Apple, Inc. spent $18B to buy back 31.7 million shares of AAPL in March quarter

Posted:
in AAPL Investors edited July 2015
During its fiscal Q2 ending in March, Apple spent $18 billion to buy up its own stock off the market. More than three quarters of that total was used to snatch up discounted stock after investors panicked following Apple's Q1 earnings announcement in January.

AAPL capital return by shares


Speaking to analysts in its Q2 conference call this week, Apple's corporate controller Luca Maestri outlined that "in total, we executed almost $21 billion worth of capital return activities during the March quarter."

Included in that total amount were $2.7 billion in dividend payments the company distributed to its shareholders in February.

The $18 billion remainder funded two types of stock buybacks: first, $6 billion in "open market purchases," where the company simply bought its stock from existing investors at prevailing prices; and secondly, two rounds of "Accelerated Share Repurchase" programs.

Apple's Accelerated Share Repurchases


Under an ASR, a company like Apple buys its shares from an investment bank, which essentially shorts the stock by borrowing shares (typically from its clients) which it then delivers to the company for a fixed, upfront price. Over the term of the ASR agreement, the investment bank then seeks to buy shares to replace those it has borrowed.

Buying back shares via an ASR is usually more expensive because the bank wants to profit from the transaction. However, the premium price allows the company to spend a fixed amount of money rapidly and immediately reduce its outstanding share count.

Apple initially launched a $2 billion ASR at the end of 2012 (Q1 2013). In April (Q3) 2013, Apple initiated a second, much larger ASR for $12 billion. Apple fronted the money right away and retired the initial proceeds of borrowed stock.

However, Apple's banking partner continued to buy back shares over the year long term of the agreement, resulting in windfall of 1.1 million extra shares that were delivered to Apple for retirement over the past quarter when the second ASR was settled. The average share price under the second ASR was $486.82.

In January, Apple launched a third ASR funded by another $12 billion. Maestri noted that Apple "received an initial delivery of 19.2 million shares under this ASR." The third ASR will continue throughout the end of 2014, at which point Apple may receive an addition crop of shares.

Apple's aggressively opportunistic stock purchase

Apple's establishment of a third ASR in late January helped the company to rapidly spend an incredible $14 billion within a two week period, after 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."

AAPL Q1 2013 stock plunge


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.

Following the $14 billion share grab, which included the $12 billion ASR and an additional $2 billion in open market purchases, Apple spent an additional $4 billion in open market purchases throughout the rest of the quarter, resulting in the $18 billion total for the quarter.

AAPL Capital return by $


Apple subsequently announced during its Q2 earnings call both how much it bought back in the quarter and that it had authorized an additional $30 billion for future buybacks over the next two years. Along with the $14 billion remaining in its existing buyback authorization from last year ("shares that may yet be purchased under the plans for programs"), that allows the company $44 billion going forward to initiate new buybacks over the next year, were the opportunity to arise.

As it stands, Apple removed over 31.7 million shares in the March quarter; 11.4 million shares on the open market at a price per share of roughly $526, and the rest as part of its third ASR. Because an additional number of shares may be retired at the end of the third ASR, it isn't yet known what the average price per share will be for those shares.

However, looking just at the 12.5 million shares for which the per-share price is known, with Thursday's close at $567.77 it would now cost Apple an additional $561 million to repeat those stock purchases. Apple's decisive, quick thinking therefore resulted in a savings more 2.8 times as large as the $198 million that Google lost while operating its Motorola subsidiary in the same quarter.
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Comments

  • Reply 1 of 52

    Paging Constable Odo... Constable Odo, to the stock value thread...

    ;) 

  • Reply 2 of 52
    irelandireland Posts: 17,547member

    Imagine if Apple's long, long term goal was to go private. Knowing Apple if that was possible they would do it. Will probably "never" happen though. It'd be interesting to see what the press would be like around Apple were they fully private right now.

  • Reply 3 of 52
    512ke512ke Posts: 781member

    I find it highly ironic that Apple is making tens of billions of dollars in part due to Analysts' spreading hysteria, doom, and gloom.

     

    That $18B is worth $25B and will be worth even more.

     

    Buy low, sell high.  It's the secret of financial success lol.

  • Reply 4 of 52
    lkrupplkrupp Posts: 6,709member
    Quote:

    Originally Posted by Ireland View Post

     

    Imagine if Apple's long, long term goal was to go private. Knowing Apple if that was possible they would do it. Will probably "never" happen though. It'd be interesting to see what the press would be like around Apple were they fully private right now.


     

    It would probably be worse than it is now. Apple would no longer have to report its earnings and sales numbers which would give the tech media free reign to announce utter gloom and doom failure with no reality check like the recent Q2 report to counter it. I mean look at the run up to the Q2 report. Nothing but epic fail and ridicule. Then out comes the Q2 report, they wipe the egg off their faces and start over for the next quarter predicting downfall and failure. Imagine if they had no real numbers to make them look stupid.

  • Reply 5 of 52
    bradipaobradipao Posts: 145member
    512ke wrote: »
    I find it highly ironic that Apple is making tens of billions of dollars in part due to Analysts' spreading hysteria, doom, and gloom.

    That $18B is worth $25B and will be worth even more.

    Buy low, sell high.  It's the secret of financial success lol.

    In my opinion this kind of buyback is largely at loss for stakeholders: Apple's stock at beginning of january was about 540$, and at end of march was about 540$, meanwhile 18B$ of profits (profits generated in about two whole quarters) were spent in buyback. At the end: 18B$ spent and no increased value for stakeholders.
  • Reply 6 of 52
    patsupatsu Posts: 428member
    For a financial play like this, you should look beyond March. Coz the stock price is higher today. Basically it depends on when you settle and what you use the earned $$$ for.
  • Reply 7 of 52
    shahhet2shahhet2 Posts: 127member
    Quote:



    Originally Posted by 512ke View Post

     

    I find it highly ironic that Apple is making tens of billions of dollars in part due to Analysts' spreading hysteria, doom, and gloom.

     

    That $18B is worth $25B and will be worth even more.

     

    Buy low, sell high.  It's the secret of financial success lol.


    You do understand that they reduce the outstanding number of stocks with that correct?

    This is not for buy low, sell high.

     

    Quote:
    Originally Posted by bradipao View Post





    In my opinion this kind of buyback is largely at loss for stakeholders: Apple's stock at beginning of january was about 540$, and at end of march was about 540$, meanwhile 18B$ of profits (profits generated in about two whole quarters) were spent in buyback. At the end: 18B$ spent and no increased value for stakeholders.

    lol, Imagine if this 18B$ was not spent?

    Then Stock would not have been at $540, Some of the gain in stock is due to that 18B$ spent on it. Imagine that 18B$ of stocks  are available for sell from investors, which Apple bought at X price and if not, they may have sold at lower price and resulted in lower Apple stock price.

  • Reply 8 of 52
    slurpyslurpy Posts: 5,107member
    Quote:

    Originally Posted by bradipao View Post





    In my opinion this kind of buyback is largely at loss for stakeholders: Apple's stock at beginning of january was about 540$, and at end of march was about 540$, meanwhile 18B$ of profits (profits generated in about two whole quarters) were spent in buyback. At the end: 18B$ spent and no increased value for stakeholders.

     

    What a ridiculously short-sighted view. 

  • Reply 9 of 52
    bradipao wrote: »
    In my opinion this kind of buyback is largely at loss for stakeholders: Apple's stock at beginning of january was about 540$, and at end of march was about 540$, meanwhile 18B$ of profits (profits generated in about two whole quarters) were spent in buyback. At the end: 18B$ spent and no increased value for stakeholders.

    I personally don't care if u make money off of apple stock. As an apple fan, I'm glad they were smart and made a good decision for their company.
  • Reply 10 of 52
    So, how after spending billions over the last few years, how much of 'Apple' does Apple own? How many shares do they have, how many shares are available?...
  • Reply 11 of 52
    Quote:

    Originally Posted by bradipao View Post



    In my opinion this kind of buyback is largely at loss for stakeholders: Apple's stock at beginning of january was about 540$, and at end of march was about 540$, meanwhile 18B$ of profits (profits generated in about two whole quarters) were spent in buyback. At the end: 18B$ spent and no increased value for stakeholders.

    Oh boy....

  • Reply 12 of 52
    customtbcustomtb Posts: 336member
    bradipao wrote: »
    In my opinion this kind of buyback is largely at loss for stakeholders: Apple's stock at beginning of january was about 540$, and at end of march was about 540$, meanwhile 18B$ of profits (profits generated in about two whole quarters) were spent in buyback. At the end: 18B$ spent and no increased value for stakeholders.

    But today it's at $463 and apple no longer needs to pay a dividend on those shares it purchased. Even if the share price remained constant they essentially earn the dividend yield.

    I would much prefer they repurchase shares for future growth than issue huge dividends that I have to pay taxes on right now even if I reinvest those dividends.
  • Reply 13 of 52
    Quote:

    Originally Posted by PScooter63 View Post

     

    Paging Constable Odo... Constable Odo, to the stock value thread...

    ;) 


    I won't be complaining anymore about Apple being shareholder unfriendly.  How was I to know what Apple was going to do until I see the results?  I certainly thought Apple was going to botch another quarter but fortunately I was wrong.  I'm sure everyone must have been surprised about the 7 for 1 split.  As a shareholder, I'm being left clueless.  The only thing I was hopeful of was that Apple was buying back shares as the stock went down and down and down.  However, if I don't see any results I tend to get cranky and whiney.  I'm finally starting to see results and now I have no reason to complain.  Apple's stock movement seems out of kilter with the rest of the tech stocks and the stock market in general.  So, it's rather annoying to see all the other tech stocks moving upward while Apple is moving downward.  I personally don't have much confidence in Tim Cook because he seems too non-aggressive towards rival companies.  I'm sure Apple has some products in the pipeline and that should be a given since hardware is their bread and butter.

     

    Apple is overflowing with cash and in my view, I'd prefer acquisitions to buybacks because I'm looking for additional revenue streams if the iPhone is unable to carry Apple forward.  I don't feel comfortable with Apple relying mainly on one product when that particular market appears saturated.  I won't be griping for the rest of the year as long as there's at least a little forward motion of Apple's share price.  I'm not even expecting a return to $700 a share but I would like to see Apple hit at least $600 with increased dividends and I'll be satisfied.  In other words, I'm only asking Apple's share price to perform at least as well as other tech stocks.  I don't see how that's too much to ask for.  I will sit back quietly and let Tim Cook have his chance and hopefully he will prove himself capable of being Apple's CEO.

  • Reply 14 of 52
    Quote:
    Originally Posted by 512ke View Post

     

    I find it highly ironic that Apple is making tens of billions of dollars in part due to Analysts' spreading hysteria, doom, and gloom.

     

    That $18B is worth $25B and will be worth even more.

     

    Buy low, sell high.  It's the secret of financial success lol.


    now....  playing this card out a bit... could you see a bit of stock manipulation based on the craziness of the analysts reacting to 'situation normal' information.

     

    - Apple sees a more positive number cooking in the pipeline

    - Apple sees the possibility to book revenues next quarter *

    - takes action... backing off the performance numbers to fit in the lower guidance levels

    - Analysts tank the stock after the public announcement

    - Apple effectively covers it 'shorts'

    - Next quarter's numbers are released... show bang up quarter, especially in growth markets where analysts were complaining about Apple's pricing and product range

    - $$$$

     

    * I've seen sales delayed by a day (in a manner to book the revenue for the sale men to the quarter sold, but the $$ booked to the next quarter), and I've been handed a 'blank check' (Like 'are you ready to buy next years hardware by the end of September?')a month before end of quarter to spend on infrastructure and/or R&D to balance a major revenue bump to keep earnings 'in line'.... Been there, done that.

  • Reply 15 of 52
    dabedabe Posts: 97member
    Apple is not buying shares to accumulate a position of ownership in the company. As I understand it—and please correct me if I'm wrong, Apple's purchasing of shares simply removes them from the pool available to investors in general. It reduces the total number of outstanding shares.
  • Reply 16 of 52
    dabedabe Posts: 97member
    So, how after spending billions over the last few years, how much of 'Apple' does Apple own? How many shares do they have, how many shares are available?...

    Apple is not buying shares to accumulate a position of ownership in the company. As I understand it—and please correct me if I'm wrong, Apple's purchasing of shares simply removes them from the pool available to investors in general. It reduces the total number of outstanding shares.
  • Reply 17 of 52
    Quote:

    Originally Posted by CustomTB View Post





    But today it's at $463 and apple no longer needs to pay a dividend on those shares it purchased. Even if the share price remained constant they essentially earn the dividend yield.



    I would much prefer they repurchase shares for future growth than issue huge dividends that I have to pay taxes on right now even if I reinvest those dividends.

    Being a Dividend stock makes it attractive to institutional funds  all those funds for 401Ks and IRAs.

     

    That's why getting included in the Dow is important... massive exposure to index funds.

  • Reply 18 of 52
    Quote:

    Originally Posted by Dabe View Post





    Apple is not buying shares to accumulate a position of ownership in the company. As I understand it—and please correct me if I'm wrong, Apple's purchasing of shares simply removes them from the pool available to investors in general. It reduces the total number of outstanding shares.

    partially right... they also are using them for employee grants/warrants/options/ESOPs

     

    But in general, if Apple had 900,000,000 shares outstanding and buys back 900,000 shares and 'destroys them' then the remaining 899,100,000 shares are roughly 0.11% more valuable.

  • Reply 19 of 52
    Quote:

    Originally Posted by lkrupp View Post

     

     

    It would probably be worse than it is now. Apple would no longer have to report its earnings and sales numbers which would give the tech media free reign to announce utter gloom and doom failure with no reality check like the recent Q2 report to counter it. I mean look at the run up to the Q2 report. Nothing but epic fail and ridicule. Then out comes the Q2 report, they wipe the egg off their faces and start over for the next quarter predicting downfall and failure. Imagine if they had no real numbers to make them look stupid.


     

    and who would these tech media be reporting to?   I think the days are long past (I could be wrong) that FUD of 'no one is buying their stuff' (IBM and MS used to do that a lot... and I'd hear people point at stock price as a measure of corporate viability).   

     

    Financial analysts market to stock holders.  No stockholders, no analyst reports.

     

    You don't hear anyone claiming Koch Industries is suffering due to 6 years of a Democrat in the WhiteHouse?   Why?  because no one cares, except for the Koch Family themselves.

  • Reply 20 of 52
    dabedabe Posts: 97member
    partially right... they also are using them for employee grants/warrants/options/ESOPs

    I see. That certainly makes sense.
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