Saturday, March 29, 2014

Apple Is Walking Up The Down Staircase

Over the past eight fiscal years Apple’s revenue has risen 1,127% from $13.931 billion in FY2005 to $170.910 billion in FY2013. Over this same eight-year period, Apple’s earnings per share has risen 2,457% from $1.55 to $39.63. The graphs below illustrate the story.

Since the migration of Apple’s Macintosh line of personal computers to Intel microprocessors in 2005 through the release of the iPhone and iPad product lines, Apple’s revenue growth performance has been phenomenal. From a peak revenue growth rate of 66% in FY2011 to a low of 9.2% revenue growth in the fiscal year ended in September, the company’s revenue growth performance over the past eight years places Apple among the highest revenue generating enterprises on the planet. Apple has become a global economic empire with roughly two-thirds of annual revenue generated outside the United States.

Despite a 10.3% drop in earnings per share in Apple’s most recent fiscal year, the company’s fast rate of revenue growth over the past eight years combined with high gross margin have propelled earnings per share on an annual basis to greater than 25 times the company’s FY2005 results.

Apple’s Revenue and Earnings Growth Performances Today
Following 66% revenue growth in FY2011 and 45% revenue growth in FY2012, Apple’s rate of revenue growth decelerated dramatically to just over a 9% rate last fiscal year. In the first quarter of FY2014 ended in December, Apple’s revenue growth rate continued to decelerate to a 5.7% pace. Management’s March quarter guidance suggests slow to no revenue growth in the quarter ended March 29, 2014. 

The graph above illustrates Apple’s decelerating revenue growth rates on a quarterly basis since the second quarter of FY2012. 

In all four quarters of FY2013, Apple realized negative earnings per share growth. However, the ongoing $60 billion share repurchase program pushed the earnings per share growth rate in the recent December quarter (FQ1 2014) to a positive 5% growth rate despite a slight decline in net income year-over-year. Based on management’s March quarter revenue guidance, earnings per share in the quarter may again turn negative despite the unprecedented share repurchase plan now in place. 

Saturday, February 22, 2014

Apple: Net Income Growth Is The Name Of The Game

Apple is a global empire with revenue results that place it among the top publicly-traded enterprises on the planet. Apple is also among the largest dividend payers in the world and management is dedicated to returning more than $100 billion in capital to shareholders over a four-year period through a combination of dividend payments and share repurchases. Apple’s brand value is arguably the highest in the world and the company’s balance sheet reflects over $140 billion in cash and equivalents net of debt despite the ongoing capital return program. 

No matter these superlatives, Apple is challenged to reverse a decline in profitability. The company is in the midst of a multi-quarter decline in net income and a cycle of lower net income per revenue dollar even as revenue rises modestly year-over-year.

Apple: Net Income Growth Is The Name Of The Game
For Apple’s first quarter of FY2014 ended December 28, 2013, management reported revenue growth of 5.7% to $57.594 billion. In the same 91-day period net income fell year-over-year by $6 million to $13.072 billion and represented 22.70% of reported revenue, below the 23.99% of net income per revenue dollar earned the year before.

This FQ1 2014 performance came on the heels of the company’s FY2013 results in which Apple’s reported revenue rose 9.2% to $170.91 billion and net income fell 11.25% to $37.037 billion. Based on Apple’s March quarter revenue guidance, which suggests the possibility of a decline in revenue year-over-year, net income in the current quarter may fall below not only last year’s results, net income is likely to come in well below the results of two years ago. 

Apple’s Net Income By Quarter
The graph below illustrates Apple’s net income has been in decline on a year-over-year basis since the March quarter (FQ2) of FY2013. Although in FQ1 2013 the company managed a meager rise in net income of $14 million, in the recent December quarter (FQ1 2014), Apple’s net income was $6 million below the results in the prior-year period and only $8 million above the results of two years ago. 

While Apple’s reported revenue has continued to rise, the company’s net income per revenue dollar has continued to fall. In the December quarter, net income represented 22.70% of revenue versus 23.99% in the prior-year quarter and 28.20% of revenue in the December quarter two years ago.