Wall Street failing to recognize Apple’s blow-out quarter?

“This quarter, Apple’s (AAPL) earnings failed to impress investors,” Stephen Rosenman writes for Seekign Alpha. “Wall Street promptly hurled it off a cliff…”

MacDailyNews Note: Apple’s record earnings were impressive to most; it was Apple’s Q2 08 guidance that failed to meet the Street’s expectations.

“But, wait. What if I told you that Apple forgot to enter 2 of the 2.3 million phones it sold this quarter, that they just skipped them, took the dough, are using it and just left it plain – well- out of the net income? Well, they did. They ‘deferred’ them,” Rosenman writes. “Apple’s earnings are far more impressive when you consider that their iPhone and [Apple TV] numbers are largely not entered in when they are sold. Rather, Apple stretches the revenues out over a two year period, only entering 1/8 of them each quarter.”

“Over the next two years, most of 3.288 billion dollars of deferred revenues will drop effortlessly to the bottom line. If Apple decided, quite legitimately, it could have taken those 816 million dollars as earnings this last quarter. Instead of 1.58 billion dollars, it easily could have logged 1.58 + 0.816, or 2.396 billion dollars, or about $2.65 a share. If they had reported that number — $2.65 a share — which is real net income earned, the stock price would be up to 230 rather than dropping to 130,” Rosenman writes.

“The earnings are there. They are real. They will be logged in over the next 7 quarters. The street needs to understand that Apple is reporting their earnings differently than most other companies and by doing so their explosive growth is vastly understated. There is nothing disappointing about this quarter. Au contraire, it is a blow-out,” Rosenman writes.

Full article here.

33 Comments

  1. To Macfanboy who said “Apple had one whole year since the previous MacWorld and all Apple did was introduce two lame (to the bottom line) products?)”

    From the two Macworlds’ apple has introduced the iphone, Apple TV (1&2;), revamp imacs, the ipod touch, revamp “classic” ipods, the video ipod nano, revamped 8 core Mac Pros, DRM free tracks on itunes, Movie Rental, a whole host of software including the little tidbit called Leopard.

    Apple does NOT release all it’s new products in the Jan. Macworld as countless PC weighted reviewers, articles and fanboys seem to think.

  2. wannabe –

    Splits have a very specific purpose – reward current investors with more stock at no cost, while at the same time splitting the price in half (if it’s a 2 for 1 split), encouraging new investment in the company.

  3. You’re missing the fact that manufacturing costs are expensed over the straight 24 month period as well. Margins on the defferred REVENUE (not earnings) will be higher than most revenue since all non-manufacturing costs, such as R&D;are expensed as they occur. You just need to subtract out the cost of the hardware.

  4. @Drew_III

    Stock splits really do NOT serve any purpose. You are not getting any additional ownership through a stock split. You end up with the same exact sthing you had before. 100 shares at $200 = $20,000. 200 shares at $100 still = $20,000. Think of it this way. If you have 5 $20 bills, you have $100. If I was to split them for you and give you 10 $10 bills, you would have more “money”, but you wouldn’t have any more money. Holding more bills or more shares may feel cool, but doesn’t change anything.

    As for encouraging new investment, most investment is done by large institutions such as Endowments, Pensions, Mutual Funds, etc. They could care less what the share price is. They are working in millions and billions of dollars. The only group that thinks that way are small retail investors, a small slice of the overall pie. Again though, Apple or any stock is just as “affordable” pre-split as after. If I only have say $20,000 to invest, I can get 100 shares of Apple @ $200 or after a split, 200 shares @ $100. Either way, my investment is $20,000, the EXACT SAME!

  5. I’ve emerged from the Reality Distortion Field! Old Mac Man, I totally agree with you!

    1: The iPhone by far is not complete — Exactly! Apple should have skipped the 1984 Mac, kept selling the Apple ][, and waited until they had developed the Intel Macs and Tiger before releasing the Mac. That would have been Killer!

    2: MacBook AIr, [released] during a US recession? — Another dumb move. Apple should have scaled back their innovation during the dot.com bubble burst just like Dell and Microsoft, then they’d have even more money in the bank!

    3: Cheap looking glossy screens — A real shot to the foot! The real reason laptop and desktop sales have been declining!

    4: Time Machine and Time Capsule … neither is bootable. — You’ve hit the nail on the head! Considering how many hard drive failures I’ve had, a bootable back up is much more important to me than recovering the occasional presentation for work or the photos of my sister’s wedding I happen to accidentally delete. My boss and sister totallly understand.

  6. @Old Man

    How wrong can you be. The iPhone has the highest satisfaction ratings for any phone, period. That data has been published in the last few months.

    Also remember what Jobs has said in the past. Apple skate to where the puck will be not where it is now. The MB Air is an excellent replacement for the 12 inch PB. It is designed for the frequent traveller plus it is also pushing the envelope in what a computer can be.

    I’ve been backing up my PB via wireless using Time Machine. Then this weekend I decided to wipe the computer and reinstall everything. After setting up TM again and doing the initial backup overnight, I discover that TM recognized the old backups which are available to me if I need something I had deleted.

    That type of behavior is pure magic. I’ve used other programs like retrospect and always have problems because if something goes wrong the whole backup can be invalid.

    I’ll pass on the glossy screen. This is where Apple wants to go and in my opinion they are usually correct.

  7. SOX is only part of it, less than stellar growth in iPhone and Apple TV sales is another part, low expectations for the coming year – no great new products predicted – round out the problems. If you believe it. I believed a $200 stock, worth more like $150, crashed to ~$130 … an opportunity! SOX accounting will feed the kitty for two years, minimum, the iMac will get a Core 2 Quad processor, and the Apple TV just doesn’t matter that much. I’m hoping Bento gets folded into iWork’09, but will have a copy before then. Yes, Bento’s profit eventually reaches Apple’s bottom line.

  8. Did you press the play button on your tape recorder when you posted that? What is with your whining about glossy screens? I have three Apple monitors and only one of them is glossy. I ordered it glossy for a reason.

    You have been watching glossy televisions for decades yet you whine about them obsessively. You are pathetic. Even when commenting on the iPhone you whine about glossy screens:

    http://macdailynews.com/index.php/weblog/comments/16151/

    Stop your crying and move on.

  9. I’ve got to ask.

    If you’re a man that just uses old Macs, why do your panties get in such a bunch over Apple’s new software and hardware?

    I think you are spreading this FUD under contract to the Microsoft Corp. I call bullshit on all of your posts.

  10. While normal investors earn money when the stock goes up and are able to sell at a higher price, traders and analysts play a different game.

    In fact it is by CAUSING LOSSES that these traders earn money. They just manipulate the stock to their own advantage. They earn most when the stock market goes down, because they act with some kind of advance knowledge, and they rely on the panic that they are causing with the less informed.

    IMHO if enough of them team up, they can let any company’s shares go up or down AT WILL.

    There ought to be a law against this behavior. The techniques the traders use should be closely investigated and the rules should be refined such that the companies and their reliable shareholders earn most money, rather than those leeches.

  11. The fact that iPhone and AppleTV revenues are deferred over 24 months is not a secret to anyone, especially any investor researching the company’s finances. The last line is telling: “Disclosure: Author has a long position in AAPL” — in other words, “Please buy AAPL!!! PLEASE!!”

  12. Back2Mac,

    Have to kindly disagree. While the value of a stock split is not immediately realized, over time it is (generally). Say I have 100 shares of AAPL valued at $10 each. The stock splits 2 for 1, so now I have 200 shares at $5 each. Same monetary value, however if the value of the stock were to go back up to $10 I now have double the investment at no additional cost.

    I’d also disagree that the major sources of investment “don’t care” what the price of stock is, for the very reason you say. If xyz mutual fund is buying stock in a company, they most certainly would want to buy at a lower price to increase their return on investment. When they invest billions, even the smallest up or down in the stock price makes a huge difference in the price they have to pay for that stock.

  13. I hope Steve introduces a $1499 game Box. I know most people here will buy it if it is Sexy and made of Glass and Aluminum. That will help the stock out just like his $1799 No feature Laptop did…

    And the funny part is, I’m only half joking. If Apple introduced a $1500 game machine, most of the fanbois here would run to buy it (whether their were games available for it or not) as long as it was “sexy, gorgeous, and environmentally friendly”)…

    Where the high quality sub-1000 dollar machines Steve????

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