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John Miller
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Studied international affairs at the George Washington University with a focus in economics. Experience as a senior manager for a large retail chain. Managed multiple locations with sales in the low seven digits. In depth knowledge of domestic video game stocks such as ATVI and EA and foreign... More
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  • No Big Beat From Apple This Quarter

    Over the past two quarters Apple (AAPL) handily beat guidance and analysts' expectations. Observers generally agree Apple presents conservative guidance while accepting that the company has the best insight into future sales. During their Q2 earnings call, the company guided revenue at $34 billion for the upcoming June quarter (Q3 2012). This compares to Q2 revenue of $39.2 billion. While we do not believe a $5 billion dollar decline is forthcoming, CFO Peter Oppenheimer gave compelling reasons to believe that the company will face a sequential decline in revenue this quarter (unlike the March versus June quarter comparison from last year). This decline would put revenue in the $37.5 billion range, which is inline with expectations.

     Revenue Estimate June 2012
    Analysts' Average$37.38 Billion
    High$41.73 Billion
    Low$34.54 Billion
    Apple Guidance$34.00 Billion

    Source: Yahoo Finance

    iPhone Supply and 4S RolloutiPhone 4S

    The first reason Oppenheimer gives in support of a sequential decline in revenue relates to differences in the supply of iPhones. Last year supply to new countries was still being added during the April to June quarter. This year the iPhone 4S rollout in China and 20 other countries occurred in January, completing the rollout for all countries. Basically, demand was filled during the March quarter this year rather than the June quarter like last year.

    iPad Supply and Price Decrease

    Relatively more supply was on hand for the launch of the new iPad during the March quarter of this year when compared to the launch of the iPad 2 last year. Because of the greater supply, 3 million units of the new iPad sold in the first few days. Revenue that was previously captured in the June quarter again moved to the March quarter as with the iPhone above.

    Apple also lowered the price of the older iPad 2 to $399 in March. The company believes in the short run this will lower revenue. However, both Oppenheimer and CEO Timothy Cook indicated they were still learning about the elasticity of the demand of the iPad 2. They highlighted the fact that the lower price unlocks educational demand and led to a marked change in demand in several countries.

    Strong Dollar

    The recent strength in the dollar will weigh on revenues in the current quarter. The strong dollar dampens demand in foreign countries for US exports by making the products more costly in the local currency. Other large US based multinationals such as Procter and Gamble (PG) and PepsiCo (PEP) have recently warned that the strong dollar will be a headwind in the current and coming quarters. For sequential comparisons versus last year, it is interesting to note we saw a weakening of the dollar for the same period.

    Conclusion

    High launch supply and fast country rollouts of the iPhone 4S and the new iPad moved revenue from the current quarter to the previous quarter when one compares to last year. The lower price point on the iPad 2 and the strong dollar should also decrease revenues. After two quarters of significant beats of analysts' expectations, investors should show caution in increasing their position prior to the upcoming earnings call.

    Disclosure: I am long AAPL.

    Tags: PEP, PG, AAPL, earnings
    Jun 30 5:36 PM | Link | 1 Comment
  • World Of Warcraft Numbers To Decline Rapidly Again

    Last quarter we saw a stabilization of active subscribers in Activision's (ATVI) World of Warcraft game. While numbers had been quickly falling all of 2011, we correctly predicted a small loss for the quarter ending in December. Using the same methodology, which primarily looks at census data from a third party website provided by commentor bdy and looking at new content release (which drives participation), we are predicting a loss in subscribers at Activision's flagship in excess of 500,000 subscribers.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    May 09 8:27 AM | Link | 5 Comments
  • Alpha Overlay In Kentucky Derby

    Investing in stocks and gambling on horse races are two games with the same trait. Both require those who would claim success to find the alpha in a situation. Prior to the running of this year's Kentucky Derby on Saturday, most sober handicappers will go to the betting window with the belief that their selections have the best risk/reward ratios.

    Interestingly, in our opinion, the horse with the best risk to reward ratio in this year's field is an aptly named horse called Alpha. Alpha's troubled past hides real talent and at 20-1 payout odds the reward is in excess of the risk borne.

    No matter who wins, Churchhill Downs (CHDN) benefits greatly from the running of the Kentucky Derby with over $100 million bet on the race alone. The company may still be an underlay (displaying negative alpha) due to it high PE and PEG ratios.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: CHDN
    May 05 4:47 PM | Link | Comment!
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