Apple Earnings Rise, But By Less Than Expected

Reading coverage of Apple’s just-announced forth quarter earnings it’s a little bit difficult to find the basic fact that $8.2 billion in profit is a large year-on-year increase from $6.62 billion—all the focus is on the fact that this earnings number “missed expectations.”

Analyst expectations are relevant because pre-announcement share price should be heavily influenced by consensus expectations, so how you do relative to expectations can be important to short-term share price performance. But performance relative to expectations is ultimately more a question of analyst performance than of corporate performance. A company whose analysts are good at their job should beat expectations half the time and miss expectations half the time, and only rarely miss or beat them by a large margin. Apple went through a period where analysts were consistently underestimating the company and that doesn’t seem to be happening anymore. But absolute performance matters. Twenty percent year-on-year earnings growth is nothing to sneer at (if you got a 20% raise this year, you probably think you had a good year) it’s just that analysts have gotten better at their predictions.

The interesting thing is that the Retina iPad doesn’t seem to have been a huge hit product and iPad sales rose “only” 26 percent year-on-year—a lot, but a huge slowdown in a market that’s nowhere near saturation.