If the mind-boggling quarterly results from Apple Inc. prove anything, it’s this: No one seems to have the vaguest sense of what this company is capable of doing.
While that might not be a surprising judgment if Apple were a relatively unknown company, it becomes a head-scratcher when you consider that we’re talking about the world’s most valuable company, and one of the most-followed companies on Wall Street.
According to Bloomberg News, 56 analysts now follow this company – a platoon of smart, number-crunching types who will go to any length to discover some insight into Apple, to get an edge on what quarterly earnings and sales are going to look like.
They’ll delve into the activities of Asian parts suppliers, they’ll parse financial statements from the telecom companies that activate iPhones and iPads and they’ll even call up the local Best Buy to find out how the sale of Apple products are faring these days.
With this sort of attention to detail, you might think that analysts would come close to predicting Apple’s financial results. However, they are consistently way off.
On Tuesday evening, Apple reported net earnings of $12.30 (U.S.) a share, nearly 23 per cent higher than the consensus expectation for earnings of $10.03 a share. The previous quarter’s expectations were even wider off the mark: Apple reported earnings of $13.87 a share, or nearly 37 per cent above the consensus expectation. Bloomberg News calculates that the average “surprise” is more than 24 per cent.
The stock market is equally baffled by Apple. Prior to Tuesday’s quarterly release, the shares had slumped for 10 out of 11 trading sessions, falling about 13 per cent in total. The reason was clearly related to nervousness over iPhone and iPad sales – not necessarily that sales were cooling off, but that they might not meet lofty expectations.
But when Apple reported that iPhone sales rose 88 per cent over last year, to 35.1 million, and iPad sales rose 151 per cent, the market instantly acknowledged that a mistake had been made: The shares surged more than 9 per cent in early trading on Wednesday, which is its way of saying “whoops.”
This whipsaw reaction is not unusual with Apple shares. After its previous quarterly report, the shares bounced 6.2 per cent. And over the past five earnings reports, the shares have moved an average of more than 5 per cent on the first day of trading following the report.
You have to wonder: If analysts and the stock market have a dismal record for predicting the fortunes of the world’s biggest and most famous company, what chance do they have with the rest of the corporate landscape?
As the U.S. first-quarter earnings season progresses, an answer is emerging. At the start of the season, analysts had been expecting earnings for companies within the S&P 500 to rise 3.2 per cent over last year. But because of Apple’s huge influence, actual earnings have risen 6.9 per cent so far – with Apple alone contributing 2.4 percentage points to that performance, according to Thomson Reuters.
With little insight into Apple, it would appear that analysts have little insight into the broader market.