Sunday, December 5, 2010

Apple's Startling Rates Of Growth: A Five-Year Overview

Apple's Startling Rates Of Growth: A Five-Year Overview
Apple is a company known as much for defying conventional wisdom as it is known for several years of seemingly unbridled success. Already among the most highly valued enterprises in the world when measured by market capitalization, Apple is poised for perhaps the greatest year of revenue and earnings growth in the company's storied history
Apple's Rates of Growth Unmasked
In the current fiscal year that began in late September, more than 60% of the company's revenue may be sourced from products that did not exit in the marketplace four years ago today. Apple's ability to grow revenue and earnings at rates that startle the financial markets is sourced in the development of new products that expand the company's revenue and earnings range and disrupt established industries. The Apple iPhone and the Apple iPad are the two most recent examples of Apple's approach to growth.
From the original iPhone's release in 2007 to the end of fiscal year 2009 in September of that year, Apple's revenue and earnings growth from the iPhone was masked by the deferral of revenue and earnings over the anticipated economic life of each handset sold. Beginning with the first quarter of fiscal year 2010, Apple adopted new accounting principles that essentially eliminated the deferred revenue and earnings recognition on iPhone sales and released retrospective adjustments to the company's financial statements. The adoption of new accounting principles unmasked Apple's rates of revenue and earnings growth from the original introduction of the iPhone through fiscal year 2009.
Apple's Five-Year Rates of Revenue Growth
The graph below and its associated data table illustrate Apple's rates of revenue growth over the last five fiscal years beginning in late September 2005. The numbers incorporate the retrospective adjustments to recognized revenue from iPhone handset sales. 









Revenue Growth
Multiple of 




Revenue
YOY Growth
Since FY05
FY05 Revenue



FY2005
13,931






FY2006
19,315
38.65%
38.65%
1.3865



FY2007
24,578
27.25%
76.43%
1.7643



FY2008
37,491
52.54%
169.12%
2.6912



FY2009
42,905
14.44%
207.98%
3.0798



FY2010
65,225
52.02%
368.20%
4.6820



Over this five-year period Apple increased annual revenue 368% or a revenue multiple of 4.68 times fiscal year 2005 reported revenue. The original iPhone was the catalyst for a greater than 50% growth in revenue in fiscal year 2008. The Apple iPad fueled revenue growth from about 40% for existing products in fiscal year 2010 to an overall revenue gain of 52% for the company. In fiscal year 2011 I currently forecast a revenue gain of over 60% for Apple, representing revenue growth acceleration above the rates of revenue growth in the referenced five-year period. For more information about Apple's dynamic and evolving revenue mix, please see my October blog post titled Apple's FY2010: A Retrospective

Apple's Five-Year Rates of Earnings Per Share Growth
The graph below and associated data table illustrate Apple's rates of earnings per share growth over the the last five fiscal years beginning in late September 2005. Similar to the revenue numbers above, the eps results depicted incorporate the retrospective adjustments to recognized eps from iPhone handset sales. 









EPS Growth
Multiple of 




EPS
YOY Growth
Since FY05
FY05 EPS



FY2005
1.55






FY2006
2.27
46.45%
46.45%
1.4645



FY2007
3.93
73.13%
153.55%
2.5355



FY2008
6.78
72.52%
337.42%
4.3742



FY2009
9.08
33.92%
485.81%
5.8581



FY2010
15.15
66.85%
877.42%
9.7742








Over this five-year period Apple increased earnings per share from $1.55 at the end of fiscal year 2005 to $15.15 in fiscal year 2010, an increase of 877% or an eps multiple of 9.77 times the fiscal year 2005 results. In fiscal year 2011 I anticipate Apple's rate of eps growth to surpass the 67% gain achieved last fiscal year. 
The fiscal year 2010 eps performance benefitted from a dramatic decline in Apple's effective tax rates and a more than 50% gain in revenue. The rates of eps growth in the fiscal year were moderated slightly by reductions in gross margins, indicative of Apple's efforts to more aggressively price products to boost unit sales and future revenue growth from after-purchase sales of apps and other iTunes content. 

In fiscal year 2011 the rates of year-over-year revenue and earnings per share growth may rise more in tandem than the average of the past five years due to the dramatic drop in effective tax rates experienced last fiscal year and a continued moderation of gross margins to boost unit sales. However, as revenue scales dramatically higher this fiscal year, operating expenses relative to revenue will fall, boosting the company's earnings per share performance. 

For more information on Apple's costs relative to revenue in fiscal years 2009 and 2010, please see my November blog post titled Apple: A Quarterly Comparison of Costs and Cost Ratios To Revenue and my November blog post titled Apple's Profitability and the Influences of Gross Margins, Tax Rates and OpEx. 



Graphs courtesy of Sandy Leitao
Robert Paul Leitao


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