Apple Inc. surprises with massive $17 billion Q4 stock buyback

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Comments

  • Reply 21 of 53
    Marvin wrote: »
    They committed to this buyback, they said $90b before December in one of their SEC filings and they'd only done $51b so they were $39b short of the goal. They are now still $22b short so the next earnings report could very well show an even higher buyback, which needs to be executed next month. People should try to drive the stock down in order to allow Apple to buy more back with the $22b. They'll buy it back regardless but remaining shareholders will get more value if it goes down.

    This buyback is scheduled to be completed by the end of calendar 2015, not 2014 as you assert.
  • Reply 22 of 53

    I understand the pros and cons of stock repurchase, however I wonder why Apple management is reluctant to use that money for an acquisition or strategic investment like Yahoo's in Alibaba.

     

    The Beats acquisition was a good start, but I'm sure there are others that could move the revenue needle.

     

    Thoughts?

  • Reply 23 of 53
     Quote:
    Originally Posted by Ai View Post

     



    Curiously, Apple's massive quarterly buyback was all but ignored by the same members of the media


     

    I'm not complaining. Just imagine the reporting a bit better and you'll agree.

     

    Clue beneath: 

    "NYT-WSJ reports that Apple's critical lack of success with the latest i*** required the company to buy back tumbling shares to try and support the market value. A report from IDC predicts a market share of only 2% by the end of the year".

  • Reply 24 of 53
    LOL

    I must say that $203 mark is something I look forward to. My initial gamble in AAPL will be well into a 7 figure return, at about half way there.

    :)...I'm into 7 figures now! I faint at the thought of 150/ share. :embarrass
  • Reply 25 of 53
    palomine wrote: »
    :)...I'm into 7 figures now! I faint at the thought of 150/ share. :embarrass

    Congratulations!
  • Reply 26 of 53
    MarvinMarvin Posts: 14,612moderator
    maccentric wrote: »
    Marvin wrote: »
    They committed to this buyback, they said $90b before December in one of their SEC filings and they'd only done $51b so they were $39b short of the goal. They are now still $22b short so the next earnings report could very well show an even higher buyback, which needs to be executed next month. People should try to drive the stock down in order to allow Apple to buy more back with the $22b. They'll buy it back regardless but remaining shareholders will get more value if it goes down.

    This buyback is scheduled to be completed by the end of calendar 2015, not 2014 as you assert.

    So it is, it was the accelerated purchase that ends December 2014 but the $90b is by December 2015. In that case, the remaining $22b could be spread out a bit more.
  • Reply 27 of 53
    Quote:

    Originally Posted by Marvin View Post



    They committed to this buyback, they said $90b before December in one of their SEC filings and they'd only done $51b so they were $39b short of the goal. They are now still $22b short so the next earnings report could very well show an even higher buyback

    We cannot jump to that conclusion. 'Buyback program' does not mean 'buyback at any price program.'

     

    There is a market valuation at which repurchases will destroy value for shareholders.

  • Reply 28 of 53
    Quote:

    Originally Posted by Apolloworld69 View Post

     

    I understand the pros and cons of stock repurchase, however I wonder why Apple management is reluctant to use that money for an acquisition or strategic investment like Yahoo's in Alibaba.

     

    The Beats acquisition was a good start, but I'm sure there are others that could move the revenue needle.

     

    Thoughts?


    Overpaying for a crappy asset is a waste of shareholder value.

     

    What does 'strategic' mean?

  • Reply 29 of 53
    Quote:
    Originally Posted by dubtheunforgiven View Post



    "(There is, however, a totally lame/bogus argument often made for repurchases, which goes as follows: that you can increase EPS by lowering the 'S'. Don't buy it.)"



    When you are looking at diluted e/ps, this is usually the case. Apple is different in that their stock repurchase program relative to their employee option program and their own market cap is so significant that it does in fact increase e/ps in a meaningful and substantive way.

    Of course the EPS will rise in an arithmetic sense. The mistake you're making is in assuming that the P/E remains the same as before. That is a function of the market's assessment of Apple's growth prospects and its future levels of riskiness, and of the price at which Apple repurchases the shares.

     

    Unless the repurchase clearly signals to the market that Apple is significantly undervalued, in the sense that something fundamental has changed about the market's perception of Apple's expected future cash flow prospects and/or its business risks, there will be little impact on value. In fact, value could even fall if the market thinks that the shares were bought back at too high a price.

     

    If it was a simple matter of financial engineering of raising EPS increasing value: (i) everyone would do it all that time; (ii) everyone would want to keep buying all the possible shares they can.

  • Reply 30 of 53

    "The mistake you're making is in assuming that the P/E remains the same as before."

     

    The P/E has no effect on net income, and therefore no effect on e/ps. Apple will earn what it earns regardless of what multiple the market assigns to the stock price. 

     

    "Unless the repurchase clearly signals to the market that Apple is significantly undervalued, in the sense that something fundamental has changed about the market's perception of Apple's expected future cash flow prospects and/or its business risks, there will be little impact on value. In fact, value could even fall if the market thinks that the shares were bought back at too high a price."

     

    Market price has no impact on the intrinsic value of the company. Price is what you pay, value is what you get. It is easy to confuse the two, which is what you are doing. 

     

    "If it was a simple matter of financial engineering of raising EPS increasing value: (i) everyone would do it all that time; (ii) everyone would want to keep buying all the possible shares they can."

     

    No, to impact e/ps in a meaningful way it requires large amounts of free cash flow and retained earnings, which Apple has, and which they used to purchase back much of the 17 billion in stock last quarter. How is JC Penney going to do this "all the time"? How would a money losing company without significant cash assets complete a share repurchase program of this nature?

     

    This is a hard concept to understand, but this thought exercise should help: imagine the stock price of Apple stays constant for the next ten years ($100 for simplicities sake), its earnings stay constant, and its annual share buyback program is equal to what it was for the last 4 quarters. What would e/ps be in ten years? 

  • Reply 31 of 53
    misamisa Posts: 827member


    (The day an investor like Ichan gets their hands on 50%+1 of outstanding shares is the day Apple is truly "doomed". ;) )

    Ugh, if Icahn or any of those other Corporate raider/vulture/whatever-name-they-are-called-now gets ahold of Apple, you'll quickly see it gutted, like everything they touch. In a sense, they buy enough shares, demand presence in the board room, demand changes that plunder the value of the company through dividends or propping up nose-diving share price with buybacks, and then short the company before it crashes.

    Or at least that's the gist of what I read about how Icahn operates, it could all be bears trying to short the company by spreading bad news. At any rate, it comes off as "do as I say, and I walk away, don't and I break you."

    In all practical sense, Apple is handing out money left and right through dividends, RSU's and stock buybacks. The only people who benefit from Stock buybacks are those holding stock and RSU's because if the company stock price tanked since they were issued, then they actually make less money when they vest.

    There is an active "game AAPL" thing being done out there. People have researched it and noticed the timings of stock options(not RSU's) some to be conveniently blown through at the last minute. Apple buying back it's own stock could be countering that, or amplifing that effect, as few stock traders have enough financial clout to actually push the stock price more than 5% in less than a minute.

    If APPL buys back stock entirely to cancel out matching RSU's, then the net result is even. Somehow I doubt Apple has that much turnover.
  • Reply 32 of 53
    knowitallknowitall Posts: 1,648member
    So Apple burned 17 billion dollars. They could have send a manned mission to Mars (and back) twice!
    Incredible.
    And no, the stock marked is a gamblers market - even in the long run - and can dissipate all value with a single sneeze.
    It is insane what they could have done with the money.
    Instead it's gone - without even a bang- into nothing, dissolved like the shares themselves.
  • Reply 33 of 53
    MarvinMarvin Posts: 14,612moderator
    [SIZE=14px]We cannot jump to that conclusion. [/SIZE][SIZE=14px]'Buyback program' does not mean 'buyback at any price program.'[/SIZE]

    [SIZE=14px]<span style="line-height:1.4em;">There is a market valuation at which repurchases will destroy value for shareholders.</span>
    [/SIZE]

    Apple says "The Company’s share repurchase program does not obligate it to acquire any specific number of shares. Price volatility over a given period may cause the average price at which the Company repurchases its own stock to exceed the stock’s price at a given point in time."

    They've committed to spending a certain amount by a certain time and to me the wording suggests it will happen regardless of the price they buy. I assume they'll try and time it when it's as low as possible but there's no way they can guarantee that and I reckon there's no time they'd ever say that it's overvalued. These are the same people that keep calling things magical, they are a pretty optimistic bunch. $150 undervalued, $200 undervalued, $400 undervalued. What number would you consider to be overvalued or liable to destroy shareholder value and why?
  • Reply 34 of 53
    Originally Posted by knowitall View Post

    They could have send a manned mission to Mars (and back) twice!

    Incredible.

     

    And I was almost happy today. Great.

  • Reply 35 of 53
    knowitallknowitall Posts: 1,648member
    And I was almost happy today. Great.

    Sorry.
  • Reply 36 of 53
    Quote:

    Originally Posted by Marvin View Post



    Apple says "The Company’s share repurchase program does not obligate it to acquire any specific number of shares. Price volatility over a given period may cause the average price at which the Company repurchases its own stock to exceed the stock’s price at a given point in time."



    They've committed to spending a certain amount by a certain time and to me the wording suggests it will happen regardless of the price they buy. I assume they'll try and time it when it's as low as possible but there's no way they can guarantee that and I reckon there's no time they'd ever say that it's overvalued. These are the same people that keep calling things magical, they are a pretty optimistic bunch. $150 undervalued, $200 undervalued, $400 undervalued. What number would you consider to be overvalued or liable to destroy shareholder value and why?

    You and I are interpreting those two sentences very differently. The first sentence says that the number of shares they buy back can be essentially anything. Even zero. The second sentence says that the average purchase price may exceed the price at a given point in time -- for example, if they'd bought the shares on average for $95, and the stock happens to be trading at $90, they're doing a CYA. The only issue is whether they think at least $95 (and perhaps more) is a long term intrinsic value for their own company. They obviously must, if they're sensible (which I assume).

     

    In other words, Apple is simply saying that they can buy up to a certain amount, or not. Share repurchase programs are often canceled or reversed. In my view, Apple's management would not be stupid enough to buy shares that they think are overvalued by their own reckoning. In fact, they'd want to leave some margin for error in their valuation assessment.

     

    As to the second part of your question, even though I regularly value Apple (and other companies) for my personal investment purposes (i.e., I put my money where my valuation is), I do not broadcast what that number is. I am not an analyst. I don't pay a lot of attention to the silly analyst community or their commentaries (if you look at my posting history, I rarely bother to comment on those types of threads on AI).

     

    You're welcome to believe anything that anyone tells you about what Apple is worth, but just recognize that, at $150, Apple Forward P/E would be ~20x. At 200, 26x. At 400 52x. Those are pretty aggressive multiples for a company Apple's size, despite Apple's history of remarkable success.

     

    For instance, to achieve even a $150 price, under a reasonable range of assumptions for cash flows and cost of capital in my own intrinsic valuation of the stock (which I won't get into, because it'll simply lead to a lot of pointless back-and-forth), Apple will need to be generating close to $800B dollars in Revenue by 2024. Do you think that is possible/likely? How many of what products, at what ASP, would they need to sell in order to to get there? (To put that into perspective, consider that the consensus analyst estimate is for $210B in revenue during FY2015).

     

    I'd love to know your views.

  • Reply 37 of 53
    Quote:
    Originally Posted by anantksundaram View Post

     

    For instance, to achieve even a $150 price, under a reasonable range of assumptions for cash flows and cost of capital in my own intrinsic valuation of the stock (which I won't get into, because it'll simply lead to a lot of pointless back-and-forth), Apple will need to be generating close to $800B dollars in Revenue by 2024. 


    Or - Apple could earn exactly what it is now earning, maintain its present $601B market cap, and decrease its share count from 5.87B to 4B, or about 32%. Or some combination of the two (increased earnings/decreased share count) - my favorite scenario.

     

    Edit: I should caveat that last statement; it's my favorite scenario so long as AAPL continues to be undervalued vis-a-vis its future growth potential.

     

    One more edit: FY -14's Net Income ($39.5B) divided by the present share count gives us a "real" EPS of $6.73, not the $6.43 commonly being used to calculate a P/E of 16. The "real" P/E is a miserly (103/6.73=) 15.3. That illustrates rather nicely the effect on the P/E ratio of massively reducing share count.

  • Reply 38 of 53
    Good luck with the expectation that such a scenario will come to pass. And, that if it does, the price will be as you say.

    Sounds like the expectation of a free lunch to me....
  • Reply 39 of 53
    Quote:
    Originally Posted by knowitall View Post



    Instead it's gone - without even a bang- into nothing, dissolved like the shares themselves.

    No, it has not 'gone into nothing'.

     

    It's being put to productive use by lots of investors to potentially create lots of value.

  • Reply 40 of 53
    Quote:

    Originally Posted by dubtheunforgiven View Post

     

    "The mistake you're making is in assuming that the P/E remains the same as before."

     

    etc. etc.


    If you could not understand the fact that P = EPS*(P/E), which in turn is what I was referring to, I really don't know what to say.... except 'Oh boy.'

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