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Day April 25, 2014

Surprise

After n quarters of predictability, Apple surprised with sales performance that was 3.74% above the top of their guidance. This may not seem significant but since instituting a new range-bound guidance method in Q1 of last year the company reported revenue within about 1% of the top of the range.

This is in stark contrast to the wide variance in prior years. The following graph shows the “error” in guidance as the percent difference between reported sales and guidance[1].

Screen Shot 2014-04-25 at 4-25-10.18.06 AM

So prior to last quarter we were lulled into thinking that guidance was very nearly perfectly predicting the company. As I tweeted, it took the “sport” out of trying to do any forecasting. All an analyst had to do is tweak the main product growth figures to hit the sales target and then subtract the (generously provided) operating expenses and (also provided) tax rate to get the earnings. Only unknown to getting to an estimate of EPS was how many shares would still be outstanding.[2]

Knowing Apple also means that average selling prices are also very rigidly set in stone so the degrees of freedom in analysis were becoming highly constrained.

But just when you think you spotted a pattern, it changes. The company surprised with performance outside the band. The following graph shows the estimate ranges it has given and the actual revenues delivered.[3]

Notes:
  1. Upper end of range in quarters where a range was given. []
  2. The company itself would not know shares outstanding as their buying was opportunistic during the quarter. []
  3. Next quarter is also pencilled in. []