“Apple (AAPL) is notorious for one thing: giving lowered guidance to their profits and revenues,” Kenneth Hartog writes for Seeking Alpha. “Why do they keep doing this every single quarter and end up being wrong every single quarter? Why the particularly lowered guidance this quarter?”
MacDailyNews Note: Apple guided below analysts’ expectations, but Apple’s Q2 08 guidance of “revenue of about $6.8 billion,” is 29.3% over Apple’s Q2 07 posted revenue of $5.26 billion. In other words, Apple expects their business to grow 29.3% year-over-year in Q2 08.
“I will answer all of these questions in one simple and quick answer: Money. Why would they lower guidance to make more money? Well, in my opinion, the people who work for Apple have no incentive to drive the price of the stock higher in the short term. In fact, their incentive is to drive the stock lower in the short term. Why? The people who work at the company are being paid in options. If you schedule your strike price for options to be set on a particular day, you are incentivized to have the stock as low as possible on that particular day. The only day that one wants the price to be high is when one sells,” Hartog writes. “Are any Apple insiders selling? Very few.”
Hartog writes, “In other words, and this is the main point, I that that what they are doing is driving the stock lower, essentially buying via their options plans, and then waiting for the stock to go higher to its ‘correct’ price. Brilliant. How could you not love such a creative company?”
Full article here.
How could you not love such a creative company?
Exactly. As long as Apple keeps their brilliant strategies, amazingly brilliant and sexy hardware designs, and first class software (i.e. continues to be themselves), they’ve got a life long customer in me.
Looks like a great buying opportunity from my angle.
Just wish I had some of those ‘artificially low priced’ options.
Insiders always have the edge.
Why did they give such ‘Low’ guidance?
Because Christmas falls in December, not February, this year.
Looks like Kenneth Hartog has joined the tinfoil hat wearing crowd.
Yeah, Apple executives are manipulating the stock price. Right.
Apple no doubt predict low because market conditions aside, whatever they predict the “analysts” come up with some higher expecation then get disappointed when the predictions are exceeded but their expectations aren’t. If Apple had predicted the results they just got, think what the analysts would have been expecting. Apple’s share price would probably be under a $100 by now.
Maybe they also wanted to be conservative in the event of a market slowdown or sluggish economy.
That’s absurd. That is NOT what their CFO is doing. He’s just following generally conservative GAAP rules. It is common for companies to predict modest growth in the next quarter, and then they try to beat that estimate. The ‘problem’ for Apple’s suits, though, is that the company is in a wild growth phase right now, and has been for the last 2 years. They still need to follow GAAP. No, the problem isn’t Apple’s estimates, it’s that Wall Street analysts are irrationally exuberant wankers. (Except when they aren’t, at which point they become irrationally pessimistic wankers.)
This is pure B.S. Apple is conservative in their guidance because their whole philosophy is to under-promise and over-deliver. That applies to the product side as well as the financial side. And that’s the best way to manage a company. The current price is a huge opportunity to buy AAPL at bargain rates and make lots of $$$.
A friend said he though her heard Apple was doing a stock buyback. Did anyone else hear this?
If I recall correctly, actually Apple guided higher before last quarter and the Analysts were skeptical as to how they could be confident about higher guidance.
Uh…MDN regarding your comment -where does it end and then you pick up the article again???? Are you saying the stuff or somebody else and you are just copying it?
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And what this guy is suggesting is illegal. Insider type trading sheninigans.
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Apple guides lower because they no things we don´t – like preorders for MBA and other products are probably way off what other new Apple products did….plus there is probably going to be an Apple iPhone price cut in the next month or so.
Let me cut to the chase: I think that giving forward-looking guidance should be disallowed or made illegal. It’s patently ridiculous, putting a company on the spot to project to the penny what future earnings will be. To me, analysts demanding guidance shows how lazy and inept they are. It’s their job to estimate a company’s earnings and to be accountable for their projections. Instead, they force their will on a company and hold them accountable for what they should be doing themselves.
My specific opinion of Wall Street analysts is unprintable.
Not only is it fun to discuss among ourselves the pride we have for Apple products, but it’s comforting to hear so many rational responses to an irrational market.
The sun will also rise tomorrow.
I’m in AAPL long. For the long haul.
This is a blip.
‘This is a blip.’
More like a bloop!
Summary:
Apple under-promise and over-deliver (that demonstrates that they take a long-term view – analysts may need to get a dictionary out to find what long-term means).
Analysts’ pals on The Street love short term fluctuations, every trade is a commission.
Apple is a very forward looking company with a hot-line to the future, not just in their products.
The FUDsters from the Microsoft camp have been joined by the manipulators from the The Street (looking for short term profits) and the FUDsters in sectors vulnerable to Apple’s advance like media and telecoms.
There will be more and more BS like this.
Apple provided fairly optimistic year-over-year growth guidance for Q2. But Wall Street already had higher “whisper numbers” in place and call +29% disappointing?!
I’ll never understand the stock market. If I take the contrarian to most of my inclinations about buying/selling stocks, I would probably make a lot of money. Instead I’ll just buy and hold and forego the stress.
“It’s the economy, stupid.”
The writing ison the wall. Apple is an bright spot in an otherwise dismal US economic outlook, thanks to the Chimp in Charge. They would be fools to believe that they are so well insulated from the misfortunes of other tech stocks that Apple itself won’t suffer from the coming recession.
Did this guy shoot his whole argument in the foot, by saying that Apple guided revenues would go up 29.3% from last year’s quarter? What the heck is conservative about 29.3% GROWTH in revenues?
They also estimated 32% in gross margins, which is the highest they’ve ever estimated gross margins to be.
Conservative and aggressive depend upon where you are sitting on the fence. From the analysts perspective, perhaps Apple is conservative, but if you are predictably conservative, then it shouldn’t matter. It’s predictability that counts, not whether you are conservative or aggressive in your outlook.
As for option pricing for employees, it makes sense to look at Apple’s 10K to check how and when options are priced. Usually they take an average price over some period of time. However, if the CFO is predictably conservative, you just take his guidance, add your usual 20%, and then you have your analyst’s expectation. Why the market doesn’t make this mental adjustment is nonsense.
This option pricing conspiracy is nonsense, unless Apple did this conservative guidance infrequently; however, it does it consistently, so it shouldn’t work.
actually due to the options scandal apple isn’t issuing options to its employees right now, so they have no reason to do this.
What a stupid column. Apple traditionally gives conservative guidance. Why? Because if you give guidance which reflects where you truly expect to be at the end of the next quarter, and for some reason you don’t meet your projections, Wall Street HAMMERS you, and analysts claim your company is headed for the trash heap.
This guy’s theory is actually backwards: If Apple officers wanted to get more for their stock options, they would provide high guidance and then steer the company to miss those projections (as in not reach) by a good margin. Then the stock price would really fall, new options are issued at much lower stock prices, and the executives get the company back on track for the next quarter. Much more controllable by the executives than this guy’s ridiculous theory.
Agreed with Bizlaw, and in fact many execs have run the ruse that he describes in his second paragraph. This is very simple:
Company after company has gotten punished out of all proportion because they missed their earnings estimates by fractions, even when there have been clear mitigating circumstances. The market is no more rational than your average 4 yr old, running on complete Id, so that’s how Apple treats it.
It’s long past time for some reason in the market, but that won’t happen until we understand that it must be imposed, and that markets, like children, do much better with clear and consistently enforced guidance and discipline. We’re not likely to see that until there’s a basic ideological shift away from the dogma of market fundamentalists.
Because they figured out that everyone who wants an ipod or imac already has one. Next question.
What kind of nonsense is this? Like they say, Apple has been “guiding low” for a long time now. Every time they bead their estimates the price of stock has been going up. This time was an anomaly, by every stretch of imagination.
If they really wanted to drive the stock down, they would guide way up and then fail to meet their estimate.
Seems like the is every moron can make anything up these days, just like satand-up philosophers of biblical times.
Uh…recession? Time to pay the piper for all the misspent funds.