Apple: 10-Quarter Review of Revenue vs. Operating Expenses

One of the less heralded trends in Apple continuing revenue and earnings per share growth story is the recent and dramatic drop in operating expenses relative to revenue. 

On December 21, 2010 I published a blog post titled Apple: Revenue Growth vs. Growth in Operating Expenses. Today I'm updating the data to include the first quarters of fiscal year 2011. What the numbers indicate is over the most recent three-quarter period revenue consumed by operating expenses (Research and Development and General, Selling and Administrative expenses) has dropped dramatically, contributing to a rate of growth in eps exceeding the rate of growth in revenue. I will provide a fresh analysis of Apple's rate of eps growth in an upcoming post at Posts At Eventide. 

			YOY Rev.	Operating	YOY OpEx	OpEx %
	Quarter	Revenue	Growth	Expenses	Growth	of Revenue
	FQ1 ’09	11,880		1,406		11.80%
	FQ2 ’09	9,084		1,304		14.40%
	FQ3 ’09	9,734		1,351		13.90%
	FQ4 ’09	12,207		1,421		11.60%
	FQ1 ’10	15,683	32.0%	1,686	19.9%	10.80%
	FQ2 ’10	13,499	48.6%	1,646	26.2%	12.20%
	FQ3 ’10	15,700	61.3%	1,902	40.8%	12.10%
	FQ4 ’10	20,342	66.6%	2,065	45.3%	10.20%
	FQ1 ’11	26,741	70.5%	2,471	46.6%	9.24%
	FQ2 ’11	24,667	82.7%	2,344	42.4%	9.50%

AAPL Revenue Growth vs. Growth in Operating Expenses

The graph and table data above illustrate and detail the differing rates of growth of revenue and operating expenses over the most recent 10-quarter period. There's obviously some correlation between the growth operating expenses and revenue generation activity. The expansion of Apple's global product reach and the growth in the number of retail stores will naturally contribute to a rise in operating expansions. However, the company has managed to contain the rates of operating expense growth to levels well under the rate of growth in revenue over the past few quarters. Over the past three quarters in particular, the rates of growth in operating expenses relative to the rates of growth in revenue have had a more significant impact on the company's eps outcome than variations in gross margin. More accurately estimating Apple's operating expenses has been one of the key factors in the independent bloggers outperforming Wall Street analysts in the Apple 2.0 quarterly estimate comparisons. 

Over the next several quarters I expect the rates of growth in operating expenses to remain below the rates of growth in revenue due to Apple's ability to leverage the company's global retail store presence and the anticipated sharp rise in revenue from strong iPad unit sales. 

Robert Paul Leitao