Friday, April 5, 2013

Big Cap Tech: 10-Year Changes to Share Count

Below is a quick summary of how shares outstanding have changed for the largest technology companies over the past decade:

Apple (AAPL)
Fiscal Year 2003: 723 million
Fiscal Year 2012: 945 million
Share count increased by 31 percent

Google (GOOG)
FY 2003: 257 million
FY 2012: 332 million
Share count increased by 29 percent

Microsoft (MSFT)
FY 2003: 10.9 billion
FY 2012: 8.5 billion
Share count reduced by 22 percent

FY 2003: 1.76 billion
FY 2012: 1.16 billion
Share count reduced by 34 percent

Oracle (ORCL)*
FY 2003: 5.4 billion
FY 2012: 5.1 billion
Share count reduced by 6 percent

Some thoughts:

Whether the share count was reduced in an economically sound manner (i.e. shares were bought when selling comfortably below intrinsic value) should be taken into account. Obviously, if a company overpaid for shares during the past decade it can't be undone but, if nothing else, it's an indication of how wisely capital might be allocated in the future.

How capital will get allocated naturally has a big impact on how intrinsic value will change over time.

The two stocks with meaningful dilution is related primarily to stock-based compensation**, Google and Apple, each had extremely good decades in terms of business (and stock) performance to say the least.

Even if they continue to do just fine business-wise, any sound judgment of their per share intrinsic value will require appropriate consideration of additional future share dilution. Coming up with a reasonable assumption for the future per-share economic impact (not just the accounting impact) of stock-based compensation isn't exactly the easiest thing to do.

At least not for those companies that happen to rely heavily on stock-based compensation.

Those who do decide to ignore stock-based compensation -- and some seem willing to do just that -- along with the dilution that results from it are more likely misjudge per-share value. Stock-based compensation can surely become very meaningful and expensive for shareholders over the long run.
(That the ultimate true cost is difficult to quantify beforehand makes it no less real.)

The dilution that results -- or, alternatively, the company's net cash that must be used to buyback enough shares to offset that dilution -- impacts per share value in a very real way.

Investors who think otherwise are kidding themselves.


Long positions in AAPL, GOOG, and MSFT established at lower than recent market prices

Related posts:
Technology Stocks
Time for Dividends in Techland

* Oracle's last full fiscal year ended almost a year ago. The company's share count has dropped to 4.8 billion since then.
** For both Apple and Google, increases to share count has been relatively slower in more recent years (when compared to the earlier part of the past ten years). Much of the dilution is related to stock-based compensation but not all of it. For example, Google also raised some capital that increased shares outstanding not only during their 2004 initial public offering, but also via follow-on common stock offerings in 2005 and 2006. The follow-on offerings resulted in more than 14 million additional shares in 2005, then more than 5 million additional shares in 2006. 
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