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Battle of the billion dollar buybacks: Apple, Inc. vs Microsoft Corporation

post #1 of 29
Thread Starter 
Over the past fifteen years, both Apple and Microsoft have invested in Apple, while Microsoft has also invested in itself. Here's a look at how those investments worked out, with particular attention to stock buybacks, a panacea certain billionaire investors are prescribing for Apple.


Apple Holdings


Source: Quartz


Apple invests in AAPL



A decade ago, Steve Ballmer's Microsoft's demonstrated no faith in Steve Jobs' ability to turn Apple around, effectively walking away from an $11.5 billion opportunity.

However, in 1999, just as Microsoft was getting ready to bail out of its purported "bailout," Apple's board of directors authorized its executives to perform up to a $500 million stock buyback. Apple's shares were around a split-adjusted $10 per share, but shot up to $34 per share at the height of the 2000 dotcom boom before crashing back down to around $10, territory where it remained for the next three years (below).

AAPL stock
Apple's dotcom boom. Source: Google Finance


By 2003, Microsoft had sold its remaining AAPL shares while Apple had acquired 6.55 million of them for $217 million under its stock repurchase plan, or about $16.50 each relative to today's share price. At the end of that year, it looked like Microsoft had been smart to get out when it did, while Apple's buyback appeared ill-timed.

Following Apple's 2005 stock split and rapid growth since, the current value of those shares today would be about $6.6 billion, representing a 3000 percent return on investment, even though today's shares are down from their 2012 peak by nearly 29 percent.

Under its then chief financial officer Fred D. Anderson, Apple essentially reinvested a fifth of its $1.1 billion ARM Holdings windfall from the 1990s into itself, leveraging, on behalf of its shareholders, one of the highest returns on investment possible in the 2000s.

Apple grows a cash pile as Steve Jobs defends "thinking big"



In 2010, some Apple shareholders were upset to hear Steve Jobs rebuff their desire to have the company distribute its $40 billion in cash via either a stock buyback or dividend plan.

Jobs explained Apple was holding the cash for future growth opportunities, and said that buybacks or dividends were unlikely to have any significant affect on Apple's stock price, an idea many shareholders and analysts scoffed at. "When you take risks, it's like jumping in the air. When they don't work out, it's nice to know the ground is always there" - Steve Jobs

Distributing Apple's cash, Jobs said, would leave it without the capital it needed to do "big" things, and after the cash was gone, he pointed out, there would be no big pile of assets to resist the market's efforts to devalue Apple into oblivion.

"When you take risks, it's like jumping in the air. When they don't work out, it's nice to know the ground is always there," Jobs told Apple's shareholders. Cash was Jobs' bulwark against outsiders seeking to destroy the company's stock price in order to buy up the company for salvage.

Interestingly, a report by Reuters noted at the time that "Jobs offered few details on the iPad" that had been newly announced but had not yet gone on sale, adding that the "tablet computer is trying to bridge the gap between smartphones and laptops, but consumer demand for a 'third category' of devices remains unclear."

As it turned out, iPad quite clearly helped contribute to Apple's bottom line. Over the past three years, Apple's cash holdings grew from $40 to over $140 billion, leading its chief executive Tim Cook ready to admit that Apple now had more cash than it needed to operate, even if it continued to think big.

Apple again invests in AAPL



In March 2012, Cook stated "we have used some of our cash to make great investments in our business through increased research and development, acquisitions, new retail store openings, strategic prepayments and capital expenditures in our supply chain, and building out our infrastructure.

?Even with these investments," he added, "we can maintain a war chest for strategic opportunities and have plenty of cash to run our business. So we are going to initiate a dividend and share repurchase program.?

Apple's chief financial officer Peter Oppenheimer outlined a three year plan to use $45 billion of Apple's domestic cash to pay dividends and initiate a $10 billion share repurchase starting in 2013.

AAPL stock
Source: Google Finance


At that point in March (the starting point above), Apple's shares were valued at $585. Prior to the start of 2013, Apple's stock subsequently hit $700 in September but then crashed. Apple took advantage of the panic by buying up 4.1 million shares for $1.95 billion, at an average share price of $478.20 during the first calendar quarter of 2013.

Apple invests even more in AAPL



The company then increased its upper limit of its buyback program by $50 billion in April 2013.

Taking advantage of the long, sustained plunge in Apple's share price that effectively wiped out all the appreciation that had occured in 2012, the company indirectly used its credit-polishing cash pile to buy back another $16 billion worth of stock during the second calendar quarter, at an average price of $444 per share.

That's 27 times what the company's stock cost a just decade ago when it bought back shares at around $16.50. However, unlike Microsoft, Apple didn't have an extra $16 billion to spend back then.

If Apple's stock were to, say, recover to levels comparable to Google's (both companies were effectively tied last year, but Apple has been punished with a 25 percent drop in share price as it reported net earnings of $30.25 billion and paid out $10 billion in dividends, while Google's stock has appreciated by nearly 38 percent after reporting total net earnings of $9.46 billion and paying no dividends over the same three quarters), that would result in a doubling of the value of Apple's $18 billion self-investment over just the last two quarters.

Note that AppleInsider does not provide any recommendations or advice related to stock transactions in the extremely volatile and often irrationally unpredictable market.

AAPL stock
Source: Google Finance


Additionally, Apple didn't buy back those shares with its cash. It floated a bond, borrowing against its credit to fund the buyback at interest rates very close to zero. Just after it sold those bonds, the debt market sank. This suggests that Apple may have a time machine at the disposal of its Executive Committee.

Not only was Apple's $1.1 billion ARM windfall from the 1990s dwarfed by the performance of the $6 billion payoff of its stock buyback in the 2000s, but both will very likely be greatly overshadowed by what appears to be a rather easy route to an $18 billion return on its current stock buyback programs of the 2010s.

Apple's successful stock buybacks leveraged the company's artificially low valuation by the market. There was no real change in the company's fundamentals, in the outside competitive landscape or in Apple's ability to deliver innovative products.

However, Apple's $18 billion in stock buybacks and over $10 billion in dividends in the year and a half since they were first announced haven't been able to boost the company's stock price (below), despite being accompanied by industry leading profits and expanding sales.

AAPL stock since 2012 buyback announced
Source: Google Finance


So while it appears to be a safe bet that Apple's remaining $40 billion budget for buybacks could be well spent eating up shares that remain nearly 30 percent below their peak from one year ago, there's no compelling evidence that Apple desperately needs to dramatically expand its buyback program, and particularly not if the goal is to raise the stock price, because so far they haven't been doing that very effectively.

Microsoft invests in MSFT



Stock buybacks' failure to lift a stock's price isn't limited to observable data on Apple, because the company wasn't the only one buying back its shares over the last decade.

In July 2004 Microsoft announced plans to buy back up to $30 billion of its shares using cash. Over the next year, it spent $8 billion buying 312 million shares at about $25.64 per share. In fiscal 2006 it more than doubled its share buying speed, spending $20 billion on 753 million shares, at around $25.50 per share.


Source: Microsoft Annual Report


Despite two years of nearly $30 billion in share buybacks, MSFT shares actually dropped 18.45 percent, a bit worse than Apple's did over the past year of spending $18 billion on buybacks.

MSFT stock
Source: Google Finance


Microsoft invests more in MSFT



In the first quarter of its fiscal 2007 (which started in July 2006), Microsoft announced plans to buy back $20 billion more (and then raised the authorized figure to $36 billion in new buybacks), while also floating a tender offer for up to $20 billion in stock.

Throughout fiscal 2007, the company bought 971 million shares at an average of $27.90 each, spending $27.1 billion.
The next year it bought 402 million shares at an average of $30.90 each, spending $12.4 billion. In fiscal 2009 it bought 318 million more shares at an average of $30.90 each, spending $8.2 billion.


Source: Microsoft Annual Report


In total, after five years of at least $77.7 billion in share buybacks, MSFT shares had actually dropped 18.27 percent.

MSFT stock
Source: Google Finance


Microsoft invests even more in MSFT



In September 2008, Microsoft announced plans to allocate another $40 billion for a third wave of buybacks in the decade, through September 2013.

In fiscal 2010, the company bought 380 million shares at an average price of $26.86, spending $10.8 billion. The next year it bought 447 million shares at an average of $25.63 each, spending $11.5 billion. In fiscal 2012 it bought 142 million shares at an average of $28.17 each, spending $4 billion. That's a three year total of about $26.3 billion.


Source: Microsoft Annual Report


In total, after eight years and significantly more than $100 billion in share buybacks, MSFT shares went up 7.46 percent. Microsoft's shares should have appreciated more than that without buybacks.

MSFT stock
Source: Google Finance


Microsoft's performance over that period of $100 billion in buybacks is noticeably lower than the NASDAQ composite and absolutely crushed by an innovating company like Apple, which over that period of time invested just $216 million in buying back its stock, less than 2 percent of the cash Microsoft had shoveled into its own shares.

MSFT stock
Source: Google Finance


This indicates that buybacks themselves don't necessarily have a significant, positive impact on share price, even when huge dollar amounts are involved over a long term. They principally appear to have value when there's an opportunity to take advantage of irrationally low stock prices.
post #2 of 29
Personally, I don't think that paying dividends was a good idea. Buyback ok, but dividends... The Wall Street's guys seem to be particularly greedy about them, and we all know they are, (almost) all, bad guys.
And it's not only that the stock price is lower than it was in September 2012, also the "perception" of Apple is changed. For the worse. And, it seems to me, that some pundits "justify" the low stock price since, according to them, Apple is less innovative than it was in the past. I disagree, but this perception is quite strong.
post #3 of 29

I think Microsofts choice to sell AAPL was more political than with regard to investment. I think they did the right thing both for them self and for Apple.

post #4 of 29
I'll say it.... What is APPL? Did you leave of the E or were you referring to the stock symbol AAPL?
post #5 of 29

"When you take risks, it's like jumping in the air. When they don't work out, it's nice to know the ground is always there" - said Steve Jobs over and over again.

 

Honestly, why does every new AI article have repeating sentences?  This is a consistent problem that needs to be addressed.


Edited by brutus009 - 8/16/13 at 5:28am
post #6 of 29
Quote:
Originally Posted by CustomTB View Post

I'll say it.... What is APPL? Did you leave of the E or were you referring to the stock symbol AAPL?

APPELL PETE CORP (APPL) - going cheap in OTC for $0.00
post #7 of 29

Sorry for my unclear writing. Change "AAPL" to "apple stocks". 

post #8 of 29
Quote:
Originally Posted by dn1234 View Post

Sorry for my unclear writing. Change "AAPL" to "apple stocks". 

 

It's not you.  He was referring to the article, which repeatedly refers to buying back stock in APPL.

post #9 of 29
"This indicates that buybacks themselves don't necessarily have a significant, positive impact on share price, even when huge dollar amounts are involved over a long term. They principally appear to have value when there's an opportunity to take advantage of irrationally low stock prices."

This is something I am sure Tim is fully aware of and why I don't worry about recent events and fears outside pressures might influence his decisions.
Been using Apple since Apple ][ - Long on AAPL so biased
nMac Pro 6 Core, MacBookPro i7, MacBookPro i5, iPhones 5 and 5s, iPad Air, 2013 Mac mini, SE30, IIFx, Towers; G4 & G3.
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Been using Apple since Apple ][ - Long on AAPL so biased
nMac Pro 6 Core, MacBookPro i7, MacBookPro i5, iPhones 5 and 5s, iPad Air, 2013 Mac mini, SE30, IIFx, Towers; G4 & G3.
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post #10 of 29
Quote:
Originally Posted by brutus009 View Post

"When you take risks, it's like jumping in the air. When they don't work out, it's nice to know the ground is always there" - said Steve Jobs over and over again.


Honestly, why does every new AI article have repeating sentences?  This is a consistent problem that needs to be addressed.

The Huddler forum software does not render call out text correctly. So it appears to repeat.
post #11 of 29
Quote:
Originally Posted by dn1234 View Post

I think Microsofts choice to sell AAPL was more political than with regard to investment. I think they did the right thing both for them self and for Apple.
Agree. Not so good for the cash pile but the wolf does not feed the chickens so has no business in the hen house. I'm personally pleased that MS is tending to its own and Apple the same. Apple is not indebted to MS for anything. MS looks up at the fortress that is become modern Apple and can only envy.

When I find time to rewrite the laws of Physics, there'll Finally be some changes made round here!

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post #12 of 29
Quote:
Originally Posted by brutus009 View Post

"When you take risks, it's like jumping in the air. When they don't work out, it's nice to know the ground is always there" - said Steve Jobs over and over again.

 

Honestly, why does every new AI article have repeating sentences?  This is a consistent problem that needs to be addressed.

These are highlight sentences and are common in all news reporting. It isn't just AI. Was there anything of value you wanted to comment on?

post #13 of 29

I have a question for someone who actually knows the answer. When Apple bought back the stock shares, did they retire them or do they still own them? If it's the latter, how many shares does Apple own and who actually is Apple? With Icahn buying $1.5B in AAPL, that would put him around 3M shares. A previous article showed AAPL having around 900M+ shares so Icahn would have around 0.3% share in AAPL/Apple. Does this sound correct? This shouldn't be enough to do something stupid like a hostile takeover would it? Aren't there Apple employees with more than 3M shares of AAPL?

 

I talked to my financial planner and he said none of the money Icahn "invested" in AAPL actually goes to Apple, it stays in the stock share pool that's bought and sold by other gamblers. None of it actually can be used by Apple other than for (maybe) a credit application. 

post #14 of 29
What's the number of Microsoft's stock With all those stocks bought back?
post #15 of 29
Quote:
Originally Posted by brutus009 View Post

"When you take risks, it's like jumping in the air. When they don't work out, it's nice to know the ground is always there" - said Steve Jobs over and over again.


Honestly, why does every new AI article have repeating sentences?  This is a consistent problem that needs to be addressed.
I believe they are usually in quotes the second time round, often adding further detail. Other sites put them in bold colour as eye catchers. This might not be possible here, as AI uses a different client from others.

Addendum: didn't see rob same comment as I was distracted whilst setting post at same time the other was being written.
Edited by mhikl - 8/16/13 at 7:10am

When I find time to rewrite the laws of Physics, there'll Finally be some changes made round here!

I am not crazy! Three out of five court appointed psychiatrists said so.

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When I find time to rewrite the laws of Physics, there'll Finally be some changes made round here!

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post #16 of 29
Quote:
Originally Posted by rob53 View Post

I have a question for someone who actually knows the answer. When Apple bought back the stock shares, did they retire them or do they still own them? If it's the latter, how many shares does Apple own and who actually is Apple? With Icahn buying $1.5B in AAPL, that would put him around 3M shares. A previous article showed AAPL having around 900M+ shares so Icahn would have around 0.3% share in AAPL/Apple. Does this sound correct? This shouldn't be enough to do something stupid like a hostile takeover would it? Aren't there Apple employees with more than 3M shares of AAPL?

 

I talked to my financial planner and he said none of the money Icahn "invested" in AAPL actually goes to Apple, it stays in the stock share pool that's bought and sold by other gamblers. None of it actually can be used by Apple other than for (maybe) a credit application. 

1) They are likely retired, unless they are kept as 'treasury stock' for subsequent reissue later (say, against employee option exercises). Regardless, in terms of the current share count, it will be treated as 'retired' or 'destroyed'.

 

2) Apple does not own any of its own shares, since a company cannot own itself. The owners are public shareholders and employees (institutions ~60%, others ~40%).

 

3) 0.3% isn't even close to anyone in their right mind contemplating a hostile takeover. That would, indeed, be a 'stupid' move. Moreover, at ~$450B in market cap, Apple is very unlikely to be a takeover target for anyone.

 

4) Apple employees (incl. the Board) collectively own much more than 3M shares of AAPL. Add to that the ownership by Jobs' family.

 

5) Yes, none of money Icahn invested goes to Apple. It goes to the person(s) from whom Icahn bought his stocks. The only benefit that Apple has is indirect, in the sense that increased demand for the stock makes its shares more valuable (and its shareholders wealthier), and helps make Apple more creditworthy in the market for bonds (up to a point, of course).

post #17 of 29
Finance, terms and their laws stymie me. Can someone answer this.

Is stock buy back different from buying through the open market? Are companies not allowed to buy back shares of their own company on the open market. I suspect this is the case, or the numbers Apple would be buying back could influence the market and be considered manipulation?
Cheers, mhikl.

When I find time to rewrite the laws of Physics, there'll Finally be some changes made round here!

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post #18 of 29
Quote:
Originally Posted by mhikl View Post

Finance, terms and their laws stymie me. Can someone answer this.

Is stock buy back different from buying through the open market? Are companies not allowed to buy back shares of their own company on the open market. I suspect this is the case, or the numbers Apple would be buying back could influence the market and be considered manipulation?
Cheers, mhikl.

1) Companies generally buy back their shares in the open market. Sometimes they also do a 'targeted' repurchase (e.g., if they were to go to Icahn and buy his holdings).

 

2) Generally, companies in most countries of the world are allowed to buy back their shares.

 

3) It is not considered manipulation. It is perfectly reasonable for a company to send a credible signal to the market that it thinks its shares are seriously undervalued.

post #19 of 29
Part of the reason for paying a dividend is that certain funds can only invest in dividend-paying stocks.

Paying a dividend means that those funds can invest in Apple.
post #20 of 29
Apple was doomed back then by Wall Street and it still is now. Apple just happens to have a tiny bit more reserve cash and a slightly higher market cap now then it did back then. The wolves are still lurking around the chicken coop looking for a filling meal. I wish those wolves would go and feast on Amazon or Google, but it never seems to happen that way.
post #21 of 29
Quote:
Originally Posted by anantksundaram View Post

1) Companies generally buy back their shares in the open market. Sometimes they also do a 'targeted' repurchase (e.g., if they were to go to Icahn and buy his holdings).

2) Generally, companies in most countries of the world are allowed to buy back their shares.

3) It is not considered manipulation. It is perfectly reasonable for a company to send a credible signal to the market that it thinks its shares are seriously undervalued.
anantksundaram, every time you write on finance, Clarity must be your Muse. And you make the dismal science interesting, which I thought was impossible. Are you in finance by profession, if I may be so bold to ask?

So, since Apple buys on the open market, it seems to pay more than the stock market price at the time. Why is this?

When I find time to rewrite the laws of Physics, there'll Finally be some changes made round here!

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post #22 of 29
Quote:
Originally Posted by mhikl View Post

So, since Apple buys on the open market, it seems to pay more than the stock market price at the time. Why is this?

Actually, they buy in various volumes over a period of time, say weeks or months.

 

When they do buy, it is at the market price that prevails then (recognizing that is endogenous to some extent, given a sudden market demand from a buyer!). If they did a targeted repurchase, it would be a negotiated price with the seller which could be different from the market price.

 

The only thing we might get to know is the 'average' price Apple paid for it, and that could be different (e.g., higher; but could also be lower) from where the price is currently.

post #23 of 29
Quote:
Originally Posted by Drunkzombie View Post

What's the number of Microsoft's stock With all those stocks bought back?

You can find the outstanding shares in a company at a site like Google Finance.

Apple has had nearly a billion shares outstanding (908M), while Microsoft currently has 8.3 Billion. Apple just passed Microsoft in market cap a couple years ago, but the 10x difference in shares explains why Microsoft's share price is 1/10 the price. If Apple did a 1-10 split, its share count and stock price would look like Microsoft's, but it wouldn't mean anything.

Basically, shares are fractional ownership of a company. When a company IPOs, it sells shares for some set amount to investors, and then those shares appreciate as the company grows. How much they are worth is based on what new investors are willing to pay and what existing investors are willing to sell for.

Multiplying the going rate by the number of shares is the "market capitalization" or what the market currently thinks the whole company is worth. This is often misguided and doesn't represent what actual investors are willing to sell for.

So when AAPL stock dropped from $700 to <$400, its market cap dropped by 3/7ths. But most investors weren't willing to sell their shares for $400 to buyers, whether AAPL or Icahn or whomever.

Some gullible dummies were, and some unlucky smart people who invested through debt overextended themselves too much and were forced to sell.

There were lots of people who were destroyed by the wild manipulation of Apple stock.

There was no rational basis for Apple shares to be pushed from a "less than other tech companies that are performing worse" valuation of $700 to the absolutely absurd, bullshit price of ~$390. It was pushed down by a combination of fraud and ignornantly complicit "journalists" uncritically repeating every scrap of bullshit they were fed.

Surprise! The winners on that include billionaire investors who write bullshit rather than reading it. Apple realized absorbing those underpriced shares at sub $500 prices was a good use of its extra billions of dollars.

The shares Apple bought were destroyed, meaning all existing shareholders who had x/940millionths of Apple ownership now have the same x number of 908millionths, so they should be worth more.

But that isn't stopping AAPL shares from being pushed down to irrational levels, so it's not a good strategy in itself for "raising the share price."

And as soon as Apple is out of cash, it won't be able to buy back shares at all. However, Apple can keep buying back $ billions of shares using its free cash flow, so it will likely continue. And if shares stay stupidly low, this continues to be a great way for Apple to use its cash (better than letting manipulators buy it up at stupid prices).

Icahn wants Apple to go into ~$100b of debt to "raise" the price to $600. Which appears to be a pretty transparent act of corporate raiding. Take the cash, leave, stop worrying about AAPL until it generates more cash, if it can after being stripped of capital.

As long as Icahn, Einhorn, etc can convince the media that reality is upside down and that Apple must distribute all of its cash immediately or its stock will just dry up and blow away (ignoring the fact that holding $140billion is a core component of Apple's value!), we will continue to get reports saying that "Apple must distribute all of its cash immediately or its stock will just dry up and blow away."

Do what the billionaires say and nobody gets hurt! Also: nobody gets rich listening to people whose job it is to take other people's money.
post #24 of 29
Quote:
You can find the outstanding shares in a company at a site like Google Finance.

Apple has had nearly a billion shares outstanding (908M), while Microsoft currently has 8.3 Billion. Apple just passed Microsoft in market cap a couple years ago, but the 10x difference in shares explains why Microsoft's share price is 1/10 the price. If Apple did a 1-10 split, its share count and stock price would look like Microsoft's, but it wouldn't mean anything.

Basically, shares are fractional ownership of a company. When a company IPOs, it sells shares for some set amount to investors, and then those shares appreciate as the company grows. How much they are worth is based on what new investors are willing to pay and what existing investors are willing to sell for.

Multiplying the going rate by the number of shares is the "market capitalization" or what the market currently thinks the whole company is worth. This is often misguided and doesn't represent what actual investors are willing to sell for.

So when AAPL stock dropped from $700 to <$400, its market cap dropped by 3/7ths. But most investors weren't willing to sell their shares for $400 to buyers, whether AAPL or Icahn or whomever.

Some gullible dummies were, and some unlucky smart people who invested through debt overextended themselves too much and were forced to sell.

There were lots of people who were destroyed by the wild manipulation of Apple stock.

There was no rational basis for Apple shares to be pushed from a "less than other tech companies that are performing worse" valuation of $700 to the absolutely absurd, bullshit price of ~$390. It was pushed down by a combination of fraud and ignornantly complicit "journalists" uncritically repeating every scrap of bullshit they were fed.

Surprise! The winners on that include billionaire investors who write bullshit rather than reading it. Apple realized absorbing those underpriced shares at sub $500 prices was a good use of its extra billions of dollars.

The shares Apple bought were destroyed, meaning all existing shareholders who had x/940millionths of Apple ownership now have the same x number of 908millionths, so they should be worth more.

But that isn't stopping AAPL shares from being pushed down to irrational levels, so it's not a good strategy in itself for "raising the share price."

And as soon as Apple is out of cash, it won't be able to buy back shares at all. However, Apple can keep buying back $ billions of shares using its free cash flow, so it will likely continue. And if shares stay stupidly low, this continues to be a great way for Apple to use its cash (better than letting manipulators buy it up at stupid prices).

Icahn wants Apple to go into ~$100b of debt to "raise" the price to $600. Which appears to be a pretty transparent act of corporate raiding. Take the cash, leave, stop worrying about AAPL until it generates more cash, if it can after being stripped of capital.

As long as Icahn, Einhorn, etc can convince the media that reality is upside down and that Apple must distribute all of its cash immediately or its stock will just dry up and blow away (ignoring the fact that holding $140billion is a core component of Apple's value!), we will continue to get reports saying that "Apple must distribute all of its cash immediately or its stock will just dry up and blow away."

Do what the billionaires say and nobody gets hurt! Also: nobody gets rich listening to people whose job it is to take other people's money.

 

Great post. It sums up most of what i've been saying for months. I wanted to buy a few shares @430$ but i didn't have the cash. They go from one BS rumor to the next and they bring the price down by a few dollars every time. I never understood how people could think a company with no dept and double digit growth quarter after quarter could be worth  a P/E less than 10 (look at amazon, netflix,etc).  According a to an older firend of mine, they were doing the same crap (and a lot worse) 30 years ago.

post #25 of 29
The author of this article could use a course in corporate finance.

I do not understand how one can conclude that buy backs are ineffective because Microsoft was doing buy backs for a decade and hasn't seen a stock price appreciation in that time. How do we know that the stock wouldn't be in the tank right now if it didn't do the buy backs? It just isn't logical.

Buy backs make sense. The cash sits their and earns 1% interest. Use it to buy back shares so investors can reinvest the money to make 8%. In the end the equity decreases, EPS increases and hence P/E would decrease or presumably the price increases to maintain a similar P/E.

That's fine but the conversation today revolves way too much around these buy backs. Apple should definitely be doing it but what will move the needle much more on stock price is innovation and growth. Apple should be at a P/E of closer to 20. The market seems to think that Apple has peaked and will slightly decline in the future. They need to focus on introducing innovative products to prove those neigh sayers wrong. That'll impact the price much more than any buy back.
post #26 of 29
Quote:
Originally Posted by Corrections View Post

You can find the outstanding shares in a company at a site like Google Finance.

Apple has had nearly a billion shares outstanding (908M), while Microsoft currently has 8.3 Billion. Apple just passed Microsoft in market cap a couple years ago, but the 10x difference in shares explains why Microsoft's share price is 1/10 the price. If Apple did a 1-10 split, its share count and stock price would look like Microsoft's, but it wouldn't mean anything.

Not quite. Apple's market cap is $456 B. Microsoft's is $264 B. So if Apple split by about 9:1 (to get the same number of shares), AAPL would still be almost twice MSFT's share price.
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post #27 of 29
I'm not a stock broker or anything but would assume that tactics such as stock buy back and dividend payments generally serve as a way to bolster confidence with existing shareholders. The fact that AAPL has had a dividend is notable is because typically tech companies aren't known for sharing surplus cash with shareholders, but reinvesting in new technology. My own opinion about why the stock price has dropped though is market fear about the number of products that AAPL sells: iPhone, iPod, iPad, MacBook, Mac, iTunes, iBooks and Apps... the software bound to hardware of course. So if any one hardware line has significant drops in unit sales to end users it will significantly impact revenues unless a new successful category can take its place. For example iPod sales have been steadily declining while iPhone sales steadily increasing. However, competition from outside companies is fierce with Android now outselling iPhone, and half a dozen companies attempting to fight for distant 3rd, 4th, 5th positions, etc. Why a company like Amazon does so well on Wall Street is interesting too, despite razor thin margins and a much higher price to earnings ratio than AAPL. Investors seem to value the widely diverse line of products Amazon sells and theapparent lack of competition as well. In my opinion these are quite valid points that should be taken into account before buying or selling shares in these companies. However, AAPL has had the advantage of historically negative press from quite a wide range of news sources which cannot be discounted as effecting share price, despite continued increases in sales volume and near record profits. This allows for easy pickings by its executives for making additional profits on stock buy backs. Times can change though and it's possible that in 10 more years Amazon will face its own fierce competition and AAPL will have increased its market share of PC/Post PC devices to have taken Microsofts perch at the top of the mountain.
post #28 of 29
Quote:
Originally Posted by CustomTB View Post

I'll say it.... What is APPL? Did you leave of the E or were you referring to the stock symbol AAPL?

Not only that, but they left a whole bunch of letters out of microsoft- they spelled it MSFT ! Can't they spel ?

post #29 of 29
Originally Posted by mayor View Post
Not only that, but they left a whole bunch of letters out of microsoft- they spelled it MSFT ! Can't they spel ?


His comment was on the fact that APPL isn't Apple's stock symbol, not that he didn't understand what a stock symbol was.

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 fucked.

 

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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 fucked.

 

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