Tim Cook officially became Apple Inc. (AAPL) CEO at the end of 2011. Because of his predecessor's illness, the legendary Steve Jobs, I'm performing this analysis as though Cook started in early 2011. According to this BBC article Jobs took a leave of absence, but was still involved in all major decisions, at that time. You can easily make the case Cook only started at the end of 2011. I don't want to argue against that point of view. I've analyzed the data from the start of 2011 and you can make the final decision how to interpret it.
Taking over from Steve Jobs, at a time that Apple was firing on all cylinders, is hardly an enviable task. However, Cook is compensated well enough to ease any pain. Pay over the last year wasn't exceptional, but he is perhaps the best paid CEO in the world if we review his pay over time served:
What matters most to Apple investors is how Cook performed during his tenure. To arrive at an objective evaluation I'm going to review the company's numbers from 2011-2013 on a pre-determined set of variables: RoE, RoC, Book Value, Margins, Asset Turnover and Capex Trends. To put these in perspective I will contrast them to those posted by its main competitor Samsung (OTC:SSNLF) and also discuss some notable differences with the numbers under Jobs.
Inspired by an excellent chapter in The Manual of Ideas, called Jockey Stocks: Making Money alongside Great Managers, I put together a spreadsheet as a basis for analysis. Although I'm using slightly different metrics, as those proposed in The Manual of Ideas, to base my analysis on:
|Apple / Tim Cook||Return on Equity||Return on Capital||Book value||Margin Profile||Asset turnover||Capex trends|
What immediately stands out to me are the impressive return on equity and return on capital. Book value also increased by close to 70% under Cook's leadership. Perhaps not the most important metric for a company like Apple, it is still an impressive accomplishment. Margins look, unsurprisingly given the company's products success, terrific. There appears to be somewhat of a slowdown in asset turnover, which is somewhat concerning.
Cook vs Jobs
Cook is building on the foundations that were laid by Jobs. Sometimes he is portrayed as fumbling away the great company Jobs built or at least not given any more credit than being a decent care taker of the dominant tech company. Is that really true?
Under Cook's leadership both return on equity and return on capital appear to accelerate but they also come down sharply during 2013.
How margins are managed can be especially interesting to look at because they are most comparable within a company. Again, it appears Cook accelerated margin improvements, but in 2013 he is back where he started.
One of the more interesting developments of the Cook leadership vs the Jobs leadership is the difference in capital expenditures. It appears like Cook is really ramping up investments and more aggressively allocating capital.
Apple has been rightfully criticized for hoarding cash by shareholders. If Cook can continue to achieve returns on capital like he has so far, this development to ramp up capital expenditures bodes very well for Apple shareholders.
Yet, it isn't enough. The company paid a small dividend and performed some buybacks. Yet Cook doesn't appear to yield to demands by Carl Icahn to increase buybacks further. With the S&P 500 up ~30% year over 2013, every idle dollar in Apple's coffers is a significant opportunity cost to investors.
Apple vs Samsung
Comparing a CEO to his predecessor is very difficult. It's like comparing lap times of race car drivers, driving the same car, but on a different track. A CEO review is an inexact science at best. To add additional perspective let's compare Cook's results to that of Kwon Oh Hyun of competitor Samsung, over the same period:
|Kwon Oh Hyun / Samsung||Return on Equity||Return on Capital||Book value||Margin Profile||Asset turnover||Capex trends|
Kwon Oh Hyun performed worse on almost every metric. Most importantly the RoE and RoC are not anywhere near the level achieved by Cook.
Kwon Oh Hyun did grow book value a whopping 50%+ and although it falls short of Cook's performance it is stellar nonetheless. Comparing margins between companies is difficult. Even companies in the same industry might use different accountancy methods. This is even more true when comparing a U.S company to a Korean company.
When we compare a basket of margin metrics we see a few interesting developments: Samsung overtook Apple's gross profit margin during 2013, Apple's operating margins are 12% higher than Samsung's. That difference is most likely driving the discrepancy in RoE. A glance at the graph gives the appearance Samsung is closing in on Apple.
The available data on Samsung Electronics is limited but it appears that Cook is finding more ways to reinvest cash than his competitor.
Given his track record of returns on capital, that is a big plus over his competitor at Samsung. Kwon's return on capital lag Cook's, and he also finds fewer opportunities for reinvestment.
The only metric where Kwon is really beating Cook is on asset turnover. However he only manages this, at considerable lower margins. It would be a true feat while achieving similar margins.
Results vs S&P 500
Even Apple's share price, relative to the S&P 500, performed well. Granted there was considerable more volatility in an Apple investment but Cook managed to beat the market 75.76% vs 54.45% over his tenure. Not bad, considering he manages a company with a market cap of $500 billion.
In the two or three years Tim Cook has managed Apple he performed quite well. There was no noticeable dip in performance of the company, even though this is common when a new CEO takes over. Contrary to popular belief Cook is not just an able care taker of the Jobs legacy.
The numbers show he is actually achieving excellent returns for shareholders. There is still room for improvement. I would applaud management accelerating deployment of capital. Either by investment or into the wallets of shareholders.
The data is telling me Tim Cook is a pretty great CEO. So far his leadership appears to be of the kind that would give me additional reason to invest in a company like Apple.