Apple's (AAPL) earnings at first glance look great, a 57% rise over last year's quarter. However, if you look more closely, the numbers get even more impressive. AAPL has a huge stream of revenues that it doesn't add into the quarter's numbers. These are its deferred revenues. Deferred revenues represent money actually received but not officially booked, because more services may be required by the company to the customer. APPL has recently decided to make a large amount of its sales--iPhones, iTV, Applecare-- go to deferred revenues. So when AAPL sells its iPhones, iTVs and Apple care, it only books a small portion of the revenues in the quarter sold. The company reasons that customers may require other services on these products such as free software upgrades. AAPL sets a two year period over which these products are incrementally added to its balance sheet. Remember the costs of iPhones and iTVs have already been largely incurred.
The street looks at the quarter's numbers and sees 1.58 billion dollars of earnings and 9.6 billion dollars of revenues. What it doesn't see are the deferred revenues, real money already paid. And these are truly juicy. This quarter, AAPL did 1 billion dollars of deferred revenue, money that will be gradually added in quarter after quarter over a 2 year period. You can see that in its cash flow report. That's why its operating cash flow is so high at 2.787 billion, almost twice the net income. This hidden revenue stream has largely been paid. And, as long as iPhones and iTVs are being sold, deferred revenue will be a huge factor, one that must not go unnoticed.
