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A glossary of breathless terms to understand Apple’s call for earnings


During quarterly earnings calls, many executives use language designed to inflate, justify, or obscure the recent results of their companies. The goal is to make investors gasp at hints of future success. And finally give the company more money. Always. More. Money.

But when you’re Apple – with a stunning market capitalization and a seemingly endless supply of hit products – you usually don’t have to make statements that are hopeful but not material or distracting issues designed to get to the bottom of it. line.

Apple’s next earnings call takes place this afternoon. If something like the latter, CEO Tim Cook and CFO Luca Maestri will simply bring out the good news. After all, analysts expect total revenue growth, continued growth in services and earnings per share of $ 1.21 from $ 0.73 in Q4 last year.

Nonetheless, Apple’s call in the fourth quarter is unlikely to be an exception to the financial debauchery rule, even if extreme profits make exaggeration unnecessary. If you are not a professional investor, the financial terms and phrases that upset Cook and Maestra can be confusing.

So Cult Maca tried to shed light on some of the typical jargon of earnings reports below.

Apple Earnings was announced on October 28, 2021

First a little background. Apple’s earnings call will follow the company’s quarterly earnings report, which will relate to solid figures. During the earnings call, Cook and Maestra will read the prepared statements and answer questions from Wall Street analysts. All of this is an attempt to put the heavy figures from the earnings report into the context for investors.

Cupertino probably won’t fight like some companies to justify their recent figures. It is a money machine after all. (See only the transcript from the last quarterly call.)

As the most profitable company in the world, the value of Apple is still well above $ 2 trillion, which is roughly the gross domestic product of South Korea. But as financial advisers often warn investors, past performance is not an indicator of future success.

If you want to listen, Apple’s earnings call is scheduled for Thursday at 14:00 Pacific time. If this is your first time, be sure to read our glossary before calling.

Earnings are called a glossary of terms

ASP

On Apple’s earnings calls, Maestri regularly mentions ASP, without saying it refers to the average selling price of a product (sometimes called the average selling price). It is often mentioned in the context of fluctuations in total sales.

Both go up and down, so try to ride off with a little rhythmic breathing.

Basic points

A base point is a measure that finance people use to describe percentage changes in the value of something, such as a company’s gross margin or the effect of a rate change on a financial instrument such as an index fund. One base point is equivalent to 0.01% (1/100 percent). It’s a small thing used to describe big things, like increasing Apple’s profits.

In other words, the more basic points described, the harder it is to breathe.

CAPEX

This refers to capital expenditures, or what Apple spends on “assets, plant and equipment (PP&E).” They are considered long-term costs, unlike OPEX, or operating costs, which are more like daily expenses (payroll, rent, marketing, etc.).

The company has sharply reduced its CAPEX consumption over the past three years and then increased significantly earlier this year – to $ 3.5 billion.

That’s only three months, but on an annual basis, that would be about the same as Cambodia’s GDP.

What does this recent increase mean? This could indicate that something big is coming. Maybe a brand new product?

Start hyperventilating immediately.

Channel inventory

A manufacturer like Apple sells many of its products to customers through retailers. When Apple sells wholesale to retailers such as Target or Amazon, but the retailer has not yet sold the products to consumers at an increased price, those products are considered “channel inventory.” It is also known as “selling”, while the stock that is later sold by retailers is known as “selling to the end”.

The manufacturer may not be able to accurately determine channel inventory quantities unless the seller reports its sales. Think of retail as a channel.

And wait with bated breath to see if your favorite channel has your desired Apple inventory.

Diluted shares

Share shares in a company refer to all shares held by all shareholders. Diluted shares are the total number of shares if the company uses all of its convertible shares. (Convertible shares are newly issued shares, stock options, stock warrants, convertible bonds, and more.)

The basic rule is that the underlying value of the shares is seen as how the company is currently operating; The diluted value of the shares tells you how it would be in a crisis that the company has to issue every promised share.

By any estimate, Apple is doing pretty well. If you hold Apple stock, breathe lightly.

Dividends

When they have money, companies usually determine the amount they pay to shareholders on a regular basis, usually quarterly. This is called a dividend. Apple was kind of bad at this, paying irregularly for years, and for that it was criticized.

But Apple resumed paying regular dividends in May. Pay attention to the reference to this in this call for earnings.

Apple shareholders: Hold your breath.

Earnings

Earnings are the net benefit from the taxable corporation’s operations. The price of the company’s shares is determined on the basis of earnings. Therefore, earnings per share is a good way to value a company’s shares.

In the first quarter of this year, Apple reported record earnings – $ 111.4 billion in revenue, up 21% from a year earlier. Quarterly earnings per diluted share reached $ 1.68, an increase of 35%. Earnings in the second quarter rose 54%, a new March record for the company.

But don’t hope, or at least not crazy high up. Cupertino’s third-quarter earnings may, but don’t have to, be at the peak of those or recent quarters, but that’s no reason to panic breath sounds.

Fiscal year

For most businesses, the first quarter of the year actually ends in the last week of December. Yes, for you and me it is the end of the previous calendar year. For companies, this is a typical increase in holiday sales in the first quarter. The fourth quarter gives up at the end of September.

Strange, huh? An indignant sigh.

Gross margin

Gross margin is obtained in relation to gross profit in relation to net sales. Expressed as a percentage, it refers to net sales minus the cost of goods sold. It is calculated as the selling price of the item, less production costs (but not including indirect fixed costs such as administrative costs). The classic formula is a gross margin equal to revenue minus the cost of goods sold divided by revenue.

Is that clearer? No? Another deep sigh.

Headwind

When you sail into the headwind, it slows you down. “Headwinds” is a financial analyst’s term for issues that can hinder earnings, such as new taxation, market oversaturation, or declining sales in a relationship, well, anything. COVID19? Of course.

In addition to the pandemic, recent headlines about “crosswinds” point to proposed tax changes by the Biden administration that offset tax breaks from a few years ago and bite into Apple’s profits.

But even that is not breathtaking news. Most companies will face a similar situation.

Holiday season

For most traders, this refers to the end of December. For Apple, it seems to mean almost from January 1 to December 31, with an increase at the end. In any case, it is usually included in earnings for the first quarter of next year.

I don’t know what your salary is, but Apple was making a billion dollars and in Q1, one that includes year-end holidays.

Now it is worthy of breath.

Mix

When Maestri talks about a “strong mix” or a “different mix” that has an impact on numbers, he usually means a mix of products. That is, all Apple products are available for sale in a given time frame, taking into account new releases, delayed launches and occasional empty shelves.

You can breathe easily. We don’t think the shelves near you are empty, necessarily.

Arrival

Typically defined in the income statement of a quarterly report (not to be confused with the balance sheet or cash flow statement), revenue is simply all the revenue that a company generates from all sources, such as sales of products and services.

Under this canopy you can estimate operating income (income minus direct costs) and net income (the so-called “bottom line”, further accounts for things such as interest earned or paid and, of course, taxes).

In the case of Apple, revenue in the second quarter was more than you can count. Well, unless you can count to $ 89.6 billion, multiply the revenue from the last quarter, and then multiply something like that by four quarters for the year.

That could be as much as $ 360 billion a year. In other words, it is one company that brings almost Argentina’s GDP.

Keep in mind, this is income, not earnings. Even so, it is enough to breathe and faint.

We originally published this announcement on April 27, 2021 and updated it on July 27, 2021 and October 28, 2021.





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Naveen Kumar

Friendly communicator. Music maven. Explorer. Pop culture trailblazer. Social media practitioner.

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