Apple's $44 billion in stock buybacks have helped increase market cap by $100 billion

Posted:
in AAPL Investors edited August 2014
Apple's capital return program, focused on buying back stock, does appear to have had a favorable impact on Apple's share price. After spending $44 billion on stock buybacks over the past four quarters, Apple's stock has risen 29.2 percent or $129.28, a contribution that moved the company's market cap from $392 billion a year ago to $492 billion today, even as the company removed 80 million shares from circulation.


Source: Ycharts.com


Removing 80 million shares from the market would seemingly have a negative impact on Apple's market cap, were the price per share not to also rise. Market cap is a company's stock price multiplied by the shares outstanding, and so is used as a convenient way to establish what the market has decided a company is worth.

In an ideally rational market, removing shares would simply increase the stock price to maintain the same market cap, because investors would "know" that fewer remaining shares in the same company would be worth more, if all other factors remained constant.

However, in addition to the number of shares changing due to Apple's buybacks, the company is also reporting improved fundamentals. Investors also have external concerns related to currency markets and the performance of Apple's competitors and other related and unrelated economic factors.

Add in a variety of other irrational factors and a complex picture emerges that, while apparently helping to reverse the direction Apple's stock price to reach the highest point since late 2012, Apple's stock still hasn't exceeded levels first seen in March 2012 or the all time peak reached in September 2012, when Apple shares hit $700, achieving a market cap north of $657 billion.

To return to its peak market cap valuation from September 2012, Apple's stock price would today need to reach above $760.

$104.3 million less in dividend payments after buying back shares

Apple now has 861.74 million shares outstanding, a significant drop from just one quarter ago when it had 892.55 million outstanding shares. The company's stock buyback program acquired 31.7 million shares in the March quarter, and will retire them.


Source: Ycharts.com


Having 31.7 million fewer shares outstanding means that Apple will pay out $104.3 million less in its total dividend payments this quarter.

While it now has 861.74 million outstanding shares, Apple has 1.8 billion authorized common shares, allowing it nearly a billion shares which it could offer for sale or grant to employees or use for other reasons.

However, issuing authorized stock (whether as a public stock offering in the form of stock based compensation) has the opposite effect of stock buybacks. It would dilute the value of Apple's other outstanding shares and have a negative impact on EPS.

As visible in the chart above, Apple's aggressive buyback program has, since the middle of 2012, sharply reversed Apple's previous trend of diluting outstanding shares with stock based compensation. Apple's outstanding share count has now returned to levels not seen since the summer 2007, back when Apple's shares were valued around $125.
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Comments

  • Reply 1 of 116
    shahhet2shahhet2 Posts: 127member

    Somebody has to be stupid if they think all market cap raise is due to buyback. Seriously AI?

    Out of that 100B,40B came in just a day of result, Where they can't even trade in that lockout time.

  • Reply 2 of 116
    Have [B]helped[/B] seems to be an important part of the title of this article.
  • Reply 3 of 116
    boeyc15boeyc15 Posts: 986member
    Have helped seems to be an important part of the title of this article.

    '...may have helped...' would have been better.
  • Reply 4 of 116
    correctionscorrections Posts: 1,245member
    Quote:

    Originally Posted by shahhet2 View Post

     

    Somebody has to be stupid if they think all market cap raise is due to buyback. Seriously AI?

    Out of that 100B,40B came in just a day of result, Where they can't even trade in that lockout time.


     

    If you read the article you wouldn't wildly leap to the conclusion you reached by just looking at the headline.

     

    "in addition to the number of shares changing due to Apple's buybacks, the company is also reporting improved fundamentals ...

    "Add in a variety of other irrational factors and a complex picture emerges that"

     

    Buybacks have clearly helped, but just looking at the market cap chart there at the start of the article, Apple's change in market cap hasn't been some simple, direct result of a single cause.

     

    There is also ~ $150B worth of lost ground for Apple to reclaim. 

  • Reply 5 of 116
    SpamSandwichSpamSandwich Posts: 30,724member
    I no longer trust anything Dilger writes. His spin is credibility damaging. Has anyone else done the math on this?
  • Reply 6 of 116
    drblankdrblank Posts: 3,383member
    Quote:
    Originally Posted by shahhet2 View Post

     

    Somebody has to be stupid if they think all market cap raise is due to buyback. Seriously AI?

    Out of that 100B,40B came in just a day of result, Where they can't even trade in that lockout time.


    Market Cap is based on the stock price multiplied by the number of shares outstanding.  So you have to calculate the Market Cap before and after to see if it has an impact or not.  If they are buying back shares and the share price stays the same, then it shouldn't, but if the price goes up to the point where it does increase Market Cap, then it does.  The thing is, that market cap is going to change constantly afterwards because the stock price changes.  Maybe it did increase the Market Cap (TEMPORARILY) long enough for them to say it increased the Market Cap and then the stock price changed later to decrease the Market Cap below the buyback.  :-)

     

    What's funny is that some of what is said is a temporary thing that doesn't last that long or doesn't matter in the long run.

  • Reply 7 of 116
    russellrussell Posts: 296member

    On March 19, 2012 AAPL closed at $601. Later that day Apple first announced they were going to initiate dividends and buybacks.

    Like clockwork, naive fanbois convinced each other it was a great idea because fewer shares on the market will make the stock price go up.

    It didn't happen.

    Just 2 years later, April 23, 2014, AAPL closed at $524. Down 14%.

    During the same time, AMZN went from $185 to $324. Up 75%.

    Now Apple is multiplying available shares.

    Why the complete turn around? Apple couldn't fool enough people?

    As I have said before, just because a company makes a lot of profit, it doesn't mean their stock will go up.

  • Reply 8 of 116
    drblankdrblank Posts: 3,383member

    Buy low, sell high and make a decent ROI after taxes.  If so, you doing better than the others that lost money.  That's all that really matters with regards to buying and selling stocks.  :-)

  • Reply 9 of 116
    correctionscorrections Posts: 1,245member
    Quote:

    Originally Posted by Russell View Post

     

    On March 19, 2012 AAPL closed at $601. Later that day Apple first announced they were going to initiate dividends and buybacks.

    Like clockwork, naive fanbois convinced each other it was a great idea because fewer shares on the market will make the stock price go up.

    It didn't happen.

    Just 2 years later, April 23, 2014, AAPL closed at $524. Down 14%.

    During the same time, AMZN went from $185 to $324. Up 75%.

    Now Apple is multiplying available shares.

    Why the complete turn around? Apple couldn't fool enough people?

    As I have said before, just because a company makes a lot of profit, it doesn't mean their stock will go up.


     

    You are looking at whether the news of Apple's capital return program created some immediate change. 

     

    The article presents the overall change of Apple's market cap as shares vanished off the market and as EPS went up. EPS is directly related to outstanding shares, just like market cap is. 

     

    AAPL bears are saying the company should be priced low because it isn't growing at a high ratio to itself as fast as it was.

    AAPL bulls think the company is worth more because its fundamentals are solid and its severely undervalued by people who don't understand it.

     

    Capital return addresses both. If the stock didn't trend upward, it would be surprising.  

  • Reply 10 of 116
    russell wrote: »
    <p style="border:0px;color:rgb(63,69,73);margin-bottom:15px;">On March 19, 2012 AAPL closed at $601. Later that day Apple first announced they were going to initiate dividends and buybacks.</p>

    <p style="border:0px;color:rgb(63,69,73);margin-bottom:15px;">Like clockwork, naive fanbois convinced each other it was a great idea because fewer shares on the market will make the stock price go up.

    It didn't happen.</p>

    <p style="border:0px;color:rgb(63,69,73);margin-bottom:15px;">Just 2 years later, April 23, 2014, AAPL closed at $524. Down 14%.

    During the same time, AMZN went from $185 to $324. Up 75%.</p>

    <p style="border:0px;color:rgb(63,69,73);margin-bottom:15px;">Now Apple is multiplying available shares.</p>

    <p style="border:0px;color:rgb(63,69,73);margin-bottom:15px;">Why the complete turn around? Apple couldn't fool enough people?</p>

    <p style="border:0px;color:rgb(63,69,73);">As I have said before, just because a company makes a lot of profit, it doesn't mean their stock will go up.</p>

    Ya, you do say that....
  • Reply 11 of 116
    Quote:

    Originally Posted by Russell View Post

     

    On March 19, 2012 AAPL closed at $601. Later that day Apple first announced they were going to initiate dividends and buybacks.

    Like clockwork, naive fanbois convinced each other it was a great idea because fewer shares on the market will make the stock price go up.

    It didn't happen.

    Just 2 years later, April 23, 2014, AAPL closed at $524. Down 14%.

    During the same time, AMZN went from $185 to $324. Up 75%.

    Now Apple is multiplying available shares.

    Why the complete turn around? Apple couldn't fool enough people?

    As I have said before, just because a company makes a lot of profit, it doesn't mean their stock will go up.


    "As I have said before, just because a company makes a lot of profit, it doesn't mean their stock will go up."

     

    This is the sort of thing I can't rationalize about the stock market.  It seems to me as though a profitable company should reward shareholders more than a company that barely makes any profits.  That should be the true purpose of investing into a solid company.  What I'm seeing is investors simply gambling with things like momentum and putting money into companies that will never make profits because their financial models aren't sound.  When I first got into the stock market, I thought it was a rational thing.  Now I find out it isn't and I can't quite wrap my head around it.  Companies like Facebook, Twitter, LinkedIn, Pandora, I would think should be practically worthless, yet there they are turning investors into millionaires while Apple shareholders have to watch Apple's share price sink despite the company making billions of dollars a week.  It just feels as though there's some sort of disconnect of company wealth and shareholder wealth that shouldn't possibly exist.  Basing a company's value on future potential doesn't make any sort of sense to me.  Something like that doesn't exist in my everyday world.  I don't live in the world of venture capitalists, so I couldn't possibly understand.

  • Reply 12 of 116
    drblankdrblank Posts: 3,383member
    Quote:

    Originally Posted by Corrections View Post

     

     

    You are looking at whether the news of Apple's capital return program created some immediate change. 

     

    The article presents the overall change of Apple's market cap as shares vanished off the market and as EPS went up. EPS is directly related to outstanding shares, just like market cap is. 

     

    AAPL bears are saying the company should be priced low because it isn't growing at a high ratio to itself as fast as it was.

    AAPL bulls think the company is worth more because its fundamentals are solid and its severely undervalued by people who don't understand it.

     

    Capital return addresses both. If the stock didn't trend upward, it would be surprising.  


    It won't surprise me if it doesn't trend upward until after the summer.  :-)

  • Reply 13 of 116
    Quote:

    Originally Posted by Corrections View Post

     

     

    You are looking at whether the news of Apple's capital return program created some immediate change. 

     

    The article presents the overall change of Apple's market cap as shares vanished off the market and as EPS went up. EPS is directly related to outstanding shares, just like market cap is. 

     

    AAPL bears are saying the company should be priced low because it isn't growing at a high ratio to itself as fast as it was.

    AAPL bulls think the company is worth more because its fundamentals are solid and its severely undervalued by people who don't understand it.

     

    Capital return addresses both. If the stock didn't trend upward, it would be surprising.  


    I don't understand why rapid growth makes a company so valuable to investors.  I would think that slow and steady growth with a long range outlook would be more valuable.  Companies that quickly spurt can burn out just as fast for so many reasons.  Multiple companies in the same market, each trying to spurt, would only seem to create a saturation point a lot faster.  Once that market is saturated, then bye-bye to rapid growth.  At that point, then suddenly those companies are no longer as valuable to investors as they were?  How does that make sense?  My simple mind just doesn't comprehend that type of reasoning.  Whether Apple grows a lot or not, the company is generating absolutely huge amounts of money, so why should it become less valuable to investors than some high growth company that's barely making any profits?  Gambling on growth just seems stupid.  I can't comprehend why Priceline stock is worth $1200 a share and Apple shares aren't even worth half of that.

  • Reply 14 of 116
    adamcadamc Posts: 566member
    "As I have said before, just because a company makes a lot of profit, it doesn't mean their stock will go up."

    This is the sort of thing I can't rationalize about the stock market.  It seems to me as though a profitable company should reward shareholders more than a company that barely makes any profits.  That should be the true purpose of investing into a solid company.  What I'm seeing is investors simply gambling with things like momentum and putting money into companies that will never make profits because their financial models aren't sound.  When I first got into the stock market, I thought it was a rational thing.  Now I find out it isn't and I can't quite wrap my head around it.  Companies like Facebook, Twitter, LinkedIn, Pandora, I would think should be practically worthless, yet there they are turning investors into millionaires while Apple shareholders have to watch Apple's share price sink despite the company making billions of dollars a week.  It just feels as though there's some sort of disconnect of company wealth and shareholder wealth that shouldn't possibly exist.  Basing a company's value on future potential doesn't make any sort of sense to me.  Something like that doesn't exist in my everyday world.  I don't live in the world of venture capitalists, so I couldn't possibly understand.

    I too find it s mystery why people are shoving money to companies that have great revenues but miserable profits and losses.

    Perhaps they can see something I don't in this mystery thing called future growth.

    This mystery future growth thing gives a blind eye to the years of miserable or minimal profits and yet reward the companies with huge increase in the price of their share.

    Perhaps making money today is not as good as making some time in the far off future.

    Perhaps I don't have to eat to day because my future eating will compensate what I didn't eat today.

    Yes that's about right, future intake of food will compensate what I didn't ingest today.
  • Reply 15 of 116
    plovellplovell Posts: 795member
    Quote:

    Originally Posted by Russell View Post

     

    On March 19, 2012 AAPL closed at $601. Later that day Apple first announced they were going to initiate dividends and buybacks.

    Like clockwork, naive fanbois convinced each other it was a great idea because fewer shares on the market will make the stock price go up.

    It didn't happen.

    Just 2 years later, April 23, 2014, AAPL closed at $524. Down 14%.

    During the same time, AMZN went from $185 to $324. Up 75%.

    Now Apple is multiplying available shares.

    Why the complete turn around? Apple couldn't fool enough people?

    As I have said before, just because a company makes a lot of profit, it doesn't mean their stock will go up.


     

    Fair comment. But Amazon makes no profit (essentially zero - the P/E is 514). And, for some inexplicable reason, the stock fell 10% just today.

     

    Apple has been making money like it's going out of style - for several years now - and Wall Street thinks it's little more than trash. After a long time, the stock is up about 9%. And P/E is 14.

     

    You're right - just because Apple makes money doesn't mean that its stock will go up, or that it will reflect its value.

     

    I certainly cannot understand how anyone with a lick of sense is buying Amazon shares. I just can't.

  • Reply 16 of 116
    solipsismxsolipsismx Posts: 19,566member
    I would think that slow and steady growth with a long range outlook would be more valuable.

    WHAT?! All you've been doing is bitching about the growth not being fast and steady enough.
  • Reply 17 of 116
    sacto joesacto joe Posts: 696member
    The stock market is a herd animal. Of course, any herd can be "driven", assuming one has enough leverage and an absence of morals. In AAPL's case, the herd was "driven" away from ownership by an avalanche of false information. And in the ensuing stampede, a lot of people were hoodwinked into taking a loss - to the benefit of those who were then able to buy in at fire sale prices.

    Enter Apple, and it's decision to buy back its shares.in huge amounts. Suddenly, the ability to panic the herd was taken away. How? As the herd began to sell, Apple bought. And bought. And bought. But here's the kicker: Apple has so much income that it can literally buy indefinitely, and will do so long as the price is depressed below fair value. And the long term investor wins because Apple is simultaneously cutting dividends, and the reduction in share count means the dividends will be increased, since there are less shares to divide the profit into.

    The buybacks are a genius move by Apple that is slowly but surely rebuilding the value of Apple stock.
  • Reply 18 of 116
    bluenixbluenix Posts: 40member
    Daniel's articles are usually putting another light ion facts n a very favorable apple-direction. Sometimes it's actually interesting, sometimes it's a far stretch.... But in this case he's just plain wrong.

    Whatever share apple has bought STILL counts as "on the market" and still counts as part of the market cap. Sorry Daniel. Put that article down. It's really misleading.
  • Reply 19 of 116
    vaporlandvaporland Posts: 358member
    Amazon destroys traditional markets (like Walmart does) but makes minuscule profits in the process.

    Quarter just ended, $20 billion gross sales netted only $180 million in profit.

    Explain to me how this makes bezos some kind of genius? If he was running any other business he'd be out on his ... ear.

    In the short term, customers save $2 on a $10 item.

    In the long term, employment and variety / choice are reduced while society as a whole suffers to benefit a very small number of people.

    "maximizing shareholder value" is code for corporate psychopathy.

    People are sheep.
  • Reply 20 of 116
    MarvinMarvin Posts: 14,200moderator
    plovell wrote: »
    I certainly cannot understand how anyone with a lick of sense is buying Amazon shares. I just can't.

    Tesla's the same, even the CEO is saying WTF, we're valued at over $24b but make almost no profit:

    http://money.cnn.com/2013/10/25/investing/tesla-netflix-momentum-stocks/

    There seems to be a hot potato syndrome with some stocks where the people invested in it know that the current valuation at least is all hype but they keep pushing the hype as long as people will keep buying into it. If the hype doesn't ring true, the one left with the potato is the sucker.

    All values are based on perception of worth, partly based on market demand. With short-term tangible goods, it's harder to manipulate. With stock price based on promises of future growth, a company can drop by billions in a very short time:

    http://www.businessweek.com/articles/2013-10-03/eike-batista-how-brazils-richest-man-lost-34-dot-5-billion

    "OGX announced it was aiming for more than 1 million barrels a day by 2019—which would have amounted to almost half of Brazil’s total output. They announced potential resources of 4.8 billion barrels, more than a third of Petrobras’s proven reserves. OGX had yet to drill a single well.

    In public, Eike Batista all but promised he would be the world’s richest man by 2015 and be worth $100 billion by 2020. At the end of April 2012, Batista would tell Bloomberg TV that his companies were sitting on $1.5 trillion of “underlying assets.” That amounts to the entire estimated value of all the mineral assets in Mongolia.

    On June 26, OGX announced that well pressure at the Tubarão Azul field had faded and that “ideal” production at its first two wells would be about 5,000 barrels a day—75 percent less than expected. It was a number that could not be spun. Shares fell about 45 percent in two days, and OGX bonds began a free fall as analysts cut ratings."

    1000

    These buybacks and earnings are good for this quarter for Apple but if earnings slip in future, traders can easily wipe the gains out nullifying the whole buyback just like they've done in the past. Apple should avoid getting too involved in these silly finance games trying to make gamblers happy because the greed is unquenchable. The current buybacks are a good plan as they have so much cash but a solid war chest is a good thing to have too as it allows them to invest for growth.
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