or Connect
AppleInsider › Forums › Investors › AAPL Investors › Apple's buybacks exploited stock dips to generate billions in shareholder value
New Posts  All Forums:Forum Nav:

Apple's buybacks exploited stock dips to generate billions in shareholder value

post #1 of 94
Thread Starter 
Apple's efforts to take advantage of irrational stock dips in order to buy back its own shares at a discount has transferred billions of dollars from panicked speculators to its long term investors.

AAPL last 30 days


In late January, industry analysts incited a stock panic that caused Apple's shares to plunge more than 8 percent after the company released its highest ever quarterly revenues and operating profits, results that the tech media depicted as "disappointing."

Investors who sold as Apple's stock plunged in paper value overnight from $550 to $503 (and then continued to dip below $500 through the end of January) unwittingly found Apple itself to be a willing buyer of the shares they abandoned.

A week into February, the company's chief executive Tim Cook revealed that Apple's executive team had jumped at the rare opportunity and spent $14 billion of its remaining buyback budget to snatch up its shares at a discount.

In comparison to Apple's $158.8 billion in available capital, the price of those recent buybacks might appear to be conservative. However, the $14 billion represented about 40 percent of the $34.4 billion in domestic cash the company reported holding at the end of 2013.

With its stock price then hovering around $500, the late January buybacks would have enabled Apple to grab around 28 million shares. Just over one week later, Apple's stock price has since rebounded to mid-January levels, increasing the impact of Cook's $14 billion buyback by nearly $1.4 billion in just days.

Apple's use of its own cash to buy back shares means that the additional $1.4 billion in value was lost by spooked sellers and effectively credited to the shareholders who remained invested in the company, as the value of the retired shares are absorbed by the remaining shares.

An even greater $16 billion buyback last summer retired 36 million shares at an average price of $444, a purchase that would today cost $3.6 billion more as those shares would each now be worth more than $100 more.

In total, Apple has bought back more than $42 billion of its own shares over the past two years, retiring around 84.5 million shares, or nearly 9 percent of the total shares outstanding when it launched its repurchase program.

Last April, Apple announced an increase of its capital return program, expanding its share repurchase authorization from $10 billion to $60 billion.

"We are very fortunate to be in a position to more than double the size of the capital return program we announced last year," Cook noted at the time. "We believe so strongly that repurchasing our shares represents an attractive use of our capital that we have dedicated the vast majority of the increase in our capital return program to share repurchases."

Apple will again revisit its capital return program in two months, potentially expanding its buyback authorization and or dividend program further, as it has already spent all but $18 billion of its $60 billion stock buyback authorization, a pace well in advance of the original plan to continue buying back shares through the end of 2015.
post #2 of 94
Yes, genious move. Hope they do that again every time.
post #3 of 94

Carl should be happy.

Shut up and go away, you useless, pathetic FUDmonger - Tallest Skil
Reply
Shut up and go away, you useless, pathetic FUDmonger - Tallest Skil
Reply
post #4 of 94

the price of aapl shares is so disconnected from fundatmentals that if the outstanding shares dropped by 25%, I wonder if the share price would rise at all.

 

 

post #5 of 94
Thus marks the end of the market's stupid phase vis-a-vis AAPL. Value it at what it's worth, or find Apple taking it ever closer to going private. And all those tens of billions in cash generated PER YEAR will go into someone else's pocket.
post #6 of 94

Keep it going Tim Cook. The more the better as far as I'm concerned.  Screw those day-trading a$$h0les.  

post #7 of 94
Quote:
Originally Posted by sflocal View Post
 

Keep it going Tim Cook. The more the better as far as I'm concerned.  Screw those day-trading a$$h0les.  

 

Heck, it's not even the day-trading losers you have to worry about anymore.  So much of the trading is just automated, going second to second.

 

Though I do agree with you.

post #8 of 94
Quote:
Originally Posted by AaronJ View Post
 

 

Heck, it's not even the day-trading losers you have to worry about anymore.  So much of the trading is just automated, going second to second.

 

Though I do agree with you.


I understand.  I'm kind of grouping all these wall street gamblers into the same bucket.  Whether mechanized, or some guy day-trading all the time that tries to fortune-tell, they are all responsible for manipulating the market.  

Those people just try milking a company dry, then move on to the next victim with zero regard to these companies actually trying to make a long-term difference.

post #9 of 94

lol. "Irrational stock dips." The market was less than impressed with Apple's performance, and reacted accordingly. That's not irrational, that's the stock market doing its thing. What's "irrational" is Apple saying its stock is worth what it says it's worth. That's not how it works, Tim. If you want to take your ball and go home, that's fine, but this Apple apologist "article" is just silly.

post #10 of 94
Quote:
Originally Posted by aspenboy View Post
 

the price of aapl shares is so disconnected from fundatmentals that if the outstanding shares dropped by 25%, I wonder if the share price would rise at all.

If it's Apple buying them then theoretically it shouldn't do, except as a temporary fluctuation because of the trade volume.  Apple's cash is accounted for in the stock price, if Apple use cash to buy stock then the value of the company goes down to the exact same value as that of the shares they buy and retire, i.e. you can't create value from nothing.

 

In real world practice there are some variations because of changes in expectations, and the aforementioned impact of large trade volumes, but in pure theory of financial transactions buying back shares does not increase the price per share.

censored

Reply

censored

Reply
post #11 of 94
Quote:
Originally Posted by Sacto Joe View Post

Thus marks the end of the market's stupid phase vis-a-vis AAPL. Value it at what it's worth, or find Apple taking it ever closer to going private. And all those tens of billions in cash generated PER YEAR will go into someone else's pocket.

Apple cannot take itself private, a company cannot own itself.  For Apple to go private someone has to buy it, and Apple retiring shares doesn't make that significantly more likely.


Edited by Crowley - 2/18/14 at 5:07pm

censored

Reply

censored

Reply
post #12 of 94
Smart move. Very smart move.
post #13 of 94
Quote:
Originally Posted by Cash907 View Post
 

lol. "Irrational stock dips." The market was less than impressed with Apple's performance, and reacted accordingly. That's not irrational, that's the stock market doing its thing. What's "irrational" is Apple saying its stock is worth what it says it's worth. That's not how it works, Tim. If you want to take your ball and go home, that's fine, but this Apple apologist "article" is just silly.

 

If you look at the picture, you see that the stock price fell, "doing its thing" as you say, for two weeks. That’s irrational. If reasonable investors felt that Apple’s performance made it worth ~8% below where it had been before earnings were announced, then it wouldn’t recover a few days later. That’s panic, irrational selling.  

 

It wasn’t a mere $14 billion in buybacks that made Apple’s market cap go up by nearly $50 billion. It was a reversal of irrational mistakes made by traders who believed the first rash of knee-jerk reactions to Apple’s earnings data. 

 

Also, "Apple saying its stock is worth what it says it's worth" is a phrase you need to work on for a while, because those words make no sense. 

post #14 of 94

Make perfect sense from here.  Bit of a mouthful, but they make sense.

censored

Reply

censored

Reply
post #15 of 94
Quote:
Originally Posted by Cash907 View Post
 

lol. "Irrational stock dips." The market was less than impressed with Apple's performance, and reacted accordingly. That's not irrational, that's the stock market doing its thing. What's "irrational" is Apple saying its stock is worth what it says it's worth. That's not how it works, Tim. If you want to take your ball and go home, that's fine, but this Apple apologist "article" is just silly.

I agree this article is silly, but there is absolutely nothing "apologetic" about it.  How you could call him an Apple "apologist" is beyond me.  

 

You're also wrong about the stock dip not being irrational.  It absolutely was.  Apple had an amazing quarter.  Just because some idiot analysts over-estimated how many iPhones Apple would sell, people freaked out and sold their stock.  It was the ANALYSTS who screwed up, not Apple.  Why is the fact that the analysts got it wrong (as usual) a reason to dump a stock?  It was absolutely idiotic... and if you want proof that it was idiotic, just look at the price of the stock today, three weeks later.  It's right back where it started, which means that all those people who sold at less than $500 are complete morons who lost a bunch of money.  They're almost as stupid as the analysts who led them astray to begin with.  This entire episode was the very definition of irrational investing.  

 

I've never heard Tim Cook say "Apple stock is worth what I say it's worth."  I have no idea what you're talking about there.  And when did he ever "take his ball and go home"?  Buying stock at a discount from idiots who don't know any better is a very smart strategy.  

 

But I agree, the gushing, overly biased tone of this article is laughable (although hardly apologetic, as you say).  

post #16 of 94

iCon wanted even more.  All he knows is pure greed.  I hope he is satisfied, not that he ever could be!

post #17 of 94
Quote:
Originally Posted by Crowley View Post
 
if Apple use cash to buy stock then the value of the company goes down to the exact same value as that of the shares they buy and retire, i.e. you can't create value from nothing.

 

...in pure theory of financial transactions buying back shares does not increase the price per share.

 

 

I always thought stock prices were determined by supply and demand.  I never knew.

post #18 of 94
Quote:
Originally Posted by Crowley View Post
 

If it's Apple buying them then theoretically it shouldn't do, except as a temporary fluctuation because of the trade volume.  Apple's cash is accounted for in the stock price, if Apple use cash to buy stock then the value of the company goes down to the exact same value as that of the shares they buy and retire, i.e. you can't create value from nothing.

 

In real world practice there are some variations because of changes in expectations, and the aforementioned impact of large trade volumes, but in pure theory of financial transactions buying back shares does not increase the price per share.

In simple terms, the total value of the company is divided by the number of outstanding shares, therefore as shares are retired, fewer are outstanding, meaning that each share represents a greater percentage of the company, and is therefore worth more.  That's how retiring shares increases the value of those shares still outstanding.  

post #19 of 94
Quote:
Originally Posted by starxd View Post
 

In simple terms, the total value of the company is divided by the number of outstanding shares, therefore as shares are retired, fewer are outstanding, meaning that each share represents a greater percentage of the company, and is therefore worth more.  That's how retiring shares increases the value of those shares still outstanding.  

 

You're right that after a buyback each share is worth a greater percentage of the company, but the value of the company has gone down by the amount of cash they've expended (or the debt they've taken on) to buy back shares.  Owning a bigger slice of a smaller pie.  And the maths work out that the size of the new slice is exactly the same as the old slice.  Of course it is, because you can't create value from nothing.

 

This is why buybacks are generally only worth doing if you think the stock is undervalued - when the value is eventually realised then each individual shareholder will receive a greater proportion of that value.

 

 

As mentioned before, this is just theory, in the real world Apple were able to leverage a low interest rate to get credit for the buy back, and made a killing there.  Plus buying back shares shows faith in the company, which can stimulate interest.  And the volumes of trade involved in the buy back will create a brief bubble inflating th value (which itself can have other stimulative effects).

censored

Reply

censored

Reply
post #20 of 94

Apple should have bought the shares when they were cheap and lowered the float permanently (Float is still huge).  They knew what they had in pipeline for years to come/ 

 

They were scared of rainy day.

 

Lack of Confidence in their Future products vs Fear!

post #21 of 94
Quote:
Originally Posted by Crowley View Post
 
This is why buybacks are generally only worth doing if you think the stock is undervalued - when the value is eventually realised then each individual shareholder will receive a greater proportion of that value.

Thanks, all good info, especially for someone like me who is not very involved in stocks and finances. Right now everything I have is in real estate, mutual funds, insurance, 401s and annuities. I used to own AAPL and sold at a considerable profit several years ago.

 

One question: What relationship does the stock price/market cap have to the actual assets of a company? For example if Apple "theoretically" liquidated all their assets, do you think it would exceed their market cap or is some of the share price reflecting forward looking earnings? Or in Apple's case, is the share price/market cap under valued compared to their actual assets?

 

Not that I expect them to shut it down and give the money back to the shareholders as in the Michael Dell remarks.


Edited by mstone - 2/18/14 at 5:59pm

Life is too short to drink bad coffee.

Reply

Life is too short to drink bad coffee.

Reply
post #22 of 94

1422 Shares

47 - deep in the money July Options equiv to 4700 Shares

6,122 total shares - not selling a single share or option - you have not seen any movement whatsoever as far as I am concerned.  Over the top undervalued

 

Tim Cook is GREAT CEO

Great buying shares back hand over fist with BILLIONS at a discount.

 

All those who sold based on absurd hype from NY Times and the like about the sky is falling deserve what they got (loss of the greatest investment of their time - before it goes back to true value in the 700s to 800s by July timetable).  You need to read fact, not hype or you deserve what you get (politically or loss of your great investment).

 

Reading fact of what Apple is working on, growth, new markets, new products on and on - this truly is a no-brainer.  Only thing that is needed is "time" to flush out the stupid hands that can hurt Apple investors waiting to flush out the weak/investors who gamble and don't read or THINK.

 

The most painful thing in process now is that steady painful day after day $3-$7 gains daily and investors kicking themselves that they are not into the stock when they start thinking about what is going into the forward numbers .. china mobile, japan expansion, now russia back in (need iPhones for the next revolution), iwatch in a few months, gaming …….. on and on.   This is going to be a PAINFUL 3 months to those who are not in ………..

post #23 of 94
Quote:
Originally Posted by mstone View Post
 

Thanks, all good info, especially for someone like me who is not very involved in stocks and finances. Right now everything I have is in real estate, mutual funds, insurance, 401s and annuities. I used to own AAPL and sold at a considerable profit several years ago.

 

One question: What relationship does the stock price/market cap have to the actual assets of a company? For example if Apple "theoretically" liquidated all their assets, do you think it would exceed their market cap or is some of the share price reflecting forward looking earnings? Or in Apple's case, is the share price/market cap under valued compared to their actual assets?

 

Not that I expect them to shut it down and give the money back to the shareholders as in the Michael Dell remarks.

 

Value of the company is the future income stream into infinity discounted to present value plus assets on hand…. it is not liquidation value unless you are looking at a company like dell .. that is slowly crawling or ceasing to exist …….!  No one can afford to buy Apple ….out ………….  

 

Fortunately with Cook and Carl acting together on this buy-back concept - we THINKERS are going to make a fortune looking at the end game - I am a lot better off with millions of weak/gamblers - who don't THINK selling shares …when they should be BUYING BUYING ET AL… which I would with my new retirement plan contribution if I was not already over the top way over allocated by any rational advisor analysis ………… 

post #24 of 94
Quote:
Originally Posted by AaronJ View Post

Heck, it's not even the day-trading losers you have to worry about anymore.  So much of the trading is just automated, going second to second.

Though I do agree with you.

Second to second?

Try micro trades in nanoseconds, traders are getting as close to Wall Street as they can so their algorithms can work as fast as possible, the speed of light over a length of fibre has an effect.
Better than my Bose, better than my Skullcandy's, listening to Mozart through my LeBron James limited edition PowerBeats by Dre is almost as good as my Sennheisers.
Reply
Better than my Bose, better than my Skullcandy's, listening to Mozart through my LeBron James limited edition PowerBeats by Dre is almost as good as my Sennheisers.
Reply
post #25 of 94
Quote:
Originally Posted by mstone View Post

One question: What relationship does the stock price/market cap have to the actual assets of a company? For example if Apple "theoretically" liquidated all their assets, do you think it would exceed their market cap or is some of the share price reflecting forward looking earnings? Or in Apple's case, is the share price/market cap under valued compared to their actual assets?
In a perfect world the market cap is all of the company's assets, minus depreciation, plus cash and minus debt, and the total of all their expected earnings for the lifetime of the company. It's very literally meant to be what the company is worth. Obviously the last bit is a tall order to guess for almost any company, which is where the much-maligned analysts come into play.

If Apple were to liquidate everything then they'd fall way short of their market cap; so much of their value is tied up in their brand and forward potential, even though their price to earnings ratio is relatively low.

censored

Reply

censored

Reply
post #26 of 94
Quote:
Originally Posted by sflocal View Post
 

Those people just try milking a company dry, then move on to the next victim with zero regard to these companies actually trying to make a long-term difference.

 

The buying and selling of stock on the market doesn't affect the company at all, as the company isn't a party to the day to day trading of stock.

post #27 of 94

I agree that APPL is subjected to irrationally wide swings.

 

However, I do see the concern of investors when Android continues to gain market share in very important ways.

 

Yes, Apple is still selling record numbers of products, with a great ecosystem.  But the company like any company needs new growth.

 

And it's coming!

 

I think the recent run-up in share price is due not only to Apple's buying back its stock, but also to the rumors/promise surrounding bigger screen iPhones and a possible iWatch with health monitoring capabilities.

post #28 of 94
Quote:
Originally Posted by hill60 View Post
 
 
Try micro trades in nanoseconds, traders are getting as close to Wall Street as they can so their algorithms can work as fast as possible, the speed of light over a length of fibre has an effect.

Mahwah, N.J.

 

I read that some Chicago trading companies are actually using lasers to communicate to NJ in order to get around the latency issue with that distance using the Internet.

Life is too short to drink bad coffee.

Reply

Life is too short to drink bad coffee.

Reply
post #29 of 94
Originally Posted by mstone View Post

I read that some Chicago trading companies are actually using lasers to communicate to NJ in order to get around the latency issue with that distance using the Internet.

 

Laser Trading

Directed by Michael Bay

Written by the CSI team

Coming This Summer

 

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.

 

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 fucked.

 

Reply
post #30 of 94
As Apple continues to buy in shares and if the price continues to stagnate, the cost to take the company private declines. At some point, the company will be worth more to management and principal investors private than public. When that threshold is crossed you may get a leveraged buyout proposal for the remaining shares outstanding at what amounts to a bargain to management and whoever else is providing seed capital. Apple has a very strong balance sheet. Apple is cash and cash flow rich. It's earnings are underpriced and underappreciated in the market. Either the stock will go up dramatically over time or something like the above will eventually occur.
post #31 of 94
Quote:
Originally Posted by starxd View Post
 

I agree this article is silly, but there is absolutely nothing "apologetic" about it.  How you could call him an Apple "apologist" is beyond me.  

 

 

While I certainly do not defend the ideas of the poster that you are responding to, there are two definitions of "apologetic", and it seems like you are only aware of one of them.

post #32 of 94
Quote:
Originally Posted by Sacto Joe View Post

Thus marks the end of the market's stupid phase vis-a-vis AAPL. Value it at what it's worth, or find Apple taking it ever closer to going private. And all those tens of billions in cash generated PER YEAR will go into someone else's pocket.
Apple can't afford to take itself private
post #33 of 94
Quote:
Originally Posted by sflocal View Post


I understand.  I'm kind of grouping all these wall street gamblers into the same bucket.  Whether mechanized, or some guy day-trading all the time that tries to fortune-tell, they are all responsible for manipulating the market.  


Those people just try milking a company dry, then move on to the next victim with zero regard to these companies actually trying to make a long-term difference.
It is very hard to manipulate a stock price of a company of this size with this much volume. Apple's $14bn barely move it up. Everyone think about that. You guys have no concept of the market.
post #34 of 94
Looks like they should have listened to carl icahn and bought back 150B worth. If their tiny buyback was profitable they could have gained over 15B very quickly and retired an enormous amount of the float (almost 1/3 of it). Savings over the years from not paying out a dividend to 1/3 of the shares was an extra bonus. This as Icahn said was a no brainer. Apple just didn't have the confidence to go big. They may be missing a rare opportunity and already seem to possibly have missed the best chance they had. It may only get more expensive from here.
post #35 of 94
Quote:
Originally Posted by hill60 View Post


Second to second?

Try micro trades in nanoseconds, traders are getting as close to Wall Street as they can so their algorithms can work as fast as possible, the speed of light over a length of fibre has an effect.

 

True.  Thanks for the correction. 

post #36 of 94
Quote:
Originally Posted by mvigod View Post

Looks like they should have listened to carl icahn and bought back 150B worth. If their tiny buyback was profitable they could have gained over 15B very quickly and retired an enormous amount of the float (almost 1/3 of it). Savings over the years from not paying out a dividend to 1/3 of the shares was an extra bonus. This as Icahn said was a no brainer. Apple just didn't have the confidence to go big. They may be missing a rare opportunity and already seem to possibly have missed the best chance they had. It may only get more expensive from here.

 

Did you even read the article?  They don't HAVE $150B on hand, domestically, to do something like that (even if it were a good idea, which it isn't).  And any gains would be negated by repatriating the cash from abroad and having it taxed (taxed AGAIN, actually).

post #37 of 94
Quote:
Originally Posted by mvigod View Post

Looks like they should have listened to carl icahn and bought back 150B worth. If their tiny buyback was profitable they could have gained over 15B very quickly and retired an enormous amount of the float (almost 1/3 of it). Savings over the years from not paying out a dividend to 1/3 of the shares was an extra bonus. This as Icahn said was a no brainer. Apple just didn't have the confidence to go big. They may be missing a rare opportunity and already seem to possibly have missed the best chance they had. It may only get more expensive from here.
And use ALL of their cash? Are u insane? U think there won't be other dips? If not that'll be great news, not bad, indicative of great things happening.
post #38 of 94
Quote:
Originally Posted by AaronJ View Post
 

 

Did you even read the article?  They don't HAVE $150B on hand, domestically, to do something like that (even if it were a good idea, which it isn't).  And any gains would be negated by repatriating the cash from abroad and having it taxed (taxed AGAIN, actually).

 

 

Yes I read it all.  The proposal from Icahn was NOT to use overseas cash.  It was to borrow at historically low interest rates which for apple would be sub 3%.  After they expense the interest it would be closer to 2% net interest or as close to free as they can ever get.  Why a no brainer?  Apple is earning 40/share on a market cap of 500B.  Take out the cash and it's under 400B.  This makes the earnings yield on the buyback over 8% net to apple.  Basically a number that if they flatline EPS for 9 years is a 100% return on the investment JUST FROM THE BUYBACK.  They would be paying back the loan out of cash flow and exceeding the interest rate by that 8%.

 

This simple no brainer finance seems to be incomprehensible to the Apple management team and board.  Icahn is the only smart guy in the room.  It absolutely amazes me. This is not calculus folks.  Just simple grade school math.

post #39 of 94
So Apple, to jujitsu Wall Street.
post #40 of 94
Buying back shares increases the earnings per share which will increase the value of the shares. Plus it saves Apple paying the dividend on those shares.
New Posts  All Forums:Forum Nav:
  Return Home
  Back to Forum: AAPL Investors
AppleInsider › Forums › Investors › AAPL Investors › Apple's buybacks exploited stock dips to generate billions in shareholder value