You're going to come across quite a bit of commentary today that will try and pin Apple's earnings miss to some vague notion of the weakening global macroeconomic environment, to the death of Steve Jobs or to the beginning of a general slowdown at Apple.
Those who know very little about the company will try to argue that Apple has finally succumbed to intensifying global growth concerns, and that without its master chief architect, Apple's best days are now behind it. They will point to Apple's fiscal fourth quarter miss as a clear warning sign that the stock has peaked and that all investors have to look forward to is lower prices from here.
First of all, these arguments are total nonsense. Anyone who says that Apple (AAPL) has topped or that it cannot go any higher has zero working knowledge about the company or its financials. The company is going to have more cash than its entire market cap in less than three years.
The stock is trading at only 8 times its calendar 2012 earnings, has no debt and if you back out Apple's expected cash of $150 billion next year, then it is only trading at 5 times next year's earnings. You're talking about company that's growing its earnings at 80% a year.
So this raises the question. If Apple is so amazing, then how can the company miss? Isn't it sort of curious that the minute Steve Jobs departs this earth, Apple misses for the first time since 2004? Is this the same Apple that tends to beat Wall Street expectations by 33.6% like it did last quarter?
The fact is that nothing about the company has changed. Almost none of this earnings miss has anything to do with "slowing growth," Steve Jobs or the global macroeconomic environment. But if it's not slowing growth, then what can it possibly be?
Apple's big miss on Tuesday was the inevitable result of analysts getting too carried away with their expectations. Every quarter Apple tends to beat its own revenue guidance by a range of 12%-18%. Since Apple changed its accounting standards back in 2009, the stock has consistently beaten its revenue guidance in that tight 6% range between 12%-18%.
Analysts for the most part have come to understand this and have tended to offer a consensus that is between 5% and 10% above Apple's revenue guidance. That way, Apple has plenty of room to beat those expectations and the game goes round and round. As long as Apple beats, the growth story is in tact -- even though such math doesn't even make sense.
This quarter, Apple beat its revenue expectations by 13.08%. That was actually a bigger beat than the earnings beat Apple delivered on its revenue guidance in fiscal Q4 2010 and in fiscal Q2 2011. It also falls within the normal range of 12%-18% that we've seen over the past several years.
From Apple's perspective, it gave guidance of $25 billion in revenue because it knew that this was a transition quarter, it explained that this was a transition quarter in the conference call, and it delivered a 13.08% beat -- which is what it normally does.
Thus, it's not Apple's fault that analysts got too carried away with their estimates. Apple was consistent – it delivered a beat that was within a 12%-18% range of its guidance.