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Apple drops Earnings Per Share guidance because outstanding shares are in flux

post #1 of 102
Thread Starter 
Apple didn't provide any Earnings Per Share guidance for the coming quarter. The reason: the company has plans to buy back billions of dollars worth of its own shares. And currently, "they don't know how many shares they will buy back."

In addition to Apple's announcement of changes in how it will report software revenues, Global Equities Research analyst Trip Chowdhry noted a separate change related to Earnings Per Share guidance.

While Apple reported $13.81 EPS in the last quarter that beat The Street's consensus of $13.48, it didn't offer an EPS guidance for the coming quarter. The simple reason, notes Chowdhry, is that Apple doesn't know how many shares will be outstanding because "they don't know how many shares they will buy back."



In part, that's because the wild fluctuation in Apple's share price is having an unpredictable impact on the number of shares the company can afford to buy with its initial allocation. The company could also decide to take advantage of severely discounted stock prices to accelerate its stock buyback program.

Because the number of outstanding shares is subject to unpredictable change, Apple can't confidently report guidance on its Earnings Per Share going forward. Apple originally announced having "authorized a $10 billion share repurchase program commencing in the Company?s fiscal 2013, which begins on September 30, 2012. The repurchase program is expected to be executed over three years."

In early October, just after the program was slated to begin, Apple's share price reached above $670. If the company had bought up shares using the first third of its $10 billion buyback fund, it would have been able to buy 4,975,000 shares. If the company waited and spent the same $3.33 billion buying shares after its earnings call, it could have instead afforded to buy over 7,593,000 shares.

If the company accelerates its buyback program, it could spend even more of its $10 billion in allocated cash to swoop up shares. For the last quarter, the company stated it had already deducted $2 billion from its from its cash pile for stock buyback, in addition to $2.5 billion allocated for quarterly dividend payments, both of which were separate from its reported cash reserves now totaling $137.1 billion, a $16 billion increase over the previous quarter. In total, Apple generated cash flow of $23.4 billion in the winter quarter.

Blowing its entire $10 billion stock buyback allocation early, it could theoretically take almost 22 million shares off the market, out of the company's 939 million outstanding shares. This would have an impact not only on EPS going forward but also on Apple's market cap.

While it would subtract $10 billion from the company's calculated market cap right now, once its shares reach back up to previous highs that $10 billion bite would grow along with share prices, essentially requiring the share price to grow higher just to hit the same market valuation.
post #2 of 102
If their stock continues to get downward pressure (maybe as low as $425/share?), Tim and company should drop some serious coin, not just the pledged $10 billion....

How about $30-40 billion?

Proud AAPL stock owner.

 

GOA

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Proud AAPL stock owner.

 

GOA

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post #3 of 102
Last weekend, this site was MingChingInsider.

Looks like this weekend is ChowdryInsider time. :-)
post #4 of 102
Quote:
Originally Posted by SpamSandwich View Post

If their stock continues to get downward pressure (maybe as low as $425/share?), Tim and company should drop some serious coin, not just the pledged $10 billion....

How about $30-40 billion?

My recommendation would be well north of that. Go nuclear.
post #5 of 102
If Apple would borrow about $50 billion to repurchase shares, that would send a message about how they felt about the future (with the delightful
side-effect of causing great pain to short-side game players).
post #6 of 102
Quote:
Originally Posted by anantksundaram View Post


My recommendation would be well north of that. Go nuclear.

 

Of course, it would have been far more prudent to buy their own stock during the worst of the recent stock market crash instead... Aren't there any allowances for a company to act on it's own behalf in such emergencies? Apple buying AAPL at $70 makes much more sense than buying AAPL at $425.

Proud AAPL stock owner.

 

GOA

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Proud AAPL stock owner.

 

GOA

Reply
post #7 of 102
Share buyback is a gimmick for companies with a troubled pipeline but still strong cash reserves, IMO. Long term value is grown by building a company's product line and hiring great people, not using financial firecrackers.
post #8 of 102
Quote:
Originally Posted by stelligent View Post

Share buyback is a gimmick for companies with a troubled pipeline but still strong cash reserves, IMO. Long term value is grown by building a company's product line and hiring great people, not using financial firecrackers.

That's ridiculous.

Apple has plenty of cash to do all the new product development that their company can handle. Buying back shares has absolutely no impact on the product line,.

The purpose of a stock buy-back is when a company believes that its stock is so undervalued that the return on buying back its own stock is greater than the return on other things it could do with the money. That appears to be true for AAPL.
"I'm way over my head when it comes to technical issues like this"
Gatorguy 5/31/13
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"I'm way over my head when it comes to technical issues like this"
Gatorguy 5/31/13
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post #9 of 102
Quote:
Originally Posted by SpamSandwich View Post

Of course, it would have been far more prudent to buy their own stock during the worst of the recent stock market crash instead... Aren't there any allowances for a company to act on it's own behalf in such emergencies? Apple buying AAPL at $70 makes much more sense than buying AAPL at $425.

Just what the heck are you talking about?

The last time AAPL was $70 a share was in 2006 - and Apple didn't have > $100 B to spend at the time.
"I'm way over my head when it comes to technical issues like this"
Gatorguy 5/31/13
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"I'm way over my head when it comes to technical issues like this"
Gatorguy 5/31/13
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post #10 of 102

Yes, stock buyback is typically what a company does when it runs out of ideas, essentially a statement that its shareholders can do better with its cash than the company can itself.

 

Jobs was historically opposed to doling out Apple's cash reserves (either as dividends or via a share buyback), but the reason Apple agreed to do it was because it ended up having so much cash that it doesn't really have any way to spend it fast enough.

 

Spending money is easy for people who don't have any. When you have a lot, it becomes a huge responsibility.

 

If Apple had the cash of Microsoft, it would signal a lack of vision for it to be distributing its cash to shareholders. But Apple has so much cash that it has to put it somewhere, so giving a piddling 1/60 of its cash back to shareholders isn't a big thing. It just changes how numbers will be reported.

post #11 of 102

If you mean that Apple should make up its own share price (or perhaps coin new shares?) then you need to know that share buyback means buying shares off the market (where Apple doesn't set the price). 

 

Apple is already coining its own new shares for stock-based compensation. That effectively waters down the value of the rest of the outstanding shares already in the market. Buying shares back at market prices is an attempt to counteract that effect. Doing so when the market is down is just a good time to buy.

post #12 of 102
The issue about the number of shares is a poor excuse by Chowdhry. Apple could have issued EARNINGS guidance without EPS guidance. In other words, they could have guided how much money they expected to earn without dividing that number by the outstanding shares.
post #13 of 102
On the call they also indicated that with the new range of guidance it didn't make sense to provide eps estimatie as so many other items could be in flux lime revenue, gross margins, etc. so they gave guidance on those and eps is a calculation of other factors anyway.
post #14 of 102
The number of shares issue is a poor explanation by Chowdhry. Apple could have provided EARNINGS guidance without providing EPS guidance. In other words, Apple could have guided how much money it will earn total, without dividing the total by the number of shares.
post #15 of 102
Quote:
Originally Posted by stelligent View Post

Share buyback is a gimmick for companies with a troubled pipeline but still strong cash reserves, IMO. Long term value is grown by building a company's product line and hiring great people, not using financial firecrackers.


The above is a classic example of an armchair-analyst that pretends to know what they are talking about.

post #16 of 102

Number of shares was already up to round about 941 Mio. - is now down to 939 Mio.

post #17 of 102
Quote:
Originally Posted by quinney View Post

If Apple would borrow about $50 billion to repurchase shares, that would send a message about how they felt about the future (with the delightful
side-effect of causing great pain to short-side game players).

Borrow!?

Initiating a dividend already has put it in the value stock column. Taking on that kind of debt will simply shout that out from the rooftops, and confirm that "Apple's growth is behind it" in the market's mind.
post #18 of 102
Quote:
Originally Posted by jragosta View Post

That's ridiculous.

Apple has plenty of cash to do all the new product development that their company can handle. Buying back shares has absolutely no impact on the product line,.

The purpose of a stock buy-back is when a company believes that its stock is so undervalued that the return on buying back its own stock is greater than the return on other things it could do with the money. That appears to be true for AAPL.

Exactly. And keep it as treasury stock to hand out against future employee option exercise at higher prices (assuming, of course, the price goes up over time), helping to mitigate dilution.
post #19 of 102
Quote:
Originally Posted by jragosta View Post


That's ridiculous.

Apple has plenty of cash to do all the new product development that their company can handle. Buying back shares has absolutely no impact on the product line,.
 

I didn't say it did. Read much?

 

Quote:
Originally Posted by jragosta View Post

The purpose of a stock buy-back is when a company believes that its stock is so undervalued that the return on buying back its own stock is greater than the return on other things it could do with the money. That appears to be true for AAPL.

 

1. That works in the short term.

2. Share buyback was announced before this precipitous drop in $AAPL.

 

You are thinking with your wallet, and want to support anything that might rescue your shares. The only rational argument is that, with fewer shares at large, EPS will be artificially inflated. But, we are talking about < 2.5%. Can you cite numerous examples where share price recovers significantly for good because of financial manipulation by the company (and yes, this is financial manipulation)?

post #20 of 102
Quote:
Originally Posted by anantksundaram View Post


Exactly. And keep it as treasury stock to hand out against future employee option exercise at higher prices (assuming, of course, the price goes up over time), helping to mitigate dilution.


Now that is a reasonable argument.

post #21 of 102
Quote:
Originally Posted by sflocal View Post


The above is a classic example of an armchair-analyst that pretends to know what they are talking about.


Ah yes, as opposed to a real expert like you.

 

I am here to learn: please cite 5 proven examples where share price of a example climbed significantly and stayed at that level for good entirely because of share buyback. I am all ears/eyes.

post #22 of 102
Apple spoke of both the Buyback and Dividends at their last quarter's financials. I've used and profited from Apple in my business and in stock I purchased over 12 years ago. Am I paranoid to think that the fact that Apple did nothing to quell the concerns of the market when bogus stories about cutting screen orders, etc., was not addressed was a way to manipulate the market?

I believe "analysts" and the press were the prime reason the stock tanked, but with no input from Apple, these sources took on total credibility and the Apple market tanked. As a result I lost over $200,000. (on paper) and a lot of respect for Apple. Is there anyone who can logically dispute my thinking here? If so, PLEASE DO. Until then, after over 20 years of being exclusively Apple - I'm ready to bale.
post #23 of 102
Quote:
Originally Posted by stelligent View Post


Ah yes, as opposed to a real expert like you.

I am here to learn: please cite 5 proven examples where share price of a example climbed significantly and stayed at that level for good entirely because of share buyback. I am all ears/eyes.

Here are hundreds of examples, and dozens of academic papers backing this up. Happy to send you all the cites you need if you PM me.

'For good' is a tough criterion that nothing in finance can meet, since lots of other events of market significance intervene, making it very difficult to isolate the long-term impact of any particular event. .
post #24 of 102
Thats right. Stock-based compensation share creep has been aprox.3% yearly. A good use for excess cash for shares outstanding to remain neutral. Not a negative at all.
post #25 of 102

Since we live in a world of stock manipulators, lazy "journalists," astroturfing, and trollery, here's a quick translation guide:

 

Good Apple News becomes:

Apple is Doomed 

 

Great Apple News becomes:

Apple is Lying Along With Everyone Else Who Thinks Apple is Doing Well

 

Random Negative Rumors With Zero Evidence become:

Solid Fact That is Not to Be Doubted

post #26 of 102
Quote:
Originally Posted by thinkman@chartermi.net View Post

Apple spoke of both the Buyback and Dividends at their last quarter's financials. I've used and profited from Apple in my business and in stock I purchased over 12 years ago. Am I paranoid to think that the fact that Apple did nothing to quell the concerns of the market when bogus stories about cutting screen orders, etc., was not addressed was a way to manipulate the market?

I believe "analysts" and the press were the prime reason the stock tanked, but with no input from Apple, these sources took on total credibility and the Apple market tanked. As a result I lost over $200,000. (on paper) and a lot of respect for Apple. Is there anyone who can logically dispute my thinking here? If so, PLEASE DO. Until then, after over 20 years of being exclusively Apple - I'm ready to bale.

Given how long you claim youve owned Apple -- I guess many, many years -- I find it somewhat suspicious that you are reacting so vehemently to a fairly short term movement.

Why not be patient and give it a few more months? Do you seriously think the stock has much further to fall, and then stay at that level for a while? Or that management won't address this? Can you imagine the wealth loss among Apple employees, managers, and directors? You think they are not aware of it or not hurting from it as much shareholders like you and I are? (They are probably less diversified than the average shareholder in Apple).
post #27 of 102

Great news! I hope that Apple buys back a mindboggling shitload number of shares.

post #28 of 102

LOL..Dreams of large buybacks.  outside of the 10B which only offsets stock grants and thus does NOT shrink the float contrary to this article's statement, Apple will not be increasing their buyback.  They are in it to hold the cash.  Just like Jobs ignored Buffett we will see Cook ignore Wall Street on this. 

 

Also the 10B which only offsets stock grant dilution would have only taken out less than 2% of the company float.   To put this in more perspective apple trades about this much in dollar volume daily.  10B was paltry over one year or the 3 they said they would do.  If they do it all now don't expect any other buybacks for 2 more years.  After that they will do another buyback maybe to offset the next slug of stock grants

post #29 of 102
Quote:
Originally Posted by mvigod View Post
Just like Jobs ignored Buffett ....

Uh... what? Explain?

post #30 of 102
Share buybacks and dividends (or sale of the company) are ultimately what gives stocks on the stock market value. Everything else is a game of musical chairs / greater fool theory. Most investors don't realize this, but they're jockeying for a position in owning a company that will eventually directly pay them.

I don't know where this idea came from that buybacks and dividends are somehow shameful. They promise of both is what makes the stock market tick.
post #31 of 102
Quote:
Originally Posted by zarathos View Post

The issue about the number of shares is a poor excuse by Chowdhry. Apple could have issued EARNINGS guidance without EPS guidance. In other words, they could have guided how much money they expected to earn without dividing that number by the outstanding shares.

Ummmm... That is exactly what apple did... They expect revenue ranging from 41-43 billion...........
post #32 of 102
Originally Posted by anantksundaram View Post
Uh... what? Explain?

 

He only went for the vegan items instead of piling on the meats. But he did stop over for some all-natural Jell-o.

Originally Posted by Slurpy

There's just a TINY chance that Apple will also be able to figure out payments. Oh wait, they did already… …and you’re already f*ed.

 

Reply

Originally Posted by Slurpy

There's just a TINY chance that Apple will also be able to figure out payments. Oh wait, they did already… …and you’re already f*ed.

 

Reply
post #33 of 102
Quote:
Originally Posted by jakeb View Post

Share buybacks and dividends (or sale of the company) are ultimately what gives stocks on the stock market value. Everything else is a game of musical chairs / greater fool theory. Most investors don't realize this, but they're jockeying for a position in owning a company that will eventually directly pay them.

Not true. (Hint: Why do you think a market for real estate exists?)

 

 

Quote:
Originally Posted by jakeb View Post

I don't know where this idea came from that buybacks and dividends are somehow shameful.

Who said it was 'shameful'? 

post #34 of 102
Quote:
Originally Posted by anantksundaram View Post


Borrow!?

Initiating a dividend already has put it in the value stock column. Taking on that kind of debt will simply shout that out from the rooftops, and confirm that "Apple's growth is behind it" in the market's mind.

Not at all. It merely shows confidence in the current and future business. Considering the companies past anathema for debt, it seems unlikely. They have harped on this at previous corporate announcements.

post #35 of 102
Quote:
Originally Posted by ko024 View Post


Ummmm... That is exactly what apple did... They expect revenue ranging from 41-43 billion...........

and margin guidance.

post #36 of 102
Quote:
Originally Posted by Apple ][ View Post

Great news! I hope that Apple buys back a mindboggling shitload number of shares.

Unfortunately, only 40B is classified as "in the US", so repatriating any more for stock buybacks would lead to a very large tax hit. This leaves an upper bound on how much they will buy back.

post #37 of 102
Quote:
Originally Posted by ifij775 View Post

Not at all. It merely shows confidence in the current and future business. Considering the companies past anathema for debt, it seems unlikely. They have harped on this at previous corporate announcements.

1) Why do need debt when they've got $137B in cash sitting around!? 

 

2) What makes anyone doubt that Apple lacks confidence in its current and future business?

 

3) If signaling confidence in the future was the criterion, what else do you think a massive share repurchase does other than exactly that?

 

4) Who are the "they" that have "harped on this"? When? Can you provide a cite or a link?

post #38 of 102
Quote:
Originally Posted by ifij775 View Post

Unfortunately, only 40B is classified as "in the US", so repatriating any more for stock buybacks would lead to a very large tax hit. This leaves an upper bound on how much they will buy back.

 

I remember reading something about that a while back.

 

The overseas money seems to be stuck in limbo though. I'm guessing that Apple doesn't want to repatriate the money with the current tax rates and they are looking for some sort of special deal. It doesn't seem like that deal is happening any time soon, so I'm guessing that the overseas cash pile will just keep growing bigger and bigger, while it's still basically held in limbo?

post #39 of 102
Quote:
Originally Posted by ifij775 View Post

Unfortunately, only 40B is classified as "in the US", so repatriating any more for stock buybacks would lead to a very large tax hit. This leaves an upper bound on how much they will buy back.

First, it is estimated that about one-third of Apple's cash is in the US. One-third of $137B is over $45B. Second, they wouldn't do it one-shot (and it would be foolish to do so anyway); what they would do is announce a share repurchase program over a specific time period, with something like, say $20B spent up front. Third, if the stock price goes up substantially, it's something that can be -- and should be -- easily rescinded (those shareholders that want to sell do not have to sell to Apple; they would be just as happy to sell it in the market).

post #40 of 102
Quote:
Originally Posted by nagromme View Post

Random Negative Rumors With Zero Evidence become:

Solid Fact That is Not to Be Doubted

 

I heard Tim Cook wears a hair piece. He purchased his from the same place Donald Trump did.

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