Apple Preps to Wow Wall Street

Monday marks the day that Apple gets to incite the fanatics and quell the naysayers with what's widely expected to be a blockbuster of an earnings report.

Apple's fourth fiscal quarter will also likely herald the long-sought-after accounting change in the way it books and records revenue connected to its iPhone. And with that change will come the clearest picture yet of just what a dynamic money-maker this company is, and what a jewel it has become in American business history. Nevermind how you feel about Apple's secrecy, its attention to detail, its insular approach to its own culture, the almost cult-like following this company has fostered, Steve Jobs and that famous reality distortion field: there's no distorting the financial fundamentals of Apple, which is all I really care about, and there is simply no other company performing like this one. Consistently performing like this one.

Look for a sizable beat today on both the top and bottom lines, which is largely baked into Apple shares. The Street is looking for $1.42 on $9.2 billion, though I've seen a number of estimates several hundred million dollars higher, and EPS expectations as much as 20 cents higher.

On a non-GAAP basis, and with the accounting change connected to iPhone, that fourth-quarter EPS would swell to $2.43. Talk about impact!

And keep in mind, if the company merely meets expectations, it's still one of the only companies around actually enjoying year on year revenue growth. Amazing all by itself in an economy like this one, but for a tech company, that fact alone borders on the staggering, considering this past year has been the worst year ever for tech spending, and yet Apple continues to grow.

First-quarter guidance is expected to be $1.91. And since Apple always sandbags expectations, today's guidance will come down to how much, or how little, the company actually does sandbag this time around.

Gross margins should be at or over 36 percent.

On a product division basis, RBC expects a record-breaking 2.9 million Macs sold, a 10 percent year-over-year and sequential improvement. Independent analyst Andy Zaky, oft quoted here because his numbers are closely followed and his accuracy track record tends to rival his professional colleagues on the Street, is looking for 2.837 million Macs sold.

RBC's Mike Abramsky also projects 7.5 million iPhones to sell, a 9 percent year on year improvement and a 44 percent sequential pop. Zaky's at 7.3 million.

  • Video: Apple Q4 Preview

He thinks the iPod will sell 9.9 million, down 10 percent year over year. Zaky's at 10.3 million.

Now, about that accounting change which should take effect in the company's current quarter. Says Abramsky: "Apple is widely expected to adopt revised GAAP accounting (recognizing iPhone revenue upfront), boosting fiscal 2010 revenue estimates 12 percent and fiscal 2010 EPS estimates 28 percent. Under revised GAAP accounting, we expect Q1 guidance for $12.4 billion to $12.7 billion in revenue and $2.44-2.60 in EPS, above street at $11.4 billion and $1.91 GAAP."

This is a critical day for Apple, especially with the run these shares have enjoyed and all those new, 52-week highs it has set recently. It will take an awful lot to move these shares up, and not so much to move them lower. There are plenty of targets at or above $250 a share, which might seem frothy, but when you consider App Store momentum as a driver of iPhone sales (85,000 apps, 2 billion-plus downloads?), its retail strategy which continues to stun every expert, a cash position well over $32 billion, $250 a share starts to seem meek.

This isn't eyeball valuation, or tulips, or something unreasonable. You can't argue with the numbers, the metrics. Apple is its own eco-system, its own magic. You can say a lot about the way it does business, but I'll just say two things that cannot be challenged: it's working, and it's worth it.

Questions? Comments?