Apple's Guidance Games Are Hurting Shareholders

The recent slide in Apple (AAPL) shares can be attributed to one thing: Steve Jobs playing games with expectations. Now it is coming back to haunt shareholders. Here is how it typically goes: Jobs gives guidance that he knows is too low and then Apple blows it away and the stock surges. Analysts have relied on those expectations to make their estimates and have traditionally been too low.

Not being idiots, they caught on to the game and have ratcheted their expectations higher than they expect Jobs to "guide them".

A funny thing happened this week. Apple guided analysts lower than what they thought the "low ball" expectation would be. Now, Apple was trading at almost 50 times earnings on Jan. 1 and have lost over 20% in the 23 days since then and look to get slashed about another 10% at the open today. The problem is that people just do not believe what Jobs is telling them.

What if he is finally telling the truth and the guidance is right on? What if iPod sales which are basically flat, despite new products stay that way or decline? iPhone sales in both France and the UK have been disappointing, is there a larger issue? Is this the reason for the lower estimate? What if the analysts have over estimated the expected "beat" Apple will produce next quarter and earnings growth is indeed going to slow? Does Apple expect the consumer slowdown to take a bigger chunk out of sales?

In the current environment, indecision equates to fear and shareholders are suffering.

If you are going to give guidance, conservative is one thing but playing games like Jobs has with it is just wrong because eventually it comes back to bite you. No one can doubt his genius or showmanship, it was hubris that was his downfall once and is hurting him again now.

Does this mean Apple will not beat the lower expectations? No. It does mean that because of Jobs's actions shareholders are in for a real unnecessarily rocky ride..

Comments

[relish1t:]

I find it hard to believe that "Steve" is dictating this as policy at Apple. I would think (due to options scandals) that Steve stays clear of Apple's financial policies. Q1 '08 guidance by Apple shocked many of you analysts as it seemed extremely optimistic at the time. And they came very close to that guidance. Perhaps it was then (and not the Q2 guidance) that Apple decided to more accurately reflect thier projections.

BTW - where is the evidence that iPhone sales are "disappointing" in France and the U.K.? Talk about mis-direction....

2008 Jan 23 01:41 PM

[KAS:]

That's a "deep" analysis: we finally know Jobs lied to shareholders. Amazing. "Analysis" and "information" by "experts" like you is in part a cause of the panic of the stockholders who most of the time do not make effort to understand what is happening with the stock market. I rather go with the guidance from Peter Oppenheimer, Apple's CFO, than any nonsense from analysts and "analysts". What we see today ... stock will rebound to somewhere between $160-235 ... that is if we believe the analysts. The point is that it really does not matter, Apple is a growing company which outperforms computer industry growth. As long as it stays this way, Apple is worth investing into.

2008 Jan 23 02:21 PM

[top_tier:]

The flip side of your argument would be that Apple tries to be as close as possible to earnings projections, then if they miss, that won't hurt shareholders...uh huh.

I prefer the analysts keep missing.

The company is growing gangbusters, that's the only important point, the stock will reflect it as we go forward.

2008 Jan 23 04:42 PM

[mike hough:]

Yawn, Yawn another ill informed article from Seeking Beta. Where is the evidence:

"Phone sales in both France and the UK have been disappointing" CarPhone warehouse says best ever seller and is bringing in 300% footfall. Frenc connection says they have exceeded expectations for December and continue to sell very well after Xmas when they budgeted for a slowdown.

"What if iPod sales which are basically flat, despite new products stay that way or decline?" Please god let them stay that way, sales only increased by 5% but revenue up 17%. Are you unable to understand that business is about profits not sales!

Gross margin of 34.7 percent, up from 31.2 percent and another $3billion in the bank. God protect us from this bad management.

The only people playing games here are the hedge funds and their friends in the 'media'.

2008 Jan 23 06:03 PM

[digivision:]

"iPhone sales in both France and the UK have been disappointing, is there a larger issue?"

didn't I just read a few days ago the opposite?? BT is telling they are selling much more iphones than anticipated and their sales are up 300%

2008 Jan 23 06:15 PM

[mag:]

didn't I just read a few days ago the opposite?? BT is telling they are selling much more iphones than anticipated and their sales are up 300%

I remember reading this also

So called Analysts are worthless parasites and do not contribute anything useful to this society

2008 Jan 23 08:22 PM

[Ricker:]

France sales of iPhone is well ahead of target. Canada, Japan next, China to follow, maybe Latin Americas before China. But France did report sales were above estimates.

2008 Jan 23 08:56 PM

[Doug, Mtn. ...:]

I've got a better idea: let's stop asking for Apple's guidance! What the hell, the analysts obviously know more about Apple's future business than does Apple, so who needs Apple's opinion to begin with? Has any one of these analyst geniuses accurately predicted any one Apple fiscal quarterly result? I have a coin in my pocket that makes more accurate forecasts than any of them. I wish I had a job like that, never being held accountable for my work. It's as good as any worthless government job!

2008 Jan 23 09:07 PM

[Eldernorm:]

I agree with the above. This is a cheaply worded hit piece.
If Apple forcasts to high, they are terrible and are doing poorly.
If Apple forcasts too low, they are terrible and cheating the shareholder (really just analysts who want to make a buck. )
If Apple forcasts just right but the market thinks that it should do better, Apple is terrible and not doing well.

Give me a break, please.
en

2008 Jan 24 01:08 AM

[Tom B:]

"let's stop asking for Apple's guidance!"

I don't care what's happening this week, I'm keeping my AAPL at least until they achieve a more realistic domestic computer market share. In spite of fantastic products, they stand at 6-8% depending on whose number you believe. When they hit 20% or so, I sell under the general principle that increasing success leads to increasing danger. At that point, MSFT might start driving trucks through neighborhoods offering free ponies to anyone who gives up his Mac.

2008 Jan 24 09:37 AM