February 28, 2000 12:25 PM PST

Jobs takes decades to become overnight success

It took Steve Jobs two decades to become an overnight dot-com billionaire.

Unlike so many 20-something CEOs who are minting money, Jobs has made his riches the old-fashioned way: He is reaching his billion-dollar Internet payday from Apple Computer nearly a quarter-century after co-founding the company.

Many of today's new-economy superstars may never have gotten their start without the pioneering technology developed by Apple and Jobs, who made his first $1 billion as founder of Pixar Animation Studios, of which he owns a 65 percent stake. But it was the Internet that played to Jobs' true strength in the eyes of many--his marketing prowess--and Apple rewarded its chief executive last month with a stock-option package that could add another billion to his portfolio.

At first, the 10 million-share package appeared obscenely large. "It's the largest single grant I've observed in my 40-year career," said Graef Crystal, a compensation expert and columnist.

When compared with the contracts of many dot-com executives, however, Jobs' compensation could seem downright paltry, besides being tardy. For example:

 Jim Clark co-founded Netscape Communications in 1994. After the company launched its initial public offering 18 months later, Clark became the first Net billionaire.

 Jeff Bezos founded Amazon.com in 1995 and took it public two years later, making him a multibillionaire.

 Yahoo co-founders Jerry Yang and David Filo became billionaires after their company went public in 1996, three years after they started tracking Web sites from a trailer on the campus of Stanford University.

 Pierre Omidyar incorporated eBay in 1996, and the company went public two years later. The shares surged 25-fold in mere months, making Omidyar's stake worth billions. Other members of the eBay billionaire's club include co-founder Jeff Skoll and CEO Meg Whitman.

Other billionaires include David Wetherell of CMGI, Rob Glaser of RealNetworks and Mark Cuban of Broadcast.com, to mention only a few.

And then there's Jobs, who helped shape the landscape for all of them by starting Apple with Steve Wozniak in 1976, only to be forced out in 1985 until his return in 1997.

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Even Jobs' critics--and he has plenty--have to admit that he played a crucial role in removing Apple from high-tech's list of endangered species. The company's stock is trading around $115, having more than quintupled in the past two years. Last year, the Silicon Valley institution reported revenues of $6.1 billion and profits of $601 million.

"You could say that he is grossly overcompensated, but I don't think he is," said Owen Linzmayer, a journalist who has covered Apple for more than 20 years and wrote the book "Apple Confidential: The Real Story of Apple Computer." "The guy came in and turned around a major company, and now he's getting rewarded for it."

Jobs, who could not be reached for comment for this story, receives an annual salary of just $1 from Apple. In addition to his stock package, the company's board of directors awarded Jobs with a jet worth about $90 million, including the value of sales and income taxes that Apple agreed to pay.

As Apple board member Ed Woolard explained in a statement justifying the package: "Apple's market (capitalization) has risen from less than $2 billion to over $16 billion under Steve's leadership since his return to the company two-and-a-half years ago."

The package is hardly off the charts in today's megadeal environment.

The CEOs of several Internet companies are sitting on stock holdings that already are worth billions--even though their companies are much younger, have far lower revenues, and in at least one case lose more money than Apple earns.

New money
Apple Computer has substantially more revenues and profits than three major Internet companies, but its market value ranks last.
Company Market value (billions) Annual revenues (millions) Annual profits/losses (millions)
Yahoo $86 $589 $61
Amazon 23 1,600 -720
eBay 20 225 11
Apple 18 6,100 601
Source: Staff research
According to the October edition of Fortune magazine, Amazon.com chairman Bezos is worth about $5.74 billion, while eBay chairman Omidyar holds about $3.69 billion worth of stock. "Chief Yahoos" Filo and Yang are worth $3.12 billion and $3.05 billion, respectively.

And how do those companies stack up when you consider such traditional factors as revenues and profits? While Apple collected more than $6 billion last year, Amazon had revenues of $1.6 billion, eBay had $225 million, and Yahoo had $589 million.

As for profits, Apple earned $600 million, eBay pocketed $11 million, Yahoo earned $61 million and Amazon lost more than $700 million.

Of course, investors value Net companies much differently than hardware companies such as Apple. Profits matter less to a buyer of shares in a Net company than does the potential for dominating a sector with huge profits in the future. Hence Amazon's $23 billion market capitalization compared with Apple's $18 billion.

The value of a hired gun
There's another important factor in explaining the disparity between Jobs' options and those of the Net billionaires.

"Jobs was a founder of the company, then he sold all his shares," Crystal explained. "When he returned he was more of a hired gun brought in to turn around the company than a founder, and hired guns do not typically get awarded the stake a founder receives."

Some reports placed the value of the package Jobs received at more than $1 billion (10 million shares multiplied by Apple's current stock price of $115). But Jobs received the stock as a current CEO, not as a founder--a significant distinction.

As a result, Jobs did not receive the shares outright but must buy them for $87.19 each before he can sell them.

The true value of the shares is the difference between that "strike price," the price at which Jobs can buy, and any appreciation in the shares. With Apple now trading about $30 above the strike price, Jobs' stake has a net value of nearly $300 million.

To reach $1 billion, Apple shares would need to climb to about $187. That level could be reached with a relatively modest gain of 10 percent in each of the next five years.

By comparison, Apple's shares have posted an average annual return of about 21 percent for the past five years, although that's entirely attributable to the sharp run-up in the past two years.

It's also worth noting that half of the 10 million-share stake has vested, meaning Jobs can buy and immediately sell 5 million shares for a profit of about $150 million.

Still, the surging price in Apple shares is something of a mixed blessing for Jobs, who missed out on the boom with his original shares.

Jobs owned a 9 percent stake when he left the company in 1987 but sold all his shares before his return because, as he told Time magazine, he "had pretty much given up hope that the Apple board was going to do anything."

 

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