Apple 2.0

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Apple earnings smackdown: The bloggers got clobbered

October 19, 2011: 7:43 AM ET

For the first time in more than 3 years, the pros out-analyzed the upstarts

Click to enlarge.

Let's leave aside for now the question of whether Apple's (AAPL) failure to meet analysts' expectations last quarter (see here) was the company's fault or the analysts'.

This is the exercise in which we divide those analysts into two groups -- the pros and the amateurs* -- and pit their estimates against each other. (See footnote on nomenclature.)

The cluster of green at the bottom of the chart at right tells the story: This quarter, for the first time since we've been monitoring them, the bloggers got clobbered.

And not just by a little. The average miss in the categories that matter most -- revenue and earnings per share -- was 5.8% for the institutional analysts and a humiliating 23.5% for the independents.

"I feel like a soccer goalie who guessed wrong on the direction of a kick during a penalty shoot-out and in front of a global audience," wrote Robert Paul on his blog, Posts at Eventide, after he came in dead last in the rankings with a 35.9% miss.

In a sense this marks the end of an era. For six quarters in a row, the independents (who tend to be more bullish on Apple) benefitted from the fact that the company -- fueled primarily by iPhone sales -- was growing at rates that seemed to defy gravity. Wall Street analysts who missed the subtleties of iPhone subscription accounting or expected Apple's growth to be more in keeping with its peers in the industry -- Hewlett-Packard (HPQ), say, or Microsoft (MSFT) -- ended up looking foolish.

This quarter, the analysts who paid heed to Apple's conservative guidance -- or who just happened to bet low -- came out on top.

So Kudos to William Power who covers wireless communications for Robert W. Baird & Co., an employee-owned firm that, coincidentally, has made Fortune's 100 Best Companies to Work For list eight years in a row. Power came in first in the rankings on the strength of a revenue estimate ($28.02 billion) that was only $250 million off the mark. (The worst revenue estimate, offered by Mark Beauch of AAPL Independent Analysts, was more than $8.9 billion too high.)

Right on Power's heels were CLSA's Ari Silver and Barclay's Ben Reitzes, only fractions of a percentage point behind him. Special mention goes to Deutsche Bank's Chris Whitmore and Needham's Charlie Wolf, who were tied for best iPhone estimates (17 million) and to Hudson Square's Daniel Ernst who had the best estimates in three categories: EPS, Mac and iPad unit shares. That's quite a turnaround for Ernst, who came in dead last in Q3's rankings.

Finally, a tip of the hat to Technology Insights' Nehal Chokshi, who though he didn't have the best guess in any of the seven categories, nonetheless scored first when they were averaged together.

As for the stars among our independent analysts, the less said the better. None of them shone this quarter, and those who bet most bullishly lost biggest. The only hints of green in the top third of the chart below the fold are Navin Nagrani's second-place finish in the iPod unit sales category and Turley Muller's third-place in the Mac. [UPDATE: Asymco's Horace Dediu explains here how he went so wrong on his iPhone unit sales estimate (26.8 million)]

With Apple's traditionally conservative guidance projecting a jaw-dropping $37 billion, $9.30 EPS Q1, we're confident they'll do better next quarter.

*A note about nomenclature: The pro vs. blogger (or amateur) rubric was always a fudge. Not every amateur analyst is a blogger and now that Andy Zaky's Bullish Cross has an LLC, not every blogger is an amateur. The two groups are probably most accurately described as institutional and independent analysts.

Below: A color-coded chart comparing their individual estimates with the actual results. The best estimates are marked in bright green and the second and third in light green. The worst estimates are in dark red and the second and third in pink.

Click to enlarge.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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