As strong as Apple's (AAPL 0.51%) fiscal fourth-quarter results were, its upcoming fiscal Q1 2015 is going to soar into uncharted territory -- for any company ever. Investors are loving the results, in part because Apple's guidance came in well above consensus estimates. The company is forecasting mind-boggling levels of revenue and net income.
And that's even before considering the possibility of a blowout. Apple does beat its own guidance from time to time, including last quarter.
It's not like the good old days
Once upon a time, Apple's guidance was so conservative that it was comical. That all changed in January 2013, though, when the company transitioned from conservative single-point estimates to ranges. It took a little while for investors to digest the transition; but at this point, Apple typically reports within its guidance. If it beats its guidance, it's normally by a modest margin, unlike the good old days when it would utterly crush its lowball forecasts.
With that in mind, if investors take Apple's guidance for the forthcoming quarter at face value, these are some likely outcomes.
|
Metric |
Low End |
Midpoint |
High End |
|---|---|---|---|
|
Revenue |
$63.5 billion |
$65 billion |
$66.5 billion |
|
Gross margin |
37.5% |
38% |
38.5% |
|
Operating expense |
$5.4 billion |
$5.45 billion |
$5.5 billion |
|
Other income and expense |
$325 million |
||
|
Tax rate |
26.5% |
||
|
Net income |
$13.8 billion |
$14.4 billion |
$15 billion |
Source: Apple and author's calculations. OI&E and tax rate are not provided as ranges. Apple does not provide net income guidance, so net income guidance must be calculated.
Apple's implied net income guidance is simply insane. Let's add some context. For each of the past two holiday quarters, Apple posted net income of just below $13.1 billion, its current record. Even at the low-end, Apple is expecting to beat its all-time record by a healthy margin.
Furthermore, if you look at all of the companies in the S&P 500 during the past four quarters (excluding Apple), the most any other company has made in a single quarter is $9.1 billion (ExxonMobil) in net profit. Other major oil companies are in this ballpark, as well. That makes Carl Icahn's point of Apple's valuation discrepancy within the S&P 500 a little more valid, even if Apple never earns a market multiple.
Of course, it's difficult to estimate what EPS will be based on implied net income guidance, because we'd have to know how much stock Apple plans to repurchase during the quarter.
How does Apple get there
The biggest challenge that Apple faces in the current quarter is simply making enough iPhone 6 and 6 Plus units to fulfill demand. Tim Cook admitted that supply and demand are very far apart right now, even if the current iPhone ramp is the "fastest ever" in Apple's history.
To the extent that Apple can continue ramping production and approach supply/demand balance, it could potentially even have another blowout in store.
