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In the technology world, there's not a company that generates as much buzz and excitement as Apple (NASDAQ:AAPL), the famed developer of the iPod, iPhone, iPad, and iMac line of computing products. The company just recently began selling (and selling out of) its latest iPhone 5 and the hype-machine is spinning up ahead of the "iPad Mini" launch, so naturally investors and traders alike are very interested in the earnings report scheduled for October 25th. In this article, I hope to provide an overview of what to expect heading into the report.

Last Quarter's "Miss" - A Recap

Apple investors most likely remember the headlines surrounding the company's last report. Last quarter, Apple's revenues came in at $35B and net income was $9.32 per share, representing double-digit year-over-year growth in the top and bottom lines, but below the analysts' estimates, which called for $10.32/share in earnings and $37.2B in revenues.

Essentially, despite posting growth rates that would be the envy of most technology companies, the irrational exuberance from the sell-side analyst community led to the headlines screaming about an earnings miss.

With that in mind, let's turn to the current quarter.

This Quarter - What To Expect

At last quarter's report, Apple guided for $34B in revenues and $7.65 per share in earnings. This represents a fairly modest 8.5% year-over-year increase in earnings and a healthy 20.2% increase in sales.

Analysts, of course, believe that Apple is low-balling its guidance to play it safe and are expecting the company to come in at $36.31B in revenues and $8.89/share in earnings. On one hand, this bullishness can be easily explained: the iPhone 5 is selling out, the new iPad has been very well received, and the company's "Mac" lineup has steadily been taking share in the PC space. However, the downside here is that the analyst estimates are once again extremely high. A "miss" from their estimates, rather than from Apple's own, could be viewed negatively by investors.

The Forward Guidance - Extremely Important

While the current quarter's results will be important, the most likely scenario is that the company will beat its own estimates and probably end up closer to the mean analyst estimates. However, that's not really what investors will be focusing on. The really important thing here will be the guidance for the next quarter.

The next quarter is typically seasonally strong for technology companies and for Apple in general. However, with the expectations of exceptionally strong sales of the iPhone 5 as well as the upcoming iPad Mini, Apple has an exceptionally high bar to jump over. The average analyst estimate for the next quarter is $54B in revenues and $15.43/share in earnings. A significant miss from these estimates on the guidance could lead to a sharp sell-off in the stock, but meeting/exceeding these estimates will confirm the longer term viability of Apple's growth rates.

Margins - Keep An Eye Out For Pressure

While Apple's sales are always quite good, the question of whether Apple can maintain its high gross margins on its iOS devices is a very legitimate one. When the iPhone first came out in 2007, it was leagues beyond anything that any other company had to offer in the smartphone space. But today? There are many high quality devices based on Google's (NASDAQ:GOOG) Android operating system, and phones running Microsoft's (NASDAQ:MSFT) Windows Phone 8 operating system will start rolling out within a month.

On the tablet side, the release of Windows 8 based tablets could also be a significant headwind on the sales and margins of Apple's iPad lineup at the mid and high end of the tablet spectrum. On the low end - where the iPad Mini will supposedly compete - devices such as Amazon's (NASDAQ:AMZN) Kindle Fire HD as well as Google's Nexus 7 will serve as fierce competition.

So watch the gross margin line in the next earnings report, but I suspect it will be fine. It will be the gross margins for the next quarter that will be the key thing to watch.

Conclusion

Right now, Apple is a very reasonably valued company. With a price-to-earnings ratio of just over 15 and double digit revenue growth rates, Apple does not seem at all over-valued today. However, as the competition in the smartphone and tablet space - even at the high end - starts to really rev up, both sales and margins will be in danger.

But one thing to remember going into the report: the analyst estimates are much higher than Apple's own, so if the headlines post-report scream of an "earnings miss", make sure that it's a miss with respect to Apple's own estimates and not those of very enthusiastic sell-side analysts. Anybody who bought after the last "miss" has made quite a bit of money and anybody who sold or shorted is likely feeling very foolish.

Source: Apple's Next Big Thing: The Upcoming Earnings Report

Additional disclosure: I may initiate a long position in AAPL over the next 72 hours.