FNS & thread:
It's going to take me a week or two to catch up on stuff and generate some updated revenue/earnings numbers for Q3 from my model, but the following are some preliminary results and thoughts based on historical revenues and the Palm forward guidance for Q3:
(1) Palm has booked revenues of $923.2 million through Q2, and is sticking by its guidance of $1.9 to $2.0 billion for the year, plus $465 to $490 million for Q3.
(2) Back out the $923 million already booked for Q1/Q2 from the full year guidance, and you have $977 to $1077 million for Q3/Q4 combined.
(3) Back out $465 million from the lower number in (2) and $490 million from the higher number, and you have $512 to $587 million for Q4. (I'll use this Q4 range for illustration but you can get a wider Q4 range by using $977 - $490 = $487 million and $1077 - $465 = $612 million).
(4) Both $465 and $ 490 million for Q3 are down sequentially from Q2. I know that's the guidance and the historical trend, but it wasn't the case last year where Q3 revenues ($272.3 million) exceeded Q2 ($257.3 million), and that's likely what the financial coverage will focus on.
(5) $456 to $490 million for Q3 represents 71% to 80% growth rate over Q3 ($272.3 million) last year, vs the 100%+ growth rate Palm has booked for each Y/Y quarterly comparison since it went public. Even if they make the guidance for Q3, I can just see the headlines now - "Palm growth rate slows from 100%+ to 70%". To make 100%, Q3 revenues will have to be $544.6 million, and that's just not going to happen in this retail environment ahead of the new model and OS introductions.
(6) The $512 million to $587 million range for Q4 from (3) is "only" 46% to 68% over last year's Q4 revenue number of $350.2 million. Ouch. If that's all Palm does, it will bring even worse headlines than in (5), like "Palm growth rate drops in half!". To make 100% growth rate over last year in Q4, revenues will have to be $700.4 million. That's way above even the biggest number of $612 million from (3), and again, is just not going to happen unless there's some radical uptick in sales from the new models and the new OS. Palm's are discretionary purchases, and not exactly vital to everyday life, and if people are cutting back on spending, IMO Palm's sales will get hit along with other retail electronics. But, Q4 is still well ahead of us, near term Q3 results and the CC forward guidance for Q4 will move the stock. I don't expect the Q4 guidance in the Q3 CC will be much different from what Palm has already said ($1.9 to $2.0 billion full year), because they won't know much about how the new models are selling at that point.
(7) Just a rough cut through the above revenue numbers and using the forward guidance on margins and expenses gives me EPS of $0.01 - $0.02 for Q3 and $0.03 to $0.04 for Q4, in line with or slightly ahead of consensus numbers. That's ahead of Palm's guidance for Q3 which was EPS = zero, and analyst estimates have yet to reflect that guidance. If they don't come down in the next few weeks, more bad press will result when they miss on the EPS number.
(8) As I said, I haven't re-worked these numbers yet to take into account the latest sales/market share figures, and it's also tough to figure out the effect of the IIIx rebate and the $50+ price reduction in the Vx and VIIx without knowing the exact product mix. However, I expect the blended ASP to be under $200 and maybe as low as $190, and to make Q3's guidance numbers with the higher $200 ASP, Palm has to sell 2.04 to 2.15 million units - almost on the pace of Q2's 2.16 million units. With the rebates and price reductions, that's doable, but a stretch IMO, particularly since people (like WLD) may hold off any purchase and wait for the new models.
None of the above exactly makes me leap up and down with optimism for Palm's stock price over the next few months. If we get some kind of boost say to $28 + during the next month - general market recovery, Seybold conference 2/25 - 2/27, Carl Y at the MSDW conference 3/7, CeBit 3/22 - 3/27, new model releases, etc. etc. - I'll probably take the opportunity to get out of the way until the Q3 earnings dust settles. For now, I'm hanging in, but at breakeven to under water on my supposedly un-impeachable cost basis from last July. In retrospect (hindsight always works well) the $28+ at the end of January was a gift - I got too used to looking back at the last half of last year with its $40 - $60 price range.
I still have a lot of faith in the Palm business model and Palm's management and execution, but it's clear that the days of 100% year over year revenue growth will not materialize in Q3 and probably not in Q4 this year, that there will be little to no upside surprise in EPS in Q3 at least, and that there is a strong possibility that Palm may miss the Q3 revenue number. Q4 may produce some upside surprise in revenues/EPS, but it's too early to even guess given all the factors involved.
David T. |
