Apple Investors Should Be Concerned About This Chart
The two charts below show the history of guidance provided by Apple’s management team relative to the delivered results. The first chart displays this using the revenue statistic while the second one focuses on gross profit margin. The bottom of the rectangles indicates the low end of the range and the top, the high end and so on.
What should be noticeable in the revenue chart is the fact that over a 12 quarter period spanning 3 years, Apple management has set a guidance range for revenue and in every instance either MET or EXCEEDED this guidance, with one exception: the December 2015 quarter. To be clear, for the purposes of this analysis we assume that reporting revenue at the midpoint of the guidance range or better qualifies as meeting or exceeding. The company reported revenue that was on average 6% above the midpoint of their guidance range over the 11 quarters from the third quarter of 2013 and the fourth quarter of 2015.
Although the December 2015 quarter has come and gone, this change in pattern one could argue is particularly disconcerting for Apple investors. Specifically, history would dictate a dosage of conservatism in management’s approach to providing guidance and if you agree with that then the implication is that fundamental trends significantly weakened in December even beyond management’s conservative expectations.
Flipping to the cost side, Apple management has been remarkable at delivering on their gross margin targets. Apple has reported gross margins that have exceeded the midpoint of their guidance range by an average of 120 basis points over the last 11 quarters, with the gross margins even exceeding the high end of their target range in nine out of the last 12 quarters! The company has only fallen short of its gross margin targets in one instance over the last three years (second quarter 2013). Revenue predictability could be declining but the cost execution by management is something Apple investors should feel pretty great about.
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