Apple’s Q Reveals the Perils of Earnings Predictions

Apple’s first-quarter earnings were blow-out numbers. Far beyond what anyone forecast, the figures show Apple arguably had the single-greatest quarterly performance in U.S. corporate history.

A quick overview: Apple’s net profit of $18 billion is an astonishing gain of 38 percent over the already-huge $13.1 billion in the same quarter last year. (So much for the law of large numbers.) Earnings per share rose 48 percent on revenue of $74.6 billion, up a staggering 30 percent.

How did Apple rack up such gigantic sales numbers? It begins with the company’s flagship product, the iPhone. It sold an astonishing 74.5 million of them in the quarter, a gain of 46 percent from the same quarter a year earlier. What’s more, the phones sold for an average of $687. (The Wall Street Journal calculated that Apple sold 34,000 phones an hour, 24/7.)

Revenue in China rose 70 percent to $16.1 billion, making it Apple’s third-largest market by sales, after the U.S. and Europe. In the near future, China will probably overtake Europe as Apple’s second-biggest market. At the risk of extrapolating to infinity, it isn’t hard to imagine the day when China also surpasses the U.S. as Apple’s biggest market.

The rest of the numbers were, by all accounts, stupendous, enormous, mind-blowing, record-breaking. Yet it seems analysts were, once again, blindsided by the data.

How is it even remotely possible that Wall Street analysts have no idea what the biggest company in the world is doing?

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  1. Concerned Neighbour commented on Jan 28

    Bang on BR. I generally like to do my research first and only then see what the salespeople (aka analysts) have to say about it. It’s also why I treat forward-looking valuation measures (such as 12-month forward P/E) with the respect they deserve (very little).

    Apple really did blow that quarter out of the water. One might have thought that when it comes to the largest company in the world, and its related massive supply chains, the analysts might have had a clue on this one.

  2. catman commented on Jan 28

    Rode to the rescue but couldn’t save the day.

  3. A commented on Jan 28

    When the inevitable crash takes place in the US, Apple’s results are not going to save the market.
    It will be taken down with the downdraft just like everything else.

    But at that time, buy a nice quantity!! It’s better to line up for the stock, than the company’s products.

  4. James Cameron commented on Jan 28

    Perhaps this claim from John C. Dvorak deserves special mention as the wrongest of all time:
    • Apple Should Pull the Plug on the iPhone (March 2007)

    ————

    Good thing he wasn’t running the company. So . . . what is he saying now?

    • Livermore Shimervore commented on Jan 29

      Yes but that claim by Dvorak was made before he had a chance to see the phone. Apple required him to sign a non-disclosure and he was expected to write only positive things about the yet to be unveiled original iPhone, or like with all other journalists, he would be black-balled by Apple. In hindsight he should have waited to see the iPhone before opining, but let’s not forget that the initial market reaction to the original iPhone launch was less than stellar.

    • Liquidity Trader commented on Jan 29

      Are you saying he blackballed a phone he had never so much as seen?

      Does that make him an idiot or a jackass?

  5. Iamthe50percent commented on Jan 28

    How is it even remotely possible that Wall Street analysts have ANY idea what the biggest company in the world is doing?

  6. Livermore Shimervore commented on Jan 29

    Wait…. you mean if Apple sells Android-sized phones they will make more money than ever before?
    Man why didn’t someone tell Apple this years ago??!! Oh wait they did….
    How are these results for the biggest iPhone screen yet a surprise? Particularly male iPhone users who have been chomping at bit for a screen large enough to fat finger type and for older users who want something they don’t have to squint at. The reasons for this epic foot-dragging by Apple to release a bigger phone and the double-edged sword of a blow out iPhone 6 numbers will be seen when iPad Air and iPad mini sales start to plummet with full throttle. In that way the iPhone numbers have to be viewed in the context of the ground they will be losing in tablets.
    The China figures were interesting. Xiaomi, Oppo and One Plus have not yet produced a phone as slick as the iPhone or Samsungs but they are getting awfully close. At half the price, these phones are going to make Apple and the Koreans look like small fry. But China’s market is so immense that even selling to just the wealthy or upper middle class in China will supplant all sales in the West. The one to watch in all this is Jack Ma and Alibaba. If they succeed in producing a viable OS of their own, with their own music, shopping, banking apps. That will be bigger than Microsoft or Apple ever was. It will effectively edge out both Android and Apple in the mobile space.

  7. howardoark commented on Jan 29

    The thing about the iPhone is that it’s a status symbol that can’t be counterfeited profitably. Yes, Samsung could make something that looks just like it, but couldn’t put the Apple logo on it. Anyone who wanted something that looked just like it including the logo couldn’t make it for less than what Apple sells it for. Call me shallow, but when I take out my 5s I feel like a shabby failure (unlike last year when I felt like the king of the world). I think Apple can sell a lot of iPhones for a long time.

    The 0.02% of the world population that can afford smart phones and sniff at Apple because it won’t run Tasker aren’t a market that’s going to move the needle very far.

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