Apple aims to achieve net cash balance, hints at investments and M&A

Posted:
in AAPL Investors edited February 2018
Apple is looking to reduce its gigantic cash hoard to become "net cash neutral" over time, according to CFO Luca Maestri, suggesting the company is planning to mete out dividends, accelerate stock buybacks or perhaps increase mergers and acquisitions operations.




In an earnings conference call on Thursday, Maestri said Apple is looking to shrink its cash balance, which currently stands at $285 billion or $163 billion excluding debt, down to nothing. The strategy is in stark contrast with Apple's traditional financial model that saw the firm hoard cash overseas in anticipation of lower U.S. tax rates.

"We have now the flexibility to deploy this capital," Maestri said, adding that the process will be completed "over time because that amount is very large."

Last month, Apple announced plans to pump $350 billion into the U.S. over the next five years, an investment that will include the repatriation of overseas money. As a result, the company is expecting to pay $38 billion in taxes.

Maestri was cagey when asked what Apple plans to do with the $163 billion, but his answer hinted at potential increases to dividends and stock buybacks. The executive pointed to past quarters in which Apple funneled "effectively 100 percent" of free cash flow to shareholders, saying future plans will likely follow that approach.

While vague, the statement strongly suggests stock holders will benefit from existing programs. Tellingly, Maestri said Apple intends to "make the best decisions in the interest of our long term shareholders."

Elaborating on the matter in an interview with Financial Times, Maestri confirmed the capital allocation could include M&A, dividends and buybacks.

During today's conference call, CEO Tim Cook noted the allocation will bring cash and debt in equilibrium.

"What Luca's saying is not cash equals zero, he's saying there's an equal amount of cash and debt," Cook said.

Maestri said a more detailed overview of Apple's cash plans would be unveiled when the company reports March quarter results, likely in April.
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Comments

  • Reply 1 of 25
    It will be interesting to see how this “cash hoard” will be strategically used.

    They’ve had some time to think this through.
    watto_cobra
  • Reply 2 of 25
    LordeHawk said:
    It will be interesting to see how this “cash hoard” will be strategically used.

    They’ve had some time to think this through.
    For the most part, probably dividends / stock buybacks.
    bshank
  • Reply 3 of 25
    Could someone clarify what this means?

    During today's conference call, CEO Tim Cook noted the allocation will bring cash and debt in equilibrium. 
    "What Luca's saying is not cash equals zero, he's saying there's an equal amount of cash and debt," Cook said.


    On the face of it, it looks like they'll be wiping out existing debt with the "repatriated" cash.

  • Reply 4 of 25
    fallenjtfallenjt Posts: 3,976member
    Could someone clarify what this means?

    During today's conference call, CEO Tim Cook noted the allocation will bring cash and debt in equilibrium. 
    "What Luca's saying is not cash equals zero, he's saying there's an equal amount of cash and debt," Cook said.


    On the face of it, it looks like they'll be wiping out existing debt with the "repatriated" cash.

    It's just a number on paper. Debts could be a long term bonds issued.
  • Reply 5 of 25
    NY1822NY1822 Posts: 591member
    Buy LYV (Live Nation Entertainment) and own the rights to basically every major live concert in the world....then put it on Apple Music in a pay per view style format in Virtual Reality 360 degrees ....then license the content out.

    Only a 9B market cap and you will own Ticketmaster also. Rebrand as Apple Tickets and link to icloud account....OR create Apple Entertainment and have this a part of it, along with music, TV, etc



    just emailed Tim Cook/Apple 
    edited February 2018 patchythepiratewatto_cobra
  • Reply 6 of 25
    NY1822 said:
    Buy LYV (Live Nation Entertainment) and own the rights to basically every major live concert in the world....then put it on Apple Music in a pay per view style format in Virtual Reality 360 degrees ....then license the content out.

    Only a 9B market cap and you will own Ticketmaster also. Rebrand as Apple Tickets and link to icloud account....OR create Apple Entertainment and have this a part of it, along with music, TV, etc
    why would apple wish to buy a company everybody hates with a passion over its shit business model?
    anantksundaramSpamSandwichfastasleep
  • Reply 7 of 25
    NY1822 said:
    Buy LYV (Live Nation Entertainment) and own the rights to basically every major live concert in the world....then put it on Apple Music in a pay per view style format in Virtual Reality 360 degrees ....then license the content out.

    Only a 9B market cap and you will own Ticketmaster also
    That actually sounds like a great idea. So it's definitely not going to happen.

    Looks like we'll have to settle for Apple's services division continuing to drink their own kool-aid, continuing to refuse to create a music app that has any functional social capabilities or halfway-decent sub-genre support, continue to create half-baked TV shows, obscure music documentaries that no one will watch, and release music sets that no one will listen to. (And yes, I am aware that Apple's services revenues are growing thanks to the app store).

    When is enough enough.
    [Deleted User]
  • Reply 8 of 25
    robjnrobjn Posts: 203member
    Apple hinted at returning money to investors.

    It was the questioner who asked about acquisitions and Apple’s response was along the lines of ‘we’re always looking and have always had the ability so the new tax law does really change anything in that regard’.
    gatorguywatto_cobra
  • Reply 9 of 25
    I think that @SpamSandwich hit the nail on the head some weeks ago: IBM.

    Keep Watson and Cloud, divest the rest. 
    SpamSandwichwatto_cobra
  • Reply 10 of 25
    NY1822NY1822 Posts: 591member
    I think that @SpamSandwich hit the nail on the head some weeks ago: IBM.

    Keep Watson and Cloud, divest the rest. 
    with a current 150 Billion market Cap...prob have to pay a premium to get to at least 170ish, maybe more
  • Reply 11 of 25
    NY1822 said:
    I think that @SpamSandwich hit the nail on the head some weeks ago: IBM.

    Keep Watson and Cloud, divest the rest. 
    with a current 150 Billion market Cap...prob have to pay a premium to get to at least 170ish, maybe more
    You forgot the cash flow from the “divest the rest” part. 

    But yes, you’ve got to buy the whole thing first before selling off the pieces you don’t want. 
    SpamSandwichwatto_cobra
  • Reply 12 of 25
    brucemcbrucemc Posts: 1,519member
    Apple isn't planning to have no cash on hand - just bring "free cash" (defined as that left over after running all aspects of the business, including money for new investments, M&A, etc), down to 0.  Using all of the excess - where as due to tax laws they preferred to keep the overseas cash there and the cash built up.  Apple effectively was using debt issued in the US as a proxy for bringing foreign cash back.
    edited February 2018 watto_cobra
  • Reply 13 of 25
    radarthekatradarthekat Posts: 2,991moderator
    I think that @SpamSandwich hit the nail on the head some weeks ago: IBM.

    Keep Watson and Cloud, divest the rest. 
    Keep the blockchain technology too.  I’ve been building a position in IBM very recently (just 500 shares so far) in contradiction to Berkshire divesting.  I’ve often been correct when going against Berkshire Hathaway.  I think this time won’t be different.  
    SpamSandwichwatto_cobra
  • Reply 14 of 25
    radarthekatradarthekat Posts: 2,991moderator
    I love Apple’s share repurchase program, and now Tim and Luca seem to be suggesting they will use it for exactly the reason I love it, to remove unproductive cash from the balance sheet.  Here’s what I’ve been saying about that, and posted here a few times in the past...

    An additional, and I think significant, value of share repurchases and dividend payments comes from removing unproductive excess cash from the balance sheet. Lets look at Apple, with about a $900 billion market cap (after the earnings pop) and about $165 billon of cash and equivalents on the books, net of debt.  A dollar invested in Apple represents about 80 cents invested in the actual operating business, which is where the profits come from, and about 20 cents invested to buy a bit of that cash pile, earning about 1%.  Arguably a less-than-ideal allocation of each invested dollar. 

    So a smart investor wants that cash removed from the books, which would either reduce the market cap of the company or, if the cash isn't being valued at even 1x its value, which could be argued is the case with Apple, removing that cash would leave the market cap where it is, which would then imply a higher earnings multiple against the productive operating side of the business, while also taking shares off the market, which would increase earnings per share going forward.

    And a higher earnings multiple means that as earnings grow in the future, the stock will climb faster.  Carl Icahn might have had all of these effects in mind - more efficient allocation of investor's dollars, increase in earnings multiple against operating business, and reduction in shares netting an increase in earnings per remaining share - when he approached Tim Cook years ago.  Pity we didn’t have tax reform at that time, when the share price was significantly lower. 

    edited February 2018 bshankSpamSandwichmmatz
  • Reply 15 of 25

    While vague, the statement strongly suggests stock holders will benefit from existing programs. Tellingly, Maestri said Apple intends to "make the best decisions in the interest of our long term shareholders."

    I wonder if there's anything they can do to target benefits to "long-term shareholders" rather than day-traders.  Can they issue dividends to only long-term (>1 yr) owners (kind of like long-term capital gains).    
    watto_cobra
  • Reply 16 of 25
    "We have now the flexibility to deploy this capital," Maestri said, adding that the process will be completed "over time because that amount is very large.

    I cracked up laughing when I heard this on the call. Maybe it was the way he said it. But I was also thinking that, yes, it might also take me a while to spend approx. $165 billion cash.
    watto_cobra
  • Reply 17 of 25
    chasmchasm Posts: 1,263member
    I like the LN acquisition idea (no or extremely low fees for Apple Music subscribers, reform the business model to be less horrible for everyone else), but now that it’s been made public as an unsolicited idea, Apple will never do it for fear of being sued by ... NY1822. 😜
    watto_cobrafastasleep
  • Reply 18 of 25
    bshankbshank Posts: 160member
    fallenjt said:
    Could someone clarify what this means?

    During today's conference call, CEO Tim Cook noted the allocation will bring cash and debt in equilibrium. 
    "What Luca's saying is not cash equals zero, he's saying there's an equal amount of cash and debt," Cook said.


    On the face of it, it looks like they'll be wiping out existing debt with the "repatriated" cash.

    It's just a number on paper. Debts could be a long term bonds issued.
    Net zero is all that means. $1 billion in cash while at the same time holding $1 billion in debt, for example. 
    randominternetpersonwatto_cobraPickUrPoison
  • Reply 19 of 25
    What a surprise: the cult of the shareholder is more important than anything else. Just goes to show why corporate tax cuts are so weak as a form of economic stimulus...
    watto_cobra
  • Reply 20 of 25
    NY1822 said:
    Buy LYV (Live Nation Entertainment) and own the rights to basically every major live concert in the world....then put it on Apple Music in a pay per view style format in Virtual Reality 360 degrees ....then license the content out.

    Only a 9B market cap and you will own Ticketmaster also. Rebrand as Apple Tickets and link to icloud account....OR create Apple Entertainment and have this a part of it, along with music, TV, etc
    why would apple wish to buy a company everybody hates with a passion over its shit business model?
    because everybody loved Beats by Dre?
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