How Will Apple Stock React When Tim Cook Retires?
Tim Cook will be 60 years old this year. He will have served as Apple Inc.’s (NASDAQ: AAPL) chief executive officer for nearly a decade.
There are at least half a dozen senior executives below him. Some are “waiting their turn” for a chance to move up if Cook retires. Apple’s market value is near an all-time high as well. Is it time for Cook to retire as CEO and become board chair?
Cook’s Path at Apple
Just before Apple co-founder Steve Jobs died of cancer, Cook was named to replace him as CEO. He was Apple’s chief operating officer (COO) before he was promoted. He became chief executive on August 24, 2011.
Cook made his reputation as one of America’s top experts on supply chain management. Apple sources components for its consumer electronics devices from all over the world.
Cook was a senior vice president of operations before he became COO. Among the high points of his success in that job was the elimination of Apple’s factories and storage locations. Almost all these services were moved to contract vendors. This saved money, and it made Apple’s supply chain more flexible.
Cook has 10 senior vice presidents and a chief operating officer at the top of Apple’s management. It is unlikely any of them will get his job. That eliminates the general counsel, chief financial officer and head of marketing. Craig Federighi, the head of software engineering, and Dan Riccio, the head of hardware engineering, have two of Apple’s most important jobs.
The most likely candidate may be Eddy Cue, who runs Apple’s Internet Software and Services operation. This is Apple’s fastest-growing business. Services are considered more important to Apple’s future than the iPhone and the Mac.
Cook’s Recent Legacy
Apple’s shares are 139% higher in the past five years. The S&P 500 is up 34% over that period, and the Dow Jones industrial average is higher by 30%. Apple has widely outperformed the stock market.
Cook took up the reins toward the end of the financial crisis. He successfully launched a series of new iPhones, Macs and the Apple Watch in fast succession. Nothing of substance slowed Apple’s progress under Cook until the COVID-19 outbreak.
In Apple’s most recent full fiscal year, which ended September 28, 2019, revenue dropped slightly year over year, from $266 billion to $260 billion. Earnings per share were off slightly, to $11.97 from $12.01. Cash flow analysis showed cash generated from operations was $69.4 billion.
The fourth quarter was stronger. As Cook pointed out, “We concluded a groundbreaking fiscal 2019 with our highest Q4 revenue ever, fueled by accelerating growth from Services, Wearables and iPad.”
Revenue for that final quarter was $64 billion, up from $62.9 billion in the same period a year ago. Earnings per share came in at $3.03, compared to $2.91.
Apple also built up its balance sheet in the final quarter. Luca Maestri, Apple’s chief financial officer, said, “Our strong business performance drove record Q4 EPS of $3.03 and record Q4 operating cash flow of $19.9 billion.”
Apple gave guidance for the first quarter of fiscal 2021. Management said it expected revenue between $85.5 billion and $89.5 billion. It also forecast a gross margin of 37.5% to 38.5% and that operating expenses of $9.6 billion to $9.8 billion.
What Would Help a New CEO?
If Cook does step down at 60, there is plenty in place to help a successor to move forward. Apple’s history shows that the company can launch a new iPhone once a year. The iPad, one of the earliest products in its category, continues to be upgraded as well. The Apple Watch was an entirely new product launch under Cook.
Apple’s services business will continue to grow for years. It encompasses the app store, Apple Music and Apple’s cloud storage business. Apple Pay is the primary e-commerce part of Apple’s efforts to compete with banks and credit card companies.
Apple TV has a hardware component and its new Apple TV+ streaming video service.
Apple’s hardware sales rate may have slowed, but that has been more than made up by the services business.
Apple probably will be among the companies that do well over the course of the COVID-19 pandemic. The rise of “work from home” is a benefit to the hardware industry. Software and streaming video services companies are expected to benefit also.
Cook’s Huge Pay Packages
If Cook retires, he leaves Apple as a very wealthy man. In the past fiscal year, Cook made almost $12 million. In the prior year, he made over $15 million, and in the year before that $13 million.
Cook has to use personal aircraft for both business and private flying. His compensation includes some of this. According to the most recent proxy, he received “personal air travel expenses in the amount of $315,311, which represents the incremental cost to Apple for Mr. Cook’s personal use of private aircraft based on hourly flight charges and other variable costs incurred by Apple for such use.”
Cook Is Part of a Generation of Tech Superstars
Cook’s performance has put him in the company of a few others who have successfully run massive tech companies.
The list includes Jeff Bezos, the founder of Amazon.com Inc. (NASDAQ: AMZN). He has turned it from an online bookseller to the world’s largest e-commerce operation. It is also the largest cloud computing operator in the world.
Mark Zuckerberg is only 36. He founded Facebook Inc. (NASDAQ: FB), the world’s largest social network, with nearly 2 billion users. He has voting control of the company.
Elon Musk started Tesla Inc. (NASDAQ: TSLA) and several other large tech companies. Based on Tesla’s financial performance this year, Musk could make several hundred million dollars.
Satya Nadella of Microsoft Corp. (NASDAQ: MSFT) has made it into one of the world’s largest cloud computing companies. He also has pushed its market cap above $1 trillion.
No one thought Cook could follow in the footsteps of Steve Jobs. As it turns out, that is not entirely true.