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Apple Event Study Rohit Kumar(ssvrm.blogspot.com) Event Definition – This three day event study analyzes the effect of the quarterly results on Apple’s stock price. Apple made 4 quarterly earnings release in Jan, April, July and Oct for the quarter ending Dec 2009, Mar 2010, Jun 2010 and Sep 2010, respectively. Also, the estimates by the analysts closer to the announcement date are taken into account. TICKER AAPL AAPL AAPL AAPL
STATPERS 20100114 20100415 20100715 20101014
MEASURE EPS EPS EPS EPS
MEANESTHIGHEST 2.05 2.27 2.43 2.72 3.08 3.47 4.06 4.41
FPEDATS ACTUAL 20091231 3.67 20100331 3.33 20100630 3.51 20100930 4.64
ANNDATS_ACT ANNTIMS_ACT 20100125 16:25:00 20100420 16:31:00 20100720 16:30:00 20101018 16:30:00
Selection Criteria - For the market, the returns including the dividends are used. For the matching model, I have created a portfolio of 5 companies namely Motorola, Sony, Nokia, Microsoft and Google. Therefore each of the 5 chosen companies represents a part of Apple’s business model and therefore a part of the business risk. Also, the portfolio represents a better sample for the model as illustrated by the high R2 compared to the model wherein the individual company’s returns are regressed against Apple’s. Each of the selected comparable is listed on the NYSE. The table below lists the statistical data for each of the sample.
alpha slope R-2
Market Motorola Nokia Sony Google Microsoft Portfolio 0.001687 0.001921 0.001726 0.001772 0.001171 0.001625 0.001548 1.033918 0.385665 0.419329 0.400256 0.595227 0.604456 0.824933 0.337613 0.174029 0.160296 0.129554 0.268181 0.198788 0.319515
Estimation Procedure - I have used the data from Jan, 2005 until Jan 19, 2010 to estimate the sample alpha and slope. There are two reasons for choosing the sample in the mentioned time line. First, Apple turned around in 2005 when its revenues and profits drastically improved and Apple has been introducing new products since 2005, and I expect the company to continue do so in the near future. Second, a larger sample restricts the variance of the abnormal returns by reducing the sampling error in alpha and beta Testing Procedure and results - Historically, the company has made the announcement at 4:30 PM after market close; therefore the next day is treated as the announcement date Market Model
Q1,2010 Q2,2010 Q3,2010 Q4,2010 Day Before 2.24% -1.82% 1.41% 0.30% Announcement 1.81% 6.07% 2.20% -1.09% Day After 0.46% 2.56% -0.36% -0.71% 3 day CAR 4.51% 6.81% 3.25% -1.50%
Market Match
Q1,2010 Q2,2010 Q3,2010 Q4,2010 Day Before 2.05% -2.01% 1.20% 0.11% Announcement 1.66% 5.91% 2.08% -1.21% Day After 0.28% 2.38% -0.61% -0.91% 3 day CAR 3.99% 6.28% 2.67% -2.01%
Apple Event Study Rohit Kumar(ssvrm.blogspot.com)
Matching Model Day Before Announcement Day After 3 day CAR
Q1,2010 Q2,2010 Q3,2010 Q4,2010 2.55% -1.37% 1.21% -0.12% 1.58% 6.36% 1.95% -1.56% 0.04% 5.74% -0.34% -0.64% 4.17% 10.74% 2.82% -2.32%
Market Perception & News Consistency Quarter 1 – The market positively reacted to the results as illustrated by the positive excess return on the announcement date. Apple comprehensively beat analysts EPS estimate of 2.05 with an actual EPS of 3.67. There was anticipation on increased sales of IPHONE’s in the coming quarters. Market was excited and was expecting some news on the tablet computer from Apple. Therefore, the news was consistent with the positive CAR value. Quarter 2 – The quarter 2 results were well received by the market with Apple posting an EPS of 3.33 against the market estimate of 2.43. IPAD was launched in this quarter and as per the news market expected higher sales from the IPAD, and continued growth in the IPHONE segment. Therefore, the news was consistent with the CAR. Quarter 3 – Again the market received the results in a very positively as reflected by the positive CAR, and Apple beat the analysts EPS estimate of 3.08 with an EPS of 3.51. The news was also very consistent with the CAR’s and the market was expecting further increase in sales of IPHONE’s through the Verizon channel and increased sales of IPAD’s. Quarter 4 – Even though Apple beat the market’s EPS estimate of 4.06 by delivering an EPS of 4.64, the stock price fell on the day of the announcement and the following date as also illustrated by the negative CAR. The negative CAR might be explained by two things. First, the average market consensus was that Apple would deliver an EPS of 4 but the market knew that Apple has surpassed market’s expectation for the last many quarters, and the management always gives a conservative guidance for the next quarter. Some financial bloggers and unofficial analysts were expecting an EPS of 4.65, which might explain the fall in prices after the result. Second, as per the graph (43 day CAR plot around the Q4 announcement day) below the CAR continuously climbed in the last 2 weeks until the Q4 result date. It might be possible that the market absorbed the good news even before the announcement, and short term investors booked profits on the result day. As per this study, it seems like the market positively reacts when a company beats the market’s expectations.
