Apple’s $24.5 billion: The case for a big stock buyback

On paper it sounds good, but lets be honest do we really think Jobs and Co. will approve something like this?
I highly doubt it. This really is not the way get get market share. Come on Jobs is an intelligent guy and can come up with something better than this. Like you said last time was the Apple Store chain.

As an Apple Stockholder I hope they do not go this route.

http://thetechnutz.wordpress.com/

“Wall Street is all about the current or immediately past 90 days. The manager that thinks about next year or 5 years from now will most certainly never maximize his/her bonus.”

I’ve heard that from others, as well. I wouldn’t know myself, as i don’t play stocks, but it seems a savage indictment of the numerics culture that feeds on the work of industry.

All the big guys who built great companies always say the same thing: they wanted to make better products and make their mark in industry. they wanted to create.

And so they went to the market to gather capital from share issues because it is better than borrowing. And then their companies were mismanaged by fools who peer into a bag full of numbers and use their parents money to force change in industrial practice.

Sad, and probably the core reason we get bubbles in the market instead of sustainable, enriching growth.

Folks who create nothing but numbers are a cancer, a drain on those who creates products and services that help other people.

Hey Philip, that formula should read:

18 < 1/.0155 ≈ (approximately equal to) 64.5

Not that I think it’s a good formula anyway.

Stock Buy Backs are not dumb in the present current quarter focused financial world. Stock price is the issue. High stock prices make shareholders happy. Happy shareholders pay management big bucks. The major mover of stock price is earnings per share.

There are two ways increase EPS, increase earnings or decrease the number of shares. Obviously, Apple management thinks that in the present economic setting spending $25B on shrinking the number of shares will get more or safer EPS than risking that $25B in the product market.

Wall Street is all about the current or immediately past 90 days. The manager that thinks about next year or 5 years from now will most certainly never maximize his/her bonus.

What a moronic idea. Companies don’t grow or become better or more competitive or have better products or services when they buy back stock. They don’t grow when they sell or close divisions either. They dont grow when they change names or restructure their management team. They also don’t grow when they pay huge dividends.

Managers are paid to grow businesses, to innovate and to develop new and improved products and services in order to keep customer’s money flowing in. Not every new improved product will be a hit, but some will and good companies spend their accumulated earnings on new products and services.

Mmmm could crash at any time though. Keep that in mind. Although high tech industry is notoriously stable. But then again it has been developed in the dynamic state sector. See the book, Targeting the Computer.

http://sciencedefeated.wordpress.com/

VZ Market Cap: $85.5B
S Market Cap: <$10B
DTLSF Market Cap: $56.21B
ATT is at $157B but would fall should AAPL buy one of the above.

Norman makes interesting comments. i would also like to hear more about the idea of underwriting the share price in this way.

But there are a few suggestions here that Apple should subsidize products to grow market share. With respect, that is lunacy, and idiot numerics. It is throwing away money to get a good set of numbers, according to the opinion of some “economist” who earns 15 grand a year from the state.

The way you grow market share is to make products that appeal to the market. then the market buy them, and you have market share at a profit. The idea that you can win in business by selling at a loss is so crazy I am not going to talk about it further.

So the big challenge for Apple is how to grow market share at a profit. NO SHIT. I mean, Stevo is so thankful for everyone who has looked into their crystal ball and come up with this nugget of gold. All this time, he thought he was painting a chicken yellow in order to win an art contest.

But money can’t BUY market share. It has to be conquered, with good products. So the question becomes, What is the product Apple needs to build, in order to grow?

I think it is becoming evident that this product is the Enterprise framework. Apple need to stop perfecting the personal computer and music player, and start building a business machine.

How? Well, my two cents is that they need the best people. Everywhere they have dominated, it has been because they have the best people. Jonathan Ives, how much is that guy worth? You can’t put a price on him. You just can’t put a price on the minds that generate quality ideas. For a company that deals in tech, the grey matter is the fundamental asset upon which all else is built.

I have no idea who these folks are, the best brains for building the Enterprise framework, but I would bet my last dollar that this is where that cash must be spent.

If Apple succeed in Enterprise, they will own the show. If they fail, they are going nowhere. So I think they must employ every bright spark in the Enterprise tech world, put them to work, and cull the weak without mercy.

And that will not cost billions, but it will take some real leadership. I suspect it is already happening, but i don’t have the data to back me up. So it is a guess, based on the way the Divine being has built this company over the course of my lifetime.

Any shareholder in Apple that is happy to make only 1.55% on the cash that they own needs to learn a thing or two about investing. Apple’s $24.5bn cash pile is making meagre returns… surely any rational shareholder would prefer to have the cash themselves (in the form of a dividend) to invest as they see fit.

A share buy back is effectively forcing shareholders to invest more of the cash they own into the company… I would rather do that myself if I wanted to increase my investment in Apple…

A dividend payment makes much more sense…

OKay Philip doesn’t know what he’s talking about. APPL has no need to buyback stock. Buying back stock is it increase investor’s confidence in a company and keep them from selling. Stock buybacks are essentially a guarantee that the company they invested in can still pay there bills. APPL has $25 bln in cash equivalent assets and no debt. Therefore, APPL has no logistical reason to buy stock. APPL if it choses to use said money will use it to make logistical acquisitions that serves its long-term goals. Seriously, has anyone looked what idiots in Wall Street did with they money and the toliet that their in now?

No, No, No, and No.
Apple should NEVER buy back stock.
That is such a waste of money.

Apple’s money hoard is insurance against hard economic times.
Apple’s money hoard allows the stock to have a floor under which it cannot go below. It keeps the stock up.
Apple’s money hoard allows it to buy other companies.

It is a total waste of money to buy back stock.
It is far better to grow the company using the money. This will increase the stock price.

Apple is a huge company in terms of market cap. Its cash hoard would not be enough to raid the company.

Apple and its stock holders are also totally against any takeover of Apple. Steve Jobs definitely would prevent such an occurrence.

Apple’s money hoard is a weapon it can use against its competitors. Apple invests its money well to allow it to out innovate its competitors.

Never, never, never do a stock buyback.

As an Apple Stockholder, I would be dead set against it.

Yup, Apple should buy back stocks, this way, the stock price can continue to go down until Apple collapses once everyone figures out Apple products are overpriced, overvalued, unoriginal and are like a fashion that is only temporary and will quickly get trashed by $100 laptops, Linux and $100 Android devices sold at cost manufacturing prices, runing on free White Spaces. Where content is free by new Obama copyright laws, where all artists are paid through taxes. No more DRM, no more iTunes, no more proprietary software, no more overpriced crapware.

The whole Apple business model is disrupted.

HERE IS AN IDEA OF WAHT TO DO WITH THE $25B: THE “BRICK” WENT OVER LIKE A BRICK. INSTEAD USE THE $ TO SUBSIDIZE A LOW END LAP TOP, SAY $799.
CAPTURE MARKET SHARE & STOCK WILL SOAR!

I thought cash on hand = dividends…

I thought stocks were bought by people in order that they receive a share of that company’s profits?

or are stocks only bought nowadays with the expectation one makes money on them by selling them if the price of the stock goes up?

No wonder Wall Street and folks with 401Ks are f’ed.

Come the year 2012 Apple could look @ New LTE Verizon Network to be switched on 18-24th Months time a Apple MVNO using it’s Stores & strike a Exclusive Deal with Nordstrom/Neiman Marcus 10yr Alliance.

E: mavenglobal@gmail.com

Some analysts just hate the idea a company has a lot of cash on hand.

The financial industry is full of jerks who think they have better ideas of how to handle ‘cash’ than do the executives of successful companies.
And there are the jerks - asset strippers - who are always trying to force a company deep into debt as they haul off the cash for themselves and their cronies.
Remember TXU - only time will tell if this happens.

Let’s see, Apple’s 2007 revenue was 24.0 Billion dollars, net income was 2.5 Billion dollars.
So they have a little over 1 year’s revenue to cover themselves if there is a shortfall in receipts.
In other words, Steve Jobs does not go to the bank to beg for a loan to pay his employees and pay his bills.

Now there is something suspicious about a company that has existed for over 25 years but never pays dividends.
IBM has paid dividends for decades, as has HP.
The advantage to Apple in not paying dividends is in the bookkeeping, one less damn thing to have to keep track of.

And by the way, Steve Jobs executive pay is only $1 - it’s a dodge to avoid paying Social Security tax.

Obviously, the Chinese workers who assemble his ‘wonderful’ devices will never get any financial security like he has.

There needs to be a new way to classify stocks for those of us who can’t spend a lot of time researching them.

Give high ratings to those companies that keep enough ‘cash on hand’ equal to at least 6 months of revenue.
This would include Apple.

Give high ratings to those companies that pay dividends.
This would not include Apple.

Give high ratings to those companies that have such successful products and business models that they are takeover-resistant.
This would include Apple.

Give high ratings to those companies that make the contracts for their executives and board-of-directors public.
Like that’s ever going to happen with any company, especially hedge funds.

Anybody have any more?

The idea being to make more companies that are ethically run as resistant to the bullies of Wall Street as Apple is.

It won’t happen, but it’s nice to see the stock being manipulated UP for a change. This is so that Toni can start pondering where the iPhones are, or some other shorts can release Job’s obit, etc… around MacWorld, sell out, only to buy it all back in a few months. Have fun boys. Anyone with more than a couple of years in THIS stock has nothing to worry about, even during this financial climate, you would have about doubled your money in two years. once the market comes back, it will be back to doubling every year.

“In the last analysis, the purchase by a firm of its own stock is the exact opposite of the sale of stocks. It is by the sale of stock that firms ordinarily grow.”
- The Great Crash 1929 by John Kenneth Galbraith

The constant advocacy of stock buybacks is completely unreasonable and the practice will come back to haunt companies.

Has anyone thought to question the $24.5 Billion figure for “cash in the bank”? A quick look at Apples most recent quarterly balance sheet indicates cash & equivalents, Short-term Investments and Accounts Recieveable of $24.5 Billion cumulatively, not solely cash. If you assume that you will instantly collect all that money, shouldn’t you should also assume that all current liabilities will come due as well? I think that overlooking what they owe is kind of stupid, to be blunt. If they spent all $25 Billion they would have $0 to pay for the $14 Billion they owe for Accounts Payable and Accrued Expenses.

All that aside, Apple had better figure out a way to put that money to work. Tech Acquisitions, Stock Buy-backs, Dividends heck, I’d even like to see more of it devoted to R&D to improve efficiency and profitability accross their product lines.

A stock buy back will have no effect in apple’s stock. The stock value is influenced more by speculators rather than any objective metric. This is the problem investing in apple.

$24.5B is alot of cash, but given the macroeconomic circumstances, it might be useful to hang onto for a strategic acquisition in the next year or two. However, as you note, Apple is likely to grow cash another $10B this year, so they should start to consider buying back some shares, if they want to keep the cash pile at manageable levels.

Toni has been wrong headed many times. I think he treats Apple as if it were a ‘consumer product/computer’ company.

He is very wrong.

Apple is transcendently innovative in the way that Ford, IBM, MSFT, Google, Cisco, and Starbucks were in their day.

This is Apple’s day and Toni doesn’t get it.

Anyone missing this by following Toni will be in a world of hurt if their strategy is to short Apple.

Oh! This is rich!!!… You have an analyst that has been consistently wrong on AAPL trying to second guess one of the most successful CEO’s on the planet!!!!
I think that Jobs has something BIG going on somewhere up the road. Something that is going to make the company a ton of money. Not something as dumb as a stock buyback..

why do you continue to quote these idiots? Is Suckonaghi your pal? here’s my math 1+1 = 2

Apple would make a fortune buying back stock under $100. A series of acquisitions and/or investments in other companies might also make a lot of money (or might not).

Only an idiot would walk by a gold bar lying on the sidewalk without picking it up.

I can’t see as how a huge buyback would make sense. Apple with cash makes me happy. However, I wonder if perhaps a small buyback might make sense. Let’s suppose that Apple put $2B (less than 10% of cash) toward buyback at a fixed price - say $90. If the share price went below $90, Apple would buy. If it didn’t, Apple keeps it’s reserves.

Maybe I’m not being sophisticated enough in my thinking, but it seems that Apple would win big either way. The buyback potential would create a nice floor for the stock price. It would be hard for shares to dip below that with Apple jumping in. At $90, Apple gets the stock at a very favorable price, and shareholders get some increased value in addition to the safety of the floor.

On the other hand, if the share price stays up or rises, Apple sits on the cash saving it for future investments. In the long run, that will create shareholder value, and in the short term stock owners have little to worry about.

Any thoughts?

Apple can be dominant!!
A 4th option for 25 billion cash would be to lower I-phone prices by $100/phone to gain major market share and plus increased profits from sales of supporting & related softwarear and licenses.

20 million phones/year would require only $2 billion and make Apple dominant in this space.

The problem of all that cash, if you call that a problem, is only going to get worse in the next 2 years. Why?

Well, while iPhone revenues are recognized over 8 quarters, the cash from selling is recognized and hits the balance sheet immediately. That’s a big reason why Apple’s cash hoard increased by $3.8 billion in the Q4 reporting. If my math is correct, they receive about $400 cash for each iPhone they sell, and if they sell another 5 million in Q1 and do well with other products in the holiday season, that’s another $3 billion in the bank.

Other companies would kill to have this problem. I’ll leave it for others to impugn Mr. Sacconaghi’s record, but I’m quite sure that Steve Jobs and Apple can better figure out what to do with that cash than can any analyst.

When your wrong as often as Toni has been, it’s hard to justify your bearish outlook…

It would be silly for AAPL to buy back shares. Buying back shares only helps traders, it doesn’t help long-term investors. Dividends and stock buy backs are offered by companies whose growth has slowed in an attempt to create shareholder value. In the history of wall street, stock buy backs have done little to help long-term investors. Dividends help stabilize company stocks and help give a floor in valuations. Apple’s horde of cash does the same thing: it gives a floor to stock valuations.

Overall, Apple would be better served purchasing any technology or assets that will allow it to continue innovating and when necessary, expanding.

This is stupid, this isn’t the year 2000 when people were issuing buybacks and would see a huge run up in stock price. We are in the face of the biggest recession in a generation, and this moron is asking for a stock buyback or dividend so they can waste this precious money? What an idiot. Apple needs to keep it so that it can weather any storm that it faces and keep innovating.

and if Apple had bought back stock when they said they were going to buy it back, back in 2000-2001, they would have only had to spend $500 million to $1 billion to boost earnings by MORE than 20%.

instead they only bought back like $120 million. the now proven stupid Fred Anderson, only was interested in lining his own pockets with stock options. failed all shareholders by 20% at todays prices in share Price atleast.

A stock buyback is a big moneymaker for Apple. We don’t know what alternatives Apple is considering, but buying the stock at $85-100 offers far greater returns to Apple’s shareholders than keeping it all in the bank earning low rates of return.

Not only would a buyback increase Apple’s earnings per share, but a sizable buyback would yield very high returns when the stock recovers within one or two years.

A buyback when the stock is very cheap is a great investment by Apple. Only if Apple’s prospects were mediocre would a buyback be a poor choice.

That several billion dollars that Apple has on hand is exactly why many long term investors, including myself, are holding (and buying) AAPL, quarter after quarter. The smartest thing for them to do is to continue to sit on it. Who cares about a 4-5% EPS increase when they have the ability to do pretty much anything they want to and not have to worry about debt. Ever.

Toni does seem less bearish today. He must have gone online and looked at Yahoo Finance. Is simple math the only requirement for being an analyst? Because, I can do that. Where do I sign up?

Did this guy just wake from a coma? Stock buyback is only something an investment banker would do because they have no other ideas. Guy, you are clueless - go so something productive with your life - STOCK BUYBACK? How quaint? What’s next, print actual stock certificates to give away to the recently deceased? What exactly did that MS stock buyback do for the stock other than put $4 billion in Steve Ballmer’s pocket? Stock buybacks are a thing of the 19th century. Elmner-Dewitt, it’s timeto retire.

ex ped: Messenger shot.

I don’t believe 1.5%/year gain is correct assessment. That number closer to 4%. I rather see new killer products and international market growth. I bet Apple can use the cash wiser than anyone else.

I like the rumor of buying Dell, and converting the OS to MAC with the boot camp windows

Sacconaghi is TOTALLY clueless about this company and has consistently shown ABSOLUTELY NO valuable insight about Apple. Furthermore, if anything, the recent market action has shown beyond a doubt that the cash on hand is a GODSEND to this stock amidst a GLOBAL FINANCIAL MELTDOWN. Seriously, this person needs to hang it up and look for a new job.

That Sacconaghi suggested it, is a perfect reason NOT to do it. He is second only to Huberty for being grossly wrong estimating Apple’s financial performance.

If he can’t semi-accurately estimate Apple’s performance, then how can he justify using his formula?

For one, I personally prefer that AAPL keep its cash, as giving up half of it for just a 4% increase in EPS isn’t worth it.

NIce concise review. A far better summary than Eric Savitz’ piece on the issue. Is it me or is Toni seeming a lot less bearish?