Apple's `Underdog' Analysts Outperform Wall Street From Helsinki, Caracas

The most accurate analyst covering Apple Inc. isn’t on Wall Street. It’s Horace Dediu -- a blogger, ex Nokia Oyj worker and self-described “entertainer” who writes from a home overlooking the Baltic Strait in Helsinki.

Over the past four quarters, Dediu has published the most accurate estimates about Apple, topping analysts from such firms as Morgan Stanley, Citigroup Inc. and Deutsche Bank AG, according to a leader board maintained for the past year by fellow blogger Daniel Tello. After Apple reported first-quarter results yesterday, Dediu, a Harvard Business School graduate, held on to the top spot.

Dediu and Tello are part of a cadre of amateur analysts who study Apple and post their insights on personal blogs and websites such as Mac Observer’s Apple Finance Board. Their accuracy projecting Apple’s performance -- data that can help predict stock movements -- is giving investors a free alternative to Wall Street and creating a rivalry with the pros.

“Competitiveness with Wall Street analysts is a natural consequence of us bloggers backing each other as the ‘underdogs,’” said Tello, who writes his posts from Caracas.

Tello’s leader board is compiled by measuring who had the closest estimates for earnings per share, revenue and gross margin, as well as unit sales for iPhones, iPads, iPods and Macintosh computers. When compiling results over the past four quarters, bloggers have been the seven most accurate. Dediu, who tops the list, has submitted results for three of those periods.

Photographer: David Paul Morris/Bloomberg

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Photographer: David Paul Morris/Bloomberg

Steve Jobs, chief executive officer of Apple Inc.

Growth Predictions

Take iPhone sales. In the third quarter, Dediu predicted that Apple would sell 8.5 million of the phones; Apple reported 8.4 million. In the first quarter reported yesterday, in which he was outperformed by other amateur analysts, Dediu predicted Apple would sell 16.16 million iPhones, versus the 16.24 they actually sold.

Dediu estimated Apple would double sales of the iPhone annually in its first three years on the market. That put him above many analysts’ projections and close to Apple’s actual results. Now he’s assuming a similar growth rate for the iPad.

Dediu has been cumulatively the most accurate since he started posting his predictions at his website, Asymco.com, which means “asymmetric competition.” Others whose results have topped the pros include Andy Zaky, who writes Bullish Cross from Huntington Beach, California, and Turley Muller, who writes the Financial Alchemist blog from Memphis, Tennessee.

Muller’s prediction that Apple would have first-quarter profit of $6.42 a share was a penny off the $6.43 reported yesterday. In contrast, Piper Jaffray Cos. analyst Gene Munster’s estimate of $5.08 was far shy of the result.

Taking Care

Professional analysts tend to be more conservative. That’s partly because they’re closely monitored and regulated, said Shaw Wu, an Apple analyst at Kaufman Brothers LP in San Francisco. He and his colleagues must pass a series of tests administered by the Financial Industry Regulatory Authority before becoming certified.

“I have to be careful of everything that I do because it’s scrutinized,” said Wu, who has recommended buying Apple shares since joining Kaufman in 2008.

Alexander Peterc, an analyst for Exane-BNP, said professionals are “very wary” of putting out aggressive estimates because of institutional memory of past technology booms and potential backlash from clients if they’re wrong.

“They got it right on the way up, but we’ll see what happens after that,” Peterc said. “Often bloggers and amateur investors are very good in bull markets, but get lost in bear markets. If some of these guys call the moment at which Apple’s fortunes begin to turn I will be impressed.”

Less Is More

Dediu says bloggers’ perceived disadvantages -- limited resources and less information -- are actually positives. Professionals assign too much value to proprietary information instead of sticking with financial reports and public data.

“If you don’t have access to nonpublic information, it makes you think harder,” said Dediu, who owns Apple shares. “It also makes you look at the actual data that you get from the company’s own reports and sift through that a bit more finely.”

His Apple model is based on the growth rate Apple will be able to sustain for manufacturing and distribution as it adds new products. He ignores the market-share data that other analysts use, saying it’s error prone. For the iPhone, which accounted for 39 percent of Apple’s revenue last year, his premise is that it’s supply-constrained, calling it the “key assumption and everything derives from it.”

Dediu’s analysis has led some readers to hire him as a consultant.

Latest Quarter

The amateurs don’t always outperform the professionals. In the fourth quarter, Wall Street better predicted Apple’s gross margin, as well as iPad and iPod sales. When looking at that quarter alone, Ashok Kumar, an analyst at Rodman & Renshaw in New York, beat the bloggers as the top performer.

When averaging across four quarters, Dediu and Zaky rank first and second, followed by Muller of the Financial Alchemist blog. Muller -- who used to work for Regions Financial Corp., a bank based in Birmingham, Alabama -- takes Apple’s financial statements and builds projections from other data. That includes information from research firms such as NPD Group Inc. and Gartner Inc., as well as results from companies that sell Apple products, such as AT&T Inc. and Best Buy Co.

‘Little Tidbits’

“You have to look for little tidbits of information that you can put together to paint a picture,” Muller said.

After watching Apple shares more than triple since the introduction of the iPhone in 2007, Muller and Zaky are less bullish on the growth prospects of Apple’s stock.

“As an investment, I think it’s clear that Apple’s best years are behind it, though I certainly think there’s still a lot of upside left in the stock,” Zaky said. “Its golden age of innovation is largely over,” with the iPhone, iPod, iPad and Mac computers all on the market, he said.

Zaky started his site after posting on various financial blogs.

“A group of investors regularly awaited my forecasts on Apple’s financial results, given the high level of accuracy of my analysis,” he said. “I figured it would be a lot easier to just publish my analysis in one comprehensive blog post instead of on various financial forums.”

‘King of Apple Analysts’

The postings of Dediu, Zaky, Muller and others have drawn a following among investors, media and Apple enthusiasts. Philip Elmer-DeWitt, a journalist who has been covering Apple since 1982 and writes Fortune’s Apple 2.0 blog, pegged Dediu “the new king of Apple analysts” in one posting. Elmer-DeWitt also keeps a running tally ranking amateur and professional analysts, calling it the “earnings smackdown.”

Dediu, who also has a home in Massachusetts, says his Asymco site attracts about 300,000 visitors a month, and has drawn more than 6,500 comments. He spent eight years working at Nokia as an analyst conducting market research about rivals.

Apple wasn’t an area of focus for Nokia while he was there, and he grew frustrated that executives didn’t see the company as a threat.

“It was extremely hard to get upper management to take Apple seriously,” Dediu said. “That trickles down. If top management is pounding the table saying Apple is enemy No. 1, people take notice.”

Laurie Armstrong, a spokeswoman for Espoo, Finland-based Nokia, didn’t respond to a request for comment.

Dediu now sees his role as demystifying financial analysis, and making complex and esoteric subjects enjoyable for readers.

“Once I figured out that I was an entertainer, I decided to get better at it,” he said.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net

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