I’m going to nibble on some more Whole Foods common, just about a small tranche of about 1/8 or 1/10th of a “full size position.” They report earnings on May 6 and if the stock gets hit after that I would likely add one more tranche. No rush as usual.
Twitter up on Google buyout rumors. We saw this same play a few weeks ago and the stock sold off when the rumors proved untrue. I think Google for Twitter would be a great match up, but I’m doubtful there’s a deal in the works anytime soon.
I’ll have a Latest Positions update with some updates on companies who have reported earnings for you tomorrow. I’ll wait until after Apple reports tonight to do it and will include full post-report analysis of tonight’s earnings. Here’s a preview heading into the Apple report tonight.
When I first bought Apple back in March 2003, it was as struggling and barely profitable computer company and there wasn’t a lot of discussion about its earnings reports each quarter. Steve Jobs had returned a few years prior and of course got great coverage when Apple rolled out the iPod and iTunes, but Apple was far from being by far the most analyzed company on the planet.
You might think that all that Apple analyst and news coverage would make it harder to add much value, but as usual, we should “Flip It” and turn that logic upside down and realize that we can indeed use all that coverage to get a better grasp of expectations and what Apple might do after the call than we can with any other company.
We can simply use all that coverage to our advantage. And if you’ve been a long-term investor in Apple for the last dozen or so years as me and my subscribers have been, you might just ignore all of this and hold on as the company continues to grow, kick off huge amounts of cash and takes us into the Wearables future. More about that Wearables future in a moment.
First, let’s get a sense of fundamental expectations by looking at what the analysts are expecting into tonight’s call.
The analyst estimates from sellsider firms like Morgan Stanley, JP Morgan, Goldman Sachs, etc, (again, only a small fraction of such sellside firms even bothered covering Apple back in March 2003, which is always something to think about as we try to find the next Apple) for this quarter are for revenues of $56.1 billion with gross margins of 40%, operating margins of 30% and earnings per share of $2.16. Consensus of the published estimates from those same sellside analysts are for total sales of iPhone units at more than 55 million, but the mysterious “whisper” numbers are probably closer to 60 million units. iPad unit sales are modeled at the high 14 million units, with Mac following it all up selling about 4.3 million units.
As for next quarter, which is what Apple’s “guidance” will be looking out to, current sellsider analyst estimates for June are for revenues of $47B with gross margins of 39% and operating margins at 27% on netting out to earnings per share of $1.68. With pressure from shareholders, most sellsiders are expecting Apple to to increase how much its allocating for returning to shareholders via buybacks and dividends from $130 billion to more than $150 billion.
As for the Apple Watch, the sellsider analysts are all over the board, ranging from 2-4 million Apple Watch units being sold next quarter (which includes April when the Apple Watch went on sale). Despite analysts clamoring for more Apple Watch guidance and information, I doubt $AAPL will give out much more data on the call tonight. That said, I hope/expect we’ll hear from management on the earnings release and/or on the commentary during the conference call about how many Apple Watches have sold so far.
If you’re trying to game how Apple is going to trade tomorrow after these earnings report, you’re going to have to try to figure out not just if Apple is going to do better or worse than those estimates, but whether the market is already pricing in (also known as “discounting”) whether the report is better than or worse than expected. The bad news for the bulls is that I’ve seen headlines from such non-financial news outlets as the New York Post this morning that said, “Apple expected to impress with second-quarter earnings” which obviously underscores how high expectations are heading into this call. On the other hand, you’ve seen Google and Amazon and Netflix all pop, the latter two extreme double digit one day rallies, after beating expectations, which bodes bullishly for Apple’s ability to pop if it does deliver results that are better than what the analysts expect.
All that said, if management gives an update on how many Apple Watches have sold so far and if it’s north of, say, 5 million units, that alone will get the stock popping higher.
Feet to fire, I’d expect Apple to rally tomorrow, but I sure wouldn’t want my profits in this stock to depend on that. Rather, Apple remains a very large position for me as it has for many years now and it will be regardless of the last 90 days and next 90 days of business.
I’m so sure that the Apple Wearables Watch is going to be a huge hit that my own company is getting close to launching the Apple Watch version of our Futr Messaging App, which enables you to send video, photo and text messages into the future. There will be billions of units of wearables devices sold in the next five years, and Apple Watch and other Apple (and Android) wearable devices are coming. Those reasons alone keep me a long-term Apple long.
We just launched the Futr app (http://getfutrapp.com) to the Apple App Store http://goo.gl/D76Nec and Google Play Store http://goo.gl/UKiHrd a couple weeks ago The Futr Messaging App enables users to choose when their recipients get their messages. They can send a video reminder, a meme birthday wish, a sext message to their lovers and so on.