Apple (AAPL): A Look at Management's Guidance

This purpose of this post is to provide some historical data points as a more detailed analysis will be forthcoming in a future write-up. 

The tables below depict Apple's quarterly guidance versus actual results. The tables begin at 2Q13 when Apple began to start providing "real" guidance opposed to low-ball figures that it always exceeded by a wide margin. That guidance reflected the absolute minimum results that management was essentially 100% certain it would achieve. The revised guidance dropped the EPS forecast and added ranges for expected revenue, gross margin, and operating expenses. Most significant change- accuracy. 

Apple exceeded the high-point of its revenue guidance only 4 times (or 33%) for the 12 quarters spanning FY16-FY18. The margin was no higher than 1.5% and roughly averaged 1%. Revenue was on the high-end of guidance for 6, or half of the quarters FY16-FY18, and twice below the midpoint.

FY15 was different story as performance in China and the iPhone 6/6+ surprised everyone. Revenue for 1Q15 exceeded guidance by 12%, yet that margin shrank in the ensuing 3 periods with each period's forecast more accurate than the previous one. Perhaps Apple overshot for 1Q16-2Q16 as it was close to missing revenue entirely. Those have been the only two quarters revenue has come in on the low-end of the forecasted range. Last quarter (1Q19) was the only time Apple failed to reach the low-point of sales guidance. 

In short, it's quite likely that Apple's revenue will be above the midpoint of its guidance, but  exceeding the high-point is not a given. 

Revenue guidance is typically a $2B or $3B range, the latter is common for December quarters. Just twice has Apple given a $4B range, which occurred in the last two quarters. The first time, Apple missed by a mile. What does that portend for the results of this quarter   given the revenue is range is $4B again? Does the embarrassment of huge miss last quarter alter management's psychology, or rather its confidence in the outlook provided to investors?  The natural reaction is more conservative guidance- numbers certain to achieve. However, Apple can't be too conservative and low-ball guidance since it will freak the market and the stock will get crushed. 

Take a look at the $59B-$55B revenue guidance Apple provided for this quarter, 2Q19. If we assume guidance is based on management's desire to give numbers low enough it is certain to reach AND also high enough not to shock investors-  wide range of $4B allows it to do both.

What are management's actual expectations? Is Apple really expecting revenue to come in on the low-end between $55B - $57B? But also tacked on and extra $2B to the range making the high end $59B so guidance would not look weak?

Or, does Apple actually expect revenue on the high-end of $58B - $59B but expanded the range down to $55B on the low-end to limit the possibility that it misses revenue guidance entirely? Perhaps a mixture of both, adding $1B to the top and bottom of the range?

I am inclined to believe that Apple is targeting the high-end for 2Q19. The Street expects the same as consensus stands above the midpoint at ~$57.5B. I am expecting 2Q19 revenue to top $58B. While still a 5% Y/Y decline similar to 1Q19, iPad and Mac will benefit from easier Y/Y compares coupled with channel fill from the introduction of new iPad and iMac models.