For the past five fiscal years Apple have been in an era of extraordinary revenue and earnings growth. In the December and March quarters of the current fiscal year the company's pace of revenue and earnings growth has accelerated even more. For the first six months of FY 2011 Apple's revenue has risen over 76% and the rate of earnings per share (eps) growth topped 83%. However, the rate of net income growth is higher than the rate of eps growth.
Each quarter one of the small challenges confronting AAPL analysts is translating net income into earnings per share. The reason why it's a small challenge is because of what I'll call "share creep" and the gradual and continual increase in the number of fully diluted shares used in computing each quarter's earnings per share performance. For example, in the recent March quarter while net income rose about 94.8% to $5.987 billion from $3.074 billion in the same quarter one year before, the reported rise in eps in the fiscal quarter was about 92.2% to $6.40 from $3.33. The difference in the percentage gains was due to the 1.42% rise in the number of fully diluted shares over the 12-month period to 935.944 million shares at the end of the March period in FY 2011from the 922.878 million shares at the end of the March period in FY 2010.
While "share creep" in sequential quarters might appear to be slight, when measured over a 12-month period of time the increase in fully diluted shares becomes material to the eps outcome. During the 10-quarter period illustrated in the graph and data table below the number of fully diluted shares used in quarterly eps calculations has risen about 3.8%.
Quarter | Shares | Quarterly Gain | YOY Gain | Quarterly % | YOY % | |
FQ1 ’09 | 901,494,000 | -3,292,000 | 1,440,000 | -0.364% | 0.160% | |
FQ2 ’09 | 902,993,000 | 1,499,000 | 3,664,000 | 0.166% | 0.407% | |
FQ3 ’09 | 909,160,000 | 6,167,000 | 5,993,000 | 0.683% | 0.664% | |
FQ4 ’09 | 914,374,000 | 5,214,000 | 9,588,000 | 0.573% | 1.060% | |
FQ1 '10 | 919,783,000 | 5,409,000 | 18,289,000 | 0.592% | 2.029% | |
FQ2 ’10 | 922,878,000 | 3,095,000 | 19,885,000 | 0.336% | 2.202% | |
FQ3 ’10 | 927,361,000 | 4,483,000 | 18,201,000 | 0.486% | 2.002% | |
FQ4 ’10 | 928,825,000 | 1,464,000 | 14,451,000 | 0.158% | 1.580% | |
FQ1 ’11 | 933,154,000 | 4,329,000 | 13,371,000 | 0.466% | 1.454% | |
FQ2 ’11 | 935,944,000 | 2,790,000 | 13,066,000 | 0.299% | 1.416% |
I'm posting this history of the fully diluted share count over the most recent 10-quarter period and the accompanying graph as a benefit to other AAPL independent analysts as we enter the latter half of the June quarter and complete our June quarter revenue, net income and eps estimates.
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Robert Paul Leitao
Robert, what is the source/cause of the "gradual and continual increase in the number of fully diluted shares".
ReplyDeleteBunratty:
ReplyDeleteStock-based compensation is one source of the increase in the fully diluted share count.
Why doesnt AAPL drop a few pennies to buy back the same number of shares they issue for stock based comp? I don't like how big buybacks distort eps the other way, but to offset share creep would keep comparisons perfect.
ReplyDeleteTed:
ReplyDeleteI agree buying back just enough shares to offset "share creep" would be an appropriate use of a relatively small amount of the company's cash.