A year after Apple announced its dividend, 'timing could be right' for another cash deployment

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  • Reply 21 of 47
    igrivigriv Posts: 1,177member

    Quote:

    Originally Posted by jdnc123 View Post


     


    Apple trades at a low p/e because the market doesn't believe its margins are sustainable and see not enough top-line growth to offset the margin erosion.  Articulating a long-term strategy would help the p/e.  Further, buying back stock helps earnings per share grow.


     


    Actually shareholders own the company, not the Board or management.  If they have no ideas for the cash, shareholders likely have something better to do with it than stick it in the bank earning nothing.


     


    Disney has increased in value by $60 billion the last few years.  Listen it is unlikely they would have been a willing seller at multi-year lows and certainly not a cash seller (maybe would have taken Apple stock), but the point of Disney, Yahoo, Twitter, Youtube is all those businesses have increased in value far, far, far more than the value of Apple's cash has increased since they began stockpiling.  Even Tim Cook has said they have looked at large acquisitions.  Virtually any acquisition done in the last few years is worth more today, they would have increased shareholder value.


     


    I just saw a report that said youtube was worth as much as Netflix, a $9 billion EV company.  I think Google paid $1 billion.  9x your return on investment is a good thing whether the cash flow generated justifies it or not.  


     


    The reason they aren't investing or using the cash isn't apparent to anyone outside the company.  


     


    The company has lost $260 billion of market cap since its highs.  It has lost even more in enterprise value (true value of a company) due to the cash build over that timeframe.  I get it, perception and reality are different things, especially in the market, but that amount of lost value isn't simply due to a sentiment change, isn't due to short-term traders, isn't due to hedge funds.  Apple will have negative earnings growth this fiscal year.  Its tough  when the law of large numbers work against you, but the market pays for growth.  It expects companies to grow and when they don't, the stock prices fall.  Apple is having mix issues that impact margins.  They could roll out a high-end, larger screen phone to offset some of that, but will apparently not have one until two years after the competition went down that path.  I for one, would love a larger screen iPhone (not absurdly large, but larger) and would pay up for it.  Tim Cook said on the last conference call that they had spent a lot of time thinking about screen size and they believe they have the right size.  When customers are clamoring for something and the CEO basically says we could do it, but don't want to give customers what they want, how is that not arrogant?  Regardless, they will be following and catching up when they do finally release a large screen iPhone - and they will.  They will be playing catch up to what some - not all - customers want.


     


    Simple question.  Do you want the company to just create cool new products or should they grow earnings.  Apple the company and Apple the stock are two different things.  The company is still strong.  The stock is weak.  The disconnect has been self-inflicted, in my opinion and I think that is the issue some shareholders are concerned about.  Sentiment can shift on a dime.  Maybe investors will start to love Apple again, maybe they won't.  History has shown these kinds of collapses take years or decades to reverse.  Tim has his work cut out to show Apple can be different in that regard and there certainly should be some concern that a company who pays out a lot of compensation in stock will begin to lose talent if its stock currency is a flat-lining or declining value.  That is the big risk, that we begin to see a brain drain as employees see better places to monetize their talents and ideas than in a stock that is stuck in the mud.


     


    Regards



     


    Thank God SOMEONE has a clue.

  • Reply 22 of 47
    igrivigriv Posts: 1,177member

    Quote:

    Originally Posted by jragosta View Post





    Considering that they never generated a pile of cash comparable to Apple's, the fact that they're not sitting on one is pretty obvious.



    A profitable business generates cash. You can do three things with the cash:

    1. Buy things. (This is what Amazon has done).

    2. Send the cash to investors

    3. Keep the cash.



    'Buy things' is not inherently better than 'Keep the cash'. In fact, unless the things you buy are intrinsically more valuable than the cash, it's a losing game. Apple has bought things, as well - but hasn't found enough things that justify spending the money. That doesn't mean that they won't find more tomorrow.

    Even if true, 98% of their profits still come from search. To the extent that the purchase of Yahoo might have expanded their search business, it might have been a success, but the profit on Yahoo itself is incidental.

    And, yet, Samsung deliberately and obviously has to copy Apple's products. Fortunately, Apple learned long ago to measure their R&D efforts by results, not by expenditures. If you can lead everyone else and completely reinvent a new market every few years, isn't it better if you can do that with only spending 2% of revenues rather than spending 3 times as much?


     


    Amazon has not bought "things". It has built out infrastructure, it has developed whole new product families, so yes, it IS intrinsically better than "keep the cash", and the market agrees with this, as evidenced by the AMZN stock price. As for Google, I assume you mean YouTube, not Yahoo!, but actually Google's profits don't come from search, they come from advertising, and if you have watched a YouTube video lately, you will have noticed prominently placed ads, so Google has done an excellent job "monetizing" YouTube.


    As for Samsung, remember, Samsung is an industrial conglomerate, and their focus is to making things well and cost-effectively. Yes, Apple has had some very good UI ideas, but Samsung's attitude, quite reasonably, is" this is really cool, we can make it a bit better and a bit cheaper". I agree that some of the copying is objectionable, but I also am quite sure that this is progress at work. Apple is now playing catchup (look at AppleInsider articles: NFC, bigger screens are widely rumored. I am guessing that the Galaxy SIV announcement in a couple of days will have some pretty cool things). And the truth is that Apple is outsourcing a lot of its R&D to Samsung and the Japanese hardware vendors, but that's very dangerous, since they are building (and have already built) enormous expertise.

  • Reply 23 of 47
    jragostajragosta Posts: 10,473member
    jdnc123 wrote: »
    Apple trades at a low p/e because the market doesn't believe its margins are sustainable and see not enough top-line growth to offset the margin erosion.  Articulating a long-term strategy would help the p/e.  Further, buying back stock helps earnings per share grow.

    That explanation is too simplistic.

    Apple's P/E is under 7 after adjusting for cash. Wall Street on average is at 16 - and the average company is growing only slightly over GDP growth.

    At its current price, Apple could lose more than half of its current profits and STILL be undervalued compared to the rest of the market. I can't imagine that anyone thinks that's a likely scenario.

    Ultimately, it comes down to herd mentality. Someone starts a negative rumor about Apple and pretty soon it gets blown way out of proportion. Personally, I think that it's fostered by a large number of people who have axes to grind against Apple. I certainly saw it in the 90s when a lot of CIOs who should have known better were constantly spreading outright lies about Apple and its products.
  • Reply 24 of 47
    jdnc123jdnc123 Posts: 233member

    Quote:

    Originally Posted by Tallest Skil View Post


     


    Why does it have to be?


     


    Because you're just making up complete crap at this point.


     


     


    Just create cool new products. The former begets the latter. Screw caring about the stock. Screw the stock market entirely. If they make desirable products, they will grow earnings. It's just that effing simple. Buying another company for the sole purpose of "increasing value" will do exactly the opposite.


     


    Do you have any idea how vast Disney is, for example? Why would Apple want to buy an animation studio, a 3D animation studio, three live action film distribution studios, multiple theme parks, and the rights to the entirety of Marvel and Lucasfilm? Why would Apple want to streamline all of that while being forced to continue to promise everything that Disney had already promised? When Apple buys something, it's because they need it for a product they're already making. Disney offers zero products, zero ideas, and introduces multiple entirely new industries in which Apple has zero (and wants zero) presence but is now forced to manage.


     


    Never mind that Apple owning some of the content it provides wouldn't sit will with, oh, everyone else with whom they contract in iTunes, et. al.


     


    When you see those articles, you have to think about these things. The people that write them don't. All they think about is temporarily jacking up the stock price of whatever company Apple is "slated" to buy. That's the fundamental difference between Apple and these idiots: Apple couldn't care less about the stock since they care about their products. Others care only about the stock and their products suffer.



     


     


    We fundamentally disagree.  I believe shareholders do have a right to know a company's strategy and what they intend to do with their assets, including cash.  Over the short-term (ie couple years) do they have to tell shareholders their plans?  No.  But when a company goes many years accumulating an asset with no articulation of a plan for it, I believe shareholders are right in questioning.


     


    I wasn't making crap up, but was intentionally taking Tim at face value.  He didn't believe what he was saying, nor did I.  He has to say they have no plans for a large screen phone otherwise near-term sales will get hit.  The market and I get it that he was lying to us and that they will of course have a large screen offering eventually.  In lower-end markets, a large screen 'phablet' is desired b/c people don't have the coin for both a phone and a tablet.


     


    Again, the acquisition examples are just that.  That being said, the one thing I think Disney has of value is ESPN, which would give Apple leverage with cable companies as many subscribers want that content.


     


    There are of course numerous examples of companies who care about their stock and are extremely successful.  Apple is big enough and sophisticated enough to focus both on its products and stock price.  I assume Peter Oppenheimer isn't sitting around in design/engineering meetings all day long, he is paid to deal with the company's finances.  There are many others at the company who have little to no involvement in products.  Should they all sit around a feel as if they are unable to contribute to value creation at the company?  That sounds like a fun and challenging career.


     


    There is no precedent in history for a company losing this kind of value (the dollar amount) while the broader markets aren't themselves dropping like a rock.  It has never happened before.  You either believe the company is worth more over the long term or you don't.  If you do and you are management, you use this opportunity to buyback the stock.  As Buffet said last week, if you can buy a dollar for 80 cents, you do it.    

  • Reply 25 of 47
    ankleskaterankleskater Posts: 1,287member
    jragosta wrote: »
    Serious share buybacks would be the most logical thing since the stock is so severely undervalued.

    Please cite all cases in history where share buyback could irrefutably be credited for sustained growth in market cap. Did it work for Microsoft? Has it worked for HP, Intel, Disney?

    History shows that this tactic often works in the short term for companies with declining revenues and/or profits.

    True believers in long term success of the company would sit calmly and wait for that success to evolve.
  • Reply 26 of 47
    flaneurflaneur Posts: 4,521member
    igriv wrote: »
    Thank God SOMEONE has a clue.

    Translation: "Thank God SOMEONE misunderstands Apple as badly as I do."
  • Reply 27 of 47
    tallest skiltallest skil Posts: 43,399member


    Originally Posted by jdnc123 View Post

    I believe shareholders do have a right to know a company's strategy and what they intend to do with their assets, including cash.


     


    Sure, but not insofar as it reveals company secrets.






    Over the short-term (ie couple years) do they have to tell shareholders their plans?  No.





    And over the long term, shareholders already know Apple's plans.





    …the one thing I think Disney has of value is ESPN…



     


    They own ESPN too?! What DON'T they own?!





    There is no precedent in history for a company losing this kind of value (the dollar amount) while the broader markets aren't themselves dropping like a rock. It has never happened before.    



     


    Challenge.






    You either believe the company is worth more over the long term or you don't.



     


    Bubbles have never happened before, have they?¡

  • Reply 28 of 47
    jdnc123jdnc123 Posts: 233member

    Quote:

    Originally Posted by ankleskater View Post





    Please cite all cases in history where share buyback could irrefutably be credited for sustained growth in market cap. Did it work for Microsoft? Has it worked for HP, Intel, Disney?



    History shows that this tactic often works in the short term for companies with declining revenues and/or profits.



    True believers in long term success of the company would sit calmly and wait for that success to evolve.


    IBM is one example.


     


    So lets theoretically say Apple dropped to $100/share.  Below the value of the cash holdings.  You would be opposed to using the cash to buyback the stock, effectively buying cash at less than its face value?  While that example is specific to the cash, others like myself are simply valuing the business and saying the same thing, it is worth more, so go ahead and create value through financial engineering.

  • Reply 29 of 47
    SpamSandwichSpamSandwich Posts: 31,490member

    Quote:

    Originally Posted by jdnc123 View Post


     


     


    We fundamentally disagree.  I believe shareholders do have a right to know a company's strategy and what they intend to do with their assets, including cash.  Over the short-term (ie couple years) do they have to tell shareholders their plans?  No.  But when a company goes many years accumulating an asset with no articulation of a plan for it, I believe shareholders are right in questioning.



     


    What prevents Microsoft, Google, Samsung or any other competitor from buying Apple stock, or the stockholders of competing interests from buying stock? They would also be privy to every strategic plan and would theoretically have a vote.


     


    No, corporate nuts and bolts decision making needs to be kept secret.

  • Reply 30 of 47
    jdnc123jdnc123 Posts: 233member

    Quote:

    Originally Posted by Tallest Skil View Post


     


    Sure, but not insofar as it reveals company secrets.




    And over the long term, shareholders already know Apple's plans.


     


    They own ESPN too?! What DON'T they own?!


     


    Challenge.


     


    Bubbles have never happened before, have they?¡



     


    Ha.


     


    Go ahead an challenge.  I am quite sure what I said is true.  Here is a list:


     


    http://money.cnn.com/galleries/2010/fortune/1002/gallery.biggest_losers.fortune/index.html


     


    Bigger losses for sure, but not sure any of those got crushed while the broader market was at all time highs.


     


    Are you saying Apple stock was a bubble?

  • Reply 31 of 47
    jdnc123jdnc123 Posts: 233member

    Quote:

    Originally Posted by SpamSandwich View Post


     


    What prevents Microsoft, Google, Samsung or any other competitor from buying Apple stock, or the stockholders of competing interests from buying stock? They would also be privy to every strategic plan and would theoretically have a vote.


     


    No, corporate nuts and bolts decision making needs to be kept secret.



     


    I think you are taking the comment too literally and I really and talking specifically about the cash.  Of course no product / pipeline / technology secrets should be disclosed to shareholders or anyone.  I think Tim and the Board agree with me and will soon be telling shareholders their plans for some of the cash, belatedly.

  • Reply 32 of 47
    jdnc123jdnc123 Posts: 233member


    Rumor of $30 special dividend in market pushing stock up intra-day.  Now that would truly be an absurd move to pay a large dividend only months after tax rates changed, while numerous other companies ensured they paid special dividends before 12/31/12.


     


    As Einhorn said on his call, management claims they want to be innovative but they don't want to be financially innovative and this would indeed prove that to be true if the rumor has merit.


     


    Would be a baffling move.

  • Reply 33 of 47
    tallest skiltallest skil Posts: 43,399member


    Originally Posted by jdnc123 View Post

    Are you saying Apple stock was a bubble?


     


    I'm saying that your black and white "long term belief" bit is fallacious.

  • Reply 34 of 47
    jdnc123jdnc123 Posts: 233member

    Quote:

    Originally Posted by Tallest Skil View Post


     


    I'm saying that your black and white "long term belief" bit is fallacious.



    You lost me.  I think sentiment may have gotten bubbly, but valuation didn't and with the stock trading at pretty much all-time low valuation multiples, management either agrees with the market that they are doomed or they don't.  They have the knowledge of the pipeline, etc. that none of us have. If they are optimistic, today's price should seem compelling.


     


    I like fallacious, need to throw that in my vocabulary.

  • Reply 35 of 47
    majjomajjo Posts: 574member
    @jd_in_sb serious shareholders, as in people who actually value a share of the company, don't want to grab that cash. They want the company to become more powerful, richer, stronger. Only short-term "investors" (hah) would want that.

    This doesn't make sense. The whole point of investing in a company is so that you can get a share of the profits. If this wasn't the case, no one, except maybe the most die hard fanbois would pay so much for a meaningless stock.
  • Reply 36 of 47
    tjrsvtjrsv Posts: 35member
    jdnc123 wrote: »
    If Tim Cook believes in the long-term value of Apple as he told shareholders to think long-term, he would be buying the stock at these levels.  The inaction while sitting on mountains of cash can certainly be read to believe they think the stock goes even lower.

    Given Apple is the 5th cheapest stock on the S&P 500, trading at a discount to the likes of HPQ, DELL, AMD, INTC, etc. it is quite scary that the Board and management don't see value in buying their own stock.

    Apple is only a very short way from relinquishing the lead as the most valuable tech company in the world, with IBM about to pass it (enterprise value not market cap) and Google only slightly further behind.  With a more pronounced drop in Apple and a move up in Samsung, even they could soon surpass Apple in value.

    The disdain the market has for Tim Cook and his strategic moves (really lack thereof) is a reflection of a number of really, really bad decisions since taking over (maps, no traction with China Mobile, half-baked siri, no lower-cost phone, no large screen phone).  It is time to put up or shut up.  Anyone who bought the stock over the last year-plus has lost at least 20%.  Apple's biggest competitors (Google and Samsung) are at their all-time highs.  This is a Apple/Tim Cook problem.  Silence and secrecy worked for Steve Jobs, but when the market has no faith in the leader of the company that will not work.  A strategy needs to be articulated otherwise the market will believe their is none.  Unfortunately even if articulated, Apple has to execute and despite Cook's supply chain prowess, even execution seems to be a major problem for the company under him.

    Agreed!!! Tim Cook is a limp-noodle and certainly no SJ...SJ fooled anyone who invested in AAPL based on his personal recommendation Cook would kick-ass...hardly the case. Think long-term Mr. Cook? Ok, then WTF is the deal going to be if I decide to invest even more? Maybe cook and co. could elaborate if they want to stay the top dog, or maybe they care less, which at this point seems to be the case.
  • Reply 37 of 47
    ankleskaterankleskater Posts: 1,287member

    Quote:

    Originally Posted by jdnc123 View Post


    IBM is one example.


     


    So lets theoretically say Apple dropped to $100/share.  Below the value of the cash holdings.  You would be opposed to using the cash to buyback the stock, effectively buying cash at less than its face value?  While that example is specific to the cash, others like myself are simply valuing the business and saying the same thing, it is worth more, so go ahead and create value through financial engineering.





    IBM is ONE example. And academics still debate over the value of the buyback. Those who believe the tactic was not that effective cite these numbers (I may not have precise figures so feel free to blast me after Googling): They spent something like $12B a couple of years ago buying back shares: Net result is approximate doubling of EPS. Clearly EPS gain would have been lower w/o buyback, but it would have increased anyhow (because IBM did not buy back 50% of its shares). Did the share price double? Nope. So, based on this simple argument, the buyback tactic did not work that well. Now, there is ways to turn the argument around, which just shows that it is not that simple to attribute gain in market cap to the buyback program.


     


    In the other cases, the conclusion is clear - little effect even in the short term. I seriously doubt that, in 10 years, HP and Intel will look back and say, "Damn, money well spent." But there will be no regret either because they didn't know what else to do with the case. The lesser of two evils is dividend because the value to shareholders is immediate and clear.

  • Reply 38 of 47
    tallest skiltallest skil Posts: 43,399member


    Originally Posted by TJRSV View Post

    Tim Cook is a limp-noodle and certainly no SJ...


     


    In what respect?






    …Cook would kick-ass...hardly the case. 



     


    In what respect?






    Think long-term Mr. Cook? Ok, then WTF is the deal going to be if I decide to invest even more?





    The deal is you trust Apple, they give you money. Simple.






    Maybe cook and co. could elaborate if they want to stay the top dog, or maybe they care less, which at this point seems to be the case.



     


    Right, because the company known for keeping everything secret NOT telling you their most intimate plans is "unusual".

  • Reply 39 of 47
    jdnc123jdnc123 Posts: 233member

    Quote:

    Originally Posted by ankleskater View Post




    IBM is ONE example. And academics still debate over the value of the buyback. Those who believe the tactic was not that effective cite these numbers (I may not have precise figures so feel free to blast me after Googling): They spent something like $12B a couple of years ago buying back shares: Net result is approximate doubling of EPS. Clearly EPS gain would have been lower w/o buyback, but it would have increased anyhow (because IBM did not buy back 50% of its shares). Did the share price double? Nope. So, based on this simple argument, the buyback tactic did not work that well. Now, there is ways to turn the argument around, which just shows that it is not that simple to attribute gain in market cap to the buyback program.


     


    In the other cases, the conclusion is clear - little effect even in the short term. I seriously doubt that, in 10 years, HP and Intel will look back and say, "Damn, money well spent." But there will be no regret either because they didn't know what else to do with the case. The lesser of two evils is dividend because the value to shareholders is immediate and clear.



     


    IBM's earnings per share are growing faster than its revenue and nominal amount of net income.  If the market uses a multiple of EPS to value the stock and the p/e is higher for higher growing EPS, isn't that a good thing?  Maybe it is too simple and ridiculous but the difference with IBM is the market believes they have recurring revenue while Apple does not.  IBM trades at a 12.5 p/e vs sub 10 for Apple and when you back out the cash the difference is even more dramatic.  IBM nominal net income has grown somewhere around 5%/year for the last few, but EPS growing much faster due to the buyback.  


     


    Now if the simple fact is Apple EPS is going to flatline or drop like a rock from here even with buybacks, then yes, its not going to matter much if they buy the stock.  IBM and HP are focused on markets in secular declines.  Apple is focused on markets that are in growth mode still and are the markets that are actually hurting INTC and HP.  Why then does Apple trade at valuation discounts to both those companies?  I guess that is my point.  Either the market is wrong and now is a good time to buy the stock with cash or things are about to get real bad in Cupertino.  If Apple profits are shrinking materially from here as the market is pricing in with such low multiples while they are still in the early stages of smartphone/tablet/etc. growth, then this is truly a Apple-specific problem.  Google is focused on mobile and is growing.  The vast majority of Samsung's earnings growth is from mobile and they are growing.  If Apple can't grow in an environment where its competitors are, then the strategy gets called into question and that is what we are seeing and why people want to hear Cook articulate a plan to grow earnings.  Since Tim took over, the combined value of Apple/Goog/Samsung has increased materially.  Apple's value has shrunk.  That is the reality, not rumor or conjecture.  The value pie in mobile is bigger than ever, but Apple is no longer participating.  It is a fair question to ask why.

  • Reply 40 of 47
    hftshfts Posts: 386member
    Deleted, wrong thread
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