Wall Street Pros vs. The Independent Analysts

We expect overtly conservative guidance from Apple. As stated above, it essentially represents management's view of guaranteed results. The Wall Street pros have either missed the Apple iPad phenomenon or as a group are unsure how to estimate the Apple iPad's revenue results. As a group the Wall Street pros are estimating revenue growth of 55.2% for the quarter, well off the June quarter's revenue growth rate of 61.3%. The June quarter's results were inclusive of Apple's aggressive drawdown of 3GS iPhone channel inventory ahead of the iPhone 4's late June release. That drawdown reduced the iPhone's reported sales results for the quarter and thus impacted overall results.

As a group the independent analysts are estimating revenue growth of 66.5%, above the June quarter's pace of 61.3%. On earnings per share, the Wall Street pros are estimating 48% growth, well below Apple's nine month average of 66.8% while the independent analysts are forecasting eps growth of 70%, below the June quarter's growth rate of 74.6% and slightly above the eps growth rate for the first nine months of the fiscal year. 

On a side note, the author of this blog is quite surprised to find his estimate at the top of the revenue estimate heap. He has already been politely taken to task by fellow independent blogger Daniel Tello for not having a fully corresponding rise in his eps estimate for the September quarter. The author explains the seeming slight disparity on two causes: Apple's aggressive pricing relative to costs on the Apple iPad and a slight uptick in the rate of taxes paid by Apple in the quarter versus the average for the first nine months of the fiscal year. We'll know the results on October 18th.

For now all eyes are on Apple 2.0 as the independent analysts vs. Wall Street pros comparisons continue. 

Robert Paul Leitao