I know it can seem a bit esoteric, so I’ve written up a new Q&A about my thought process behind Part 2 of the Oppenheimer Code series (working with management guidance) if you’re new/confused/want to check it out.
Q: So, what’s Part 2 of your “Oppenheimer Code” deal all about again?
A: In a sentence, looking at a “revenue target” and a potential revenue mix within Apple’s range guidance for the fiscal quarter.
Q: How is that not an estimate or something like it?
A: Well, there’s no GM, OpEx, or other assumptions being made at this point, so there’s no net income or EPS result.
Q: But you could easily make those assumptions and presto, semi-conservative estimate, right?
A: I suppose you could at this “early” stage, if so inclined.
Q: Why stop at revenues, then?
A: Well, everything flows from revenues, and this forces me to consider revenue scenarios at least twice. I happen to think what I do is a very good structure (though only my opinion, there’s many ways to approach earnings) for thinking about the company from a high level (yet free of delusions that I’ll ever understand the company or its financials anywhere close to “in-depth”). Focusing on only revenues in the beginning helps me better focus on business lines, overarching story lines, any data points, and attempting to decipher the logic of the ever-coy Peter Oppenheimer. Even though Apple seems increasingly unlikely to report actual results significantly outside Oppenheimer’s stated revenue guidance range under the still-fairly-new guidance methodology. Now, I fully accept the limitations of the approach as well as my own limitations. I don’t have the resources that WS analysts have, so I just do what I can.
Q: TL; DR. Shorter version?
A: Basically, this “thought exercise” (as I like to call it) is a form of “earnings orienteering” starting right from the top line. Call it my non-expert way of calibration before starting the home gamer estimation process in earnest. Because it seems (to me, anyway) that management’s guidance is very useful, even if ends up being a starting point from which to literally add to. I consider this step important “groundwork” that makes what follows much easier.
Q: OK. Let’s assume I understand your reasoning there. Why not just do one estimate and be done with it? There wouldn’t be any real need for this Part 2 each quarter, would there?
A: It’s my blog. 😀