An Opportunity In Disguise?: Apple Inc. (AAPL) Earnings Preview

Page 1 of 2

Tomorrow is the day. Apple Inc. (NASDAQ:AAPL) reports its fiscal first quarter results on how it did over the busy holiday shopping season. This particular release is seen as one of the Mac maker’s most important reports in years, in part because of souring investor confidence and the gut-wrenching 30% pullback that shares have experienced ever since peaking in September.

 Chart

Data by YCharts.

What can investors expect tomorrow? Will Apple Inc. (NASDAQ:AAPL) disprove the bears and report a blowout? Or will the competitive fears begin to weigh? Will Apple continue its bad habit of “missing” Street forecasts?

Indies vs. Pros
Due to the sheer number of professional analysts covering Apple that are constantly tweaking their estimates based on the latest rumblings, consensus estimates are a moving target. The most recent data compiled by Apple 2.0 last week put the average revenue forecast at $54.7 billion with earnings per share of $13.45. Compare those figures to Apple’s own lowball guidance of $52 billion in revenue and earnings per share of $11.75.

Independent analysts used to be more accurate than Street analysts, but the Street has been catching up more recently and the independent analysts now tend to overshoot by a healthy margin. For example, last quarter some of them were predicting sales of nearly $43 billion, which was about 19% too high. Nowadays the Street is wising up to Apple’s ways after consistently getting punked by the iPhone maker.

Time of the season
One minor note is that this year’s fourth quarter has the standard 13 weeks, while the same quarter a year ago had an extra 14th week. That will make the year-over-year comparison seem a little muted, but has already been factored into Apple’s guidance.

That being said, the Street figures above would represent growth of 18% up top and negative 3% down below. It’s important to note that some of the recent margin concerns are all short-term in nature, with the expected contraction relating to the large number of products that Apple just redesigned. Those are the same products that are expected to drive 80% of sales this quarter, and as costs inevitably come down, gross margins should bottom out and work their way back up.

Best of both worlds
Apple’s cost structure is not deteriorating by any means, and it still has incredible structural advantages over its rivals in part due to its integrated strategy.

Generally speaking, most hardware-centric companies have high levels of variable costs related to producing devices, which means their businesses aren’t very scalable. Most OEMs also only manufacture relatively commoditized hardware, keeping their margins low.

On the other hand, software-centric companies face primarily fixed cost structures and inherently are scalable, since additional software sales are incremental to the top line and development costs don’t rise accordingly. That operating leverage is how Microsoft Corporation (NASDAQ:MSFT) is able to boast a gross margin of 74%.

Software companies must expense research and development costs until the product reaches “technological feasibility,” after which point they capitalize and amortize those expenses as part of cost of revenue. Microsoft is rather conservative with when it estimates “technological feasibility,” and Apple Inc. (NASDAQ:AAPL) estimates this occurs almost immediately before products are sold.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!