The Street vs. Tyler Smithson -- Who will Reign Supreme?

Well folks, this was not a great day for analysts or stockholders of Research in Motion.  We saw RIMM report a mixed bag of earnings and guidance.  The goal of this post is to "tally the scorecard" and see who was more accurate:  The Street or Tyler Smithson.

The following table illustrates the differences between actual earnings, analysts' expectations, and my own estimates.

Figure 1

	Actual Results	Analysts’ Consensus	Difference	Tyler Smithson	Difference
Revenue	$4.08 Bil	$4.31 Bil	-5.88%	4.35 Bil	-6.62%
Gross Margin	45.7%	43.3%	5.25%	44.4%	2.84%
EPS	$1.27	$1.28	-0.79%	$1.34	-5.51%
Q1 Revenue	$4.35 Bil	$4.33 Bil	0.46%	$4.36 Bil	-0.23%
Q1 Gross Margin	44.5%	N/A	-	43.4%	2.47%
Q1 EPS	$1.35	$1.22	9.63%	$1.29	4.44%

  
We’ll take this one step at a time:

Q4 Revenue:  Perhaps the biggest surprise for the quarter was a sales figure far below what anyone was expecting.  In this instance, analysts won the battle since they were off 5.88% and I was off a slightly larger 6.62%.  0-1

Gross Margin:  It wasn’t that long ago that RIMM was posting GMs over 50%.  Lately the trend has been more toward 40%, so it was nice to see a pop back up to 45.7%.  Analysts on average predicted a Q4 GM that was 5.25% lower than results, while my estimate of 44.4% was only half that difference.  Score one for Tyler Smithson.  1-1   

EPS:  This is where I made the biggest mistake.  While the Street was only off one penny, I was seven cents too optimistic.  As can be seen below in Figure 2, there were two main dissimilarities between my income statement estimates and actual results.  First, the Provision for Income Taxes account was $30 mil higher than I expected and, secondly, I underestimated weighted average shares outstanding by 7,750 shares (this skewed my EPS estimate by $0.02/share, alone).  The Street-2, Smithson-1

Q1 Revenue:  RIMM is guiding for this quarter’s revenue to be in the range of $4.25-$4.45 Bil, with the mean being $4.35 Bil.  My prediction was for sales to come in at $4.36 Bil while analysts’ consensus was $4.33 Bil.  Given this, we are once again tied, this time at 2-2.

Q1 Gross Margin:  I could not find the Street’s forecast for Q1 GM so if anyone happens to find it, be sure to let me know.  Still 2-2

Q1 EPS:  Well, we all knew it would come down to one last estimate to determine the winner.  RIMM announced that they are expecting this quarter’s EPS to range from $1.31-$1.38, with the average rounded to $1.35/share.  While the Street was shocked to hear such lofty expectations, I was less taken aback.  Analysts’ consensus for Q1 EPS estimates came in at 9.63% lower than guidance, while mine was, once again, less than half that difference (4.44% lower).   3-2

Given the above data and estimates, it appears that once again Tyler Smithson reigns supreme with a win over The Street, 3-2. 

Be sure to click “Follow” to the left of this post so you don’t miss a single new estimate.  Next up to analyze is Google.  All you day-traders out there better tune in in the coming days!

Figure 2

Three Months Ended March 31, 2010
	My ESTIMATES	ACTUAL
Revenue	$4,354,493	$4,079,712
Cost of Sales	$2,422,842	$2,216,622
Gross Margin	$1,931,651	$1,863,090
	44.4%	45.7%
Operating Expenses:
R&D	$271,471	$267,164
SG&A	$554,904	$497,642
Amortization	$85,274	$86,540
Total	$911,648	$851,346
Inc from Operations	$1,020,003	$1,011,744
Investment Income	$6,532	$5,454
Income before Taxes	$1,026,535	$1,017,198
Provision for Inc Taxes	$283,042	$307,076
Net Income	$743,493	$710,122
EPS
Basic	$1.34	$1.27

Disclaimer:
· Opinions, estimates and projections contained in this report are of the author as of the date published and are subject to change without notice.
· This report is not, nor should it be construed as, an offer to sell or solicitation of an offer to buy any securities.
· Unless otherwise noted, all research reports provide information of a general nature and do not address the circumstances of any particular investor.