The All-New, All-Honest Apple
Apple launches its brand-new iPad Air on Friday, but plenty of consumers are anxiously awaiting the arrival of the iPad Mini with Retina display. The smaller tablet might be hard to come by this holiday shopping season, but starting Friday The Motley Fool will be hosting a contest to win a free iPad Mini with Retina display! Make sure to check back on Friday to find out how you can win!
In January, when reporting its fiscal first-quarter 2013 earnings, Apple changed how it provides guidance. It stopped giving laughably low estimates, and provided more honest ranges. Looking back over the three earnings releases since then, it's clear that Apple's guidance has, so far, provided fairly useful context for projecting the next quarter's results. On that note, let's take a stab at projecting Apple's fiscal first quarter results based on its just-released guidance.
Way back when
In the past, Apple's guidance wasn't very useful. Take a trip back to calendar 2011. During this period, Apple's revenue beat guidance by an average of 18%, and ranged between beating guidance by as little as 12% and as much as 25%. Since Apple's changed its guidance methodology, however, it has averaged revenue just 4% above guidance, with actual results always falling in a more limited range, outperforming guidance by anywhere from 2% to 6%.
This isn't by chance. The move to more realistic guidance was on purpose. Apple CFO Peter Oppenheimer laid out the move to more realistic guidance very clearly in the company's first-quarter 2013 earnings call:
In the past we provided a single-point estimate of guidance that was conservative, that we had reasonable confidence in achieving. This quarter and going forward we're going to provide a range of guidance that we believe that we're likely to report within. No guarantee as forecasting is difficult, but we believe that we will report within that range.
No more "guidance that was conservative." Now we're dealing with "a range of guidance that we believe that we're likely to report within."
Back to reality
Oppenheimer turned out to be right: the guidance is far more useful. Under the new methodology, we can make reasonable estimates for next quarter's revenue, gross margin, and net income. Just take a look at Apple's results versus respective guidance so far under the new methodology -- Apple is actually providing a meaningful foundation for forward-looking estimates.
Based on the patterns of actual results versus guidance shown above, it's reasonable to expect revenue, gross margin, and net income of $58.7 billion, 37.1%, and $12.9 billion, respectively. This compares to Apple's guidance for revenue, gross margin, and net income of $56.5 billion, 37%, and $12.3 billion (guidance midpoints used). Notably, these projections are very close to Apple's guidance, and it's this very fact that makes these projections more reliable than they were in the past.
Cheers to honesty.
Could Apple have entirely new products in its pipeline?
Apple has a history of cranking out revolutionary products... and then creatively destroying them with something better. Read about the future of Apple in the free report, "Apple Will Destroy Its Greatest Product." Can Apple really disrupt its own iPhones and iPads? Find out by clicking here.
The article The All-New, All-Honest Apple originally appeared on Fool.com.Fool contributor Daniel Sparks owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.