Apple, Inc snatches up $14 billion of its own shares in massive Q4 buyback surge

Posted:
in AAPL Investors edited November 2015
Apple reported a spike in its capital return program, spending $17 billion in Q4, including $14 billion in open market stock buybacks in addition to $3 billion in dividend payments to shareholders.




This is the largest open market stock buyback the company has ever made, a notable figure given that Apple has regularly been setting records in the arena of massive stock buybacks ever since it began its capital return program three years ago.

As anticipated by AppleInsider last month, the company has taken full advantage of the depressed price of its stock.

Apple's share price had collapsed by nearly a third following its earnings report for fiscal Q3 on July 21. That gave the company a rare opportunity to shovel capital, most of which was borrowed in the form of incredibly low interest bonds, into share repurchases.

The company outlined during its earnings conference call that it had settled 10 million shares remaining from its $6 billion Accelerated Stock Repurchase initiated in July. That represent a faster that usual completion of an ASR, essentially a buyback sale delegated to an outside bank.

Additionally, Apple itself completed its largest open market buyback ever to the tune of $14 billion within the quarter, buying up nearly 122 million shares, representing an average price of around $114.75.

This all happened before

The last time Apple's stock nose-dived after an earnings release, in January 2014, the stock panic shaved less than (a split adjusted) $10 off of Apple's share price. The company responded by scrambling to spend an incredible $18 billion to take advantage of faithless investors' extreme gullibility on behalf of its loyal shareholders, although the bulk of those buybacks ($12 billion) were performed under an ASR rather than in open market orders.

Those actions paid off tremendously. Apple bought up over 30 million shares at prices below (a split adjusted) $75, right before the stock again returned to more rational prices.

Over the last quarter, Apple's stock price plummeted by as much as $25 at one point, effectively erasing any appreciation contributed by the blockbuster sales of iPhone 6 over the past year (albeit never closing below $100, well ahead of the last buyback-inducing stock panic trough).

Despite continued massive cashflow from operations, Apple continues to borrow money by the billions internationally, with one primary intent: to again buy back as many shares as possible before the market comes to its senses.

Borrowing capital at interest rates below 2 percent to buy shares that are currently languishing at a price that analyst consensus targets expect to rise by around 30 percent over the next year (to $150, according to public market data) is a no-brainer, particularly for Apple's executives who fully grasp the potential of the company in the global markets it is operating across.


Source: nasdaq.com


If Apple were actually facing a upcoming barrier of slowing growth and a collapse of demand in China, rather than buying back its own stock it would be scrambling to acquire other companies with an actual, apparent strategy the way Google has been almost blindly gobbling up its Alphabet soup over the past several years as Android has done nothing and every one of its hardware efforts have all imploded into embarrassing ruin.

Apple is also making acquisitions (albeit with a discernible strategy), but Apple's biggest ongoing acquisition over the past several years has been Apple itself, to the mind-blowing tune of $104 billion. That pace isn't expected to slow down. Instead, Apple says it expects to spend at least another $36 billion over the next six quarters.

While U.S. tax law is currently making it unattractive for Apple to spend its foreign earnings on buybacks, that pile of overseas capital (now above $200 billion) is effectively guaranteeing bonds that raise cheap capital Apple can use to buyback its shares at an extreme discount.

One indication that the market (and the consensus of analysts) haven't really grasped what's happening with Apple's buybacks is the fact that Apple's Earnings Per Share have consistently exceeded their expectations every quarter this year.


Source: nasdaq.com

China Concerns

Unrest in China's stock market appears to have been weighing on Apple's stock. Given that Apple is really the only tech company to have any real success in selling products in China, and given that success has been absolutely blockbuster, concerns regarding the vast Chinese market sensibly affect Apple more than, say, Amazon or Google, neither of which even have a foot in the door of the huge Chinese smartphone opportunity.

Of course, those two companies have also earned virtually nothing on their entire, global smartphone efforts outside of China either. Both inside and outside of China, Apple is the only company making any real money on the scale of Apple. And Apple is growing while everyone else is increasingly struggling to turn a profit at all. Apple is selling China's vast emerging middle class technology products that, while perhaps luxurious, are broadly affordable. Apple is selling China's vast emerging middle class technology products that, while perhaps luxurious, are broadly affordable.

On today's conference call, Apple's chief executive Tim Cook said that if he weren't otherwise aware of the macroeconomic issues affecting China's economy, he wouldn't know about it looking just at consumer demand for iPhones and Macs.

Apple's revenues from China soared 99 percent year-over-year in its fiscal Q4, growing from just under $6.3 billion to about $12.5 billion.

Even China's minority with exposure to stock market losses is unlikely to decide that the most pressing economic concern in their lives is whether they're spending the equivalent of about $30 per month financing a new iPhone or not, given that Apple's brand in China is a status symbol unmatched by anyone, let alone a third rate knockoff smartphone.

China's 4G mobile service continues to be built out from virtually nothing just a year or two ago. Incredible numbers of people are buying new iPhones to take advantage of it. Apple's market share in China could drop and the company would still be growing dramatically.

Instead, Apple's growth is still outpacing the industry by a huge margin. In fact, Cook noted that without counting iPhones, the smartphone market in China actually contracted during the quarter. He noted that Apple "has been able to grow without the market growing."





Source: Apple Event citing IDC data


And outside of China, Apple's massively successful iPhone 6 launch over the last year, which has reclaimed market share in nearly every market, has helped to establish Apple's brand as shorthand for "customer satisfaction."

The scale at which Apple is introducing new buyers to its brand suggest incredible potential. Cook noted that 68 percent of iPad buyers in China were buying their first tablet, and that 40 percent of those never bought any Apple device before. Cook noted that 68 percent of iPad buyers in China were buying their first tablet, and that 40 percent of those never bought any Apple device before

Apple's primary rivals in smartphones are not only led by a disastrously poor series of rollouts by Samsung, but are also plagued by the malcontent associated with Android and its increasingly appalling reputation for security flaws that never get fixed by a company that doesn't seem to even care about it.

Apple's two largest contenders in China, Huawei and Xiaomi, were both close to Apple in total unit sales of smartphones within China in September. However, as with Android vendors in other markets, those firms are selling a lower end mix of devices and earning much less. They're also facing serious barriers outside of China. That leaves Apple the only company to be leading sales in both the U.S. and China, the world's two largest phone markets.


Source: Counterpoint Research

Currency Headwinds

There are legitimate concerns in front of Apple, one notable issue being foreign currency headwinds. The U.S. dollar has been appreciating against a wide variety of other currencies, making Apple's exports more expensive. If this hadn't happened over the last two quarters, Apple earnings results would have been even better.

However, Apple has weathered unfavorable currency fluctuations better than many of its peers simply because it is so profitable, and it has the capital and credit to enter long term hedging contracts to mitigate risk. Additionally, it's unlikely that the situation will continue to worsen at the same rate going forward, given the impact the surging dollar already has on every other American company.

At the same time, energy costs are also continuing to fall, making Apple's international shipments and other transportation costs cheaper. The price of oil is expected to fall faster than the dollar can rise, offering some offset. And as oil falls, producer countries including Saudi Arabia are selling off their dollar reserves, blunting the dollar's rise.

Additionally, today's stronger dollars should also make it cheaper for Apple to invest in large infrastructure, production and lavish retail projects internationally, such as the surge in expensive retail stores Apple is working to build across China over the next few years.
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Comments

  • Reply 1 of 81

    All well and good, but it's doing exactly zilch for their stock. Apple may want to consider ending this well-meaning program.

  • Reply 2 of 81
    "Apple is selling China's vast emerging middle class technology products that, while perhaps luxurious, are broadly affordable."

    but all that 'journalism' would tell you that in china they cannot afford the phone, only assemble it.
  • Reply 3 of 81
    Quote:

    Originally Posted by SpamSandwich View Post

     

    All well and good, but it's doing exactly zilch for their stock. Apple may want to consider ending this well-meaning program.


    They should rather have spent that $100B to buy Tesla and DropBox or some other top of the line  Cloud company.

     

    Amazon, Microsoft and Google all three went up on their sky high growth expectation of Cloud based services.

  • Reply 4 of 81
    knowitallknowitall Posts: 1,453member
    So Apple lost 6 billion dollar this quarter.
    Wow.
  • Reply 5 of 81
    shahhet2 wrote: »
    They should rather have spent that $100B to buy Tesla and DropBox or some other top of the line  Cloud company.

    Amazon, Microsoft and Google all three went up on their sky high growth expectation of Cloud based services.

    Utter nonsense.
  • Reply 6 of 81
    why doesn't apple spend the billions on dividends, which will reward long-term shareholders. If they spent $10/share dividends (this would amount to $56 billion, this would be around a 8.7% yield at the current share price. Everyone and their grandmother would buy and hold the shares just to get a constant quarterly dividends and it wouldn't matter as much that the share price isn't really moving much.

    Given people's concerns about the long-term prospects for overall stock market gains over the next 3-5 years (mid-single digit growth), getting 8 % from a relatively safe investment seems like a no-brainer.

    It's a bit tiring to see the share price not really reflect all the great things that the company is doing, like having one of the most profitable years in the history of the world. A dividend would provide a more direct link between the benefit to shareholders and the company's performance in a way that the stock price does not seem to be doing.
  • Reply 7 of 81
    Quote:

    Originally Posted by SpamSandwich View Post

     

    All well and good, but it's doing exactly zilch for their stock. Apple may want to consider ending this well-meaning program.




    Apple is doing everything right. They are blowing all the numbers out of the field. They are doing everything with the cash - paying and increasing dividends. Doing buy backs. But market continues to ask the same questions and worrying about the same thing quarter after quarter. Market keeps saying Apple is only one product company (iPhone) and constantly complaining about iPad loss of market shares. The new innovation for market is "cloud services" - because Amazon and Microsoft showed some growth. WOW! Like it was something brand new they did. Jeez! And Alphabet is now transparent so it is all good. Amazon isn't even in any position to give dividends, as it hasn't been profitable. Forget the buy backs  by Amazon. Alphabet hasn't given out dividends and finally decide to do some buyback. Microsoft is the only one who has giving out dividends, but they have been laying off people.

     

    So collectively, Apple is a great company all around, but market has completely lost their head to understand the company. I heard a totally lame reason on CNBC by one of the analyst - Wallstreet has never seen a company with almost $700B or market cap, so it cannot comprehend what is the right EPS expectation, growth, etc. - WTF? The Dan guy on Fast Money on CNBC. It seems like he has some personal vendenta against Apple. The market is doing everything to keep Apple down.

  • Reply 8 of 81
    Quote:

    Originally Posted by revenant View Post



    "Apple is selling China's vast emerging middle class technology products that, while perhaps luxurious, are broadly affordable."



    but all that 'journalism' would tell you that in china they cannot afford the phone, only assemble it.



    The problem with American media is that they are like a frog in a well and the well is the whole universe to them. I am really getting tired of hearing that people China and India cannot afford to pay for such luxury items such as expensive iPhone. Actually, the only way people were able to buy iPhone in US, when it was introduced until last year, is because carriers where subsidizing the phone cost, where one can buy a phone at $199 or less. In China, India and many part of the world there was never a subsidized phone and the paid full price for the phone - And American media is questioning if Chinese people can afford the iPhone. Apple and Nike has demonstrated once again, that China is a bit market who can afford their product. India is another big market who can afford their products too. America - Wake up! You are not as rich as you think anymore!

  • Reply 9 of 81
    mcarlingmcarling Posts: 1,106member
    Dividends per share have risen 37% from 38 cents to 52 cents over the last three years, but total dividends paid per quarter have risen only 20% from $2.5B to $3.0B over the same time -- due to the declining number of shares outstanding as a result of the buybacks. At the same time, cash on hand has increased 70%. Clearly, Apple could afford to raise dividends, perhaps even to $1.00 per share.
  • Reply 10 of 81
    Quote:

    Originally Posted by aspenboy View Post



    why doesn't apple spend the billions on dividends, which will reward long-term shareholders. If they spent $10/share dividends (this would amount to $56 billion, this would be around a 8.7% yield at the current share price. Everyone and their grandmother would buy and hold the shares just to get a constant quarterly dividends and it wouldn't matter as much that the share price isn't really moving much.



    Given people's concerns about the long-term prospects for overall stock market gains over the next 3-5 years (mid-single digit growth), getting 8 % from a relatively safe investment seems like a no-brainer.



    It's a bit tiring to see the share price not really reflect all the great things that the company is doing, like having one of the most profitable years in the history of the world. A dividend would provide a more direct link between the benefit to shareholders and the company's performance in a way that the stock price does not seem to be doing.



    I think a special dividend is certainly a good idea instead of pumping more money to buyback shares. Maybe, once Apple gets to repatriate the money from offshore with better corporate tax laws, the company might just do the special dividend. Sometimes I wish Apple should just buy out all the shares and go private (I know - it is too big to take this path)

  • Reply 11 of 81
    Quote:

    Originally Posted by shahhet2 View Post

     

    They should rather have spent that $100B to buy Tesla and DropBox or some other top of the line  Cloud company.

     

    Amazon, Microsoft and Google all three went up on their sky high growth expectation of Cloud based services.




    Why would Apple buy Tesla (currently valued at $26B) when Apple can build its own Tesla? Apple built out a $25B enterprise business. 

     

    Buying a "cloud" business to impress investors would be a short term, silly strategy. Amazon, Microsoft and Google didn't buy a cloud company.

  • Reply 12 of 81
    Quote:

    Originally Posted by mcarling View Post



    Dividends per share have risen 37% from 38 cents to 52 cents over the last three years, but total dividends paid per quarter have risen only 20% from $2.5B to $3.0B over the same time -- due to the declining number of shares outstanding as a result of the buybacks. At the same time, cash on hand has increased 70%. Clearly, Apple could afford to raise dividends, perhaps even to $1.00 per share.

     

    Market and investors like Icahn complained about buyback and dividends and Apple just did that again and again, but market keeps on bitching and comes up with another reason to keep this stock down. Times like this, I miss Steve. He wouldn't have given into Wall Street. He would have twitted with the new iOS 9.1 "middle finger" Emoji!

  • Reply 13 of 81
    Quote:

    Originally Posted by knowitall View Post



    So Apple lost 6 billion dollar this quarter.

    Wow.



    At an average price of $114, how would Apple have "lost money"?

  • Reply 14 of 81
    Quote:

    Originally Posted by Corrections View Post

     



    Why would Apple buy Tesla (currently valued at $26B) when Apple can build its own Tesla? Apple built out a $25B enterprise business. 

     

    Buying a "cloud" business to impress investors would be a short term, silly strategy. Amazon, Microsoft and Google didn't buy a cloud company.




    I completely agree with you. Project Titan will take care of Tesla (remember Tesla is not just a car company, but a battery company also). As far as the "cloud" business - I think there might be something brewing there. Amazon. Microsoft and Google got into cloud business intrinsically - They are double utilizing the services they were using themselves and extending it out. Apple themselves have all the datacenter and they will eventually do the same. Also, the enterprise story with IBM is not just about mobility and Macs. IBM is doing the cloud with BlueMix and I can see them working together to address the future cloud story also.

  • Reply 15 of 81
    Quote:

    Originally Posted by aspenboy View Post



    why doesn't apple spend the billions on dividends, which will reward long-term shareholders. If they spent $10/share dividends (this would amount to $56 billion, this would be around a 8.7% yield at the current share price. Everyone and their grandmother would buy and hold the shares just to get a constant quarterly dividends and it wouldn't matter as much that the share price isn't really moving much.



    Given people's concerns about the long-term prospects for overall stock market gains over the next 3-5 years (mid-single digit growth), getting 8 % from a relatively safe investment seems like a no-brainer.



    It's a bit tiring to see the share price not really reflect all the great things that the company is doing, like having one of the most profitable years in the history of the world. A dividend would provide a more direct link between the benefit to shareholders and the company's performance in a way that the stock price does not seem to be doing.



    Dividends reward all shareholders, but do so in a way that generally forces shareholders to pay immediate taxes on that income. 

    Apple stock has been appreciating far faster than 8%. It's just been at a temporary lull this summer. It comes around every couple years: the stock craters because nobody believes the company can keep up its pace. Then it pulls ahead again.

     

    Thing is, it is getting easier and easier for Apple to pull ahead because it now makes more and more of its own technology, from chips to software. If it ever gets to the point where there isn't much potential for growth and instead just becomes a profit engine, then it could start paying out dividends. But the more stock it buys back right now while it is still growing dramatically, the greater the dividends it will be able to pay shareholders in the future, because there'll be fewer shares outstanding.  

  • Reply 16 of 81
    ecatsecats Posts: 272member
    Quote:

    Originally Posted by SpamSandwich View Post

     

    All well and good, but it's doing exactly zilch for their stock. Apple may want to consider ending this well-meaning program.




    And here's someone who has no idea why a company would ever try to buy it's stock back. Tip: It's got "zilch" to do with appreciating their stock. If Apple were about making their stock inflated, they'd reorganise their company into something akin to Alphabet, and as similar to Google's past, spend a lot more time announcing vapour products. 

  • Reply 17 of 81
    idreyidrey Posts: 643member
    radster360 wrote: »

    Apple is doing everything right. They are blowing all the numbers out of the field. They are doing everything with the cash - paying and increasing dividends. Doing buy backs. But market continues to ask the same questions and worrying about the same thing quarter after quarter. Market keeps saying Apple is only one product company (iPhone) and constantly complaining about iPad loss of market shares. The new innovation for market is "cloud services" - because Amazon and Microsoft showed some growth. WOW! Like it was something brand new they did. Jeez! And Alphabet is now transparent so it is all good. Amazon isn't even in any position to give dividends, as it hasn't been profitable. Forget the buy backs  by Amazon. Alphabet hasn't given out dividends and finally decide to do some buyback. Microsoft is the only one who has giving out dividends, but they have been laying off people.

    So collectively, Apple is a great company all around, but market has completely lost their head to understand the company. I heard a totally lame reason on CNBC by one of the analyst - Wallstreet has never seen a company with almost $700B or market cap, so it cannot comprehend what is the right EPS expectation, growth, etc. - WTF? The Dan guy on Fast Money on CNBC. It seems like he has some personal vendenta against Apple. The market is doing everything to keep Apple down.

    Totally agree! That's how I feel, is like everyone is
    eager for Apple to fail. WTF That's why I love seeing
    Apple break records every quarter. I hope they keep on
    Trucking.
  • Reply 18 of 81
    foggyhillfoggyhill Posts: 4,767member
    Quote:

    Originally Posted by shahhet2 View Post

     

    They should rather have spent that $100B to buy Tesla and DropBox or some other top of the line  Cloud company.

     

    Amazon, Microsoft and Google all three went up on their sky high growth expectation of Cloud based services.


     

    What the hell margin those people will have in 2-3 years, very thin, just like all Amazon businesses BTW.

    So why on earth would Apple be so dumb and pay so much?

  • Reply 19 of 81
    auxioauxio Posts: 2,035member
    Quote:

    Originally Posted by ECats View Post

     

    And here's someone who has no idea why a company would ever try to buy it's stock back. Tip: It's got "zilch" to do with appreciating their stock. If Apple were about making their stock inflated, they'd reorganise their company into something akin to Alphabet, and as similar to Google's past, spend a lot more time announcing vapour products. 


     

    Agreed.  Humanity has really lost it's compass when share prices based on fictional criteria dreamt up by a bunch of soulless investors & market manipulators matters more than creating and having amazing products which truly enrich people's lives.

  • Reply 20 of 81
    nasseraenasserae Posts: 3,158member
    Quote:

    Originally Posted by knowitall View Post



    So Apple lost 6 billion dollar this quarter.

    Wow.



    Most of $17 billions Apple spent buying stock and on dividends are from money Apple got from issuing bonds not cash.

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