So it was with some pleasure that I saw yesterday’s story on Fortune (CNN? Money? Whatever, some part of that media conglomerate) that Apple finally explained in painstaking detail just exactly why and how Wall Street has been undervaluing the company.
The consensus among analysts before the earnings call was that Apple’s revenue for the quarter would be about $8.05 billion. Some traders looked at $7.9 billion and thought Apple had fallen short of the Street’s target by $150 million. The smart ones looked at $11.682 billion and realized they’d underestimated Apple’s earnings by nearly $3.8 billion. They’re probably the reason Apple’s share price jumped 12% in after hours trading.
How can this be? Apparently Apple has been very cautious (no wonder Wall Street didn’t get it) about how it books iPhone revenue, rather than claiming it all up front:
For reasons that have to do with being able to provide free upgrades over the life of the phone, Apple doesn’t book the full value of, say, a $199 iPhone the day it’s sold. Rather, its accountants spread that income out over 24 months…
Given that Apple’s iPhone sales have been growing exponentially over the past 15 months and that each month’s iPhone revenue includes not just a share of the sales from that month, but a share of iPhone sales from each of the months that preceded it, you begin to see the dimensions…
Apparently, the sleek little iPhone now represents 39% of Apple’s total business. Of course, some people were predicting this sort of thing over a year ago, even before the product launched.
For some reason, Apple’s ventures are almost always greeted with skepticism from the mainstream business world. Ironic, then, that at the moment Apple could buy Dell with cash and have money left over.
I don’t actually own an iPhone myself, though. Yet. Gotta get one one of these days. Techno-lust is a powerful motivating force…Tags: Apple, computers, economy, iPhone, Mac