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.