How much $AAPL has Apple eaten with its $44 billion buyback appetite?
Celebrity investor Carl Icahn made news when he bought over $1 billion of Apple stock earlier this year, but Icahn's investment pales in comparison to the company's own $60 billion stock buyback program, which gobbled up $16 billion in shares over the June quarter.
Source: Google Finance
At the beginning of the current quarter, Apple had $44 billion left of its buyback budget, which wasn't due to be spent before 2015 according to the terms of the buyback plan. It?s also optional; Apple could decide to stop buying shares and simply let the plan expire.
However, given that Apple splurged a third of its allocated share buyback funds in the June quarter to buy up 36 million shares at an average price of $444, it appears likely that it has continued to aggressively take advantage of its acutely low stock price over the past three months (apparent in the trough of the chart above).
The current September quarter began with AAPL stock at $409 and continued below the average share price Apple had been paying to buy up stock in the prior quarter through the final two days of July. Since then, the stock has only bumped up to a peak of $502, its highest point of 2013 but still 30 percent lower than its highs from one year ago.
That means Apple could turn in another record quarter of buybacks that match or exceed the value-performance of the June quarter, easily erasing another 36 million outstanding shares or potentially as many as 100 million shares, were Apple to buy all the stock its current buyback plan allowed at the price levels available in July.
Before retiring any new buybacks, Apple had 908 million shares outstanding, so another quarter of big stock purchases could reduce the company's total shares by 4 percent to as much as 11 percent, resulting in a significant impact on its revenue per share and earnings per share metrics.
The company won't actually report the size of its September quarter buyback until late October when it is scheduled to disclose its overall quarterly results.
The only reason for the company to not have vigorously exercised its buyback program would be if Apple had expected its stock to drop in the future, or if it weren't able to find sufficiently cheap shares to buy.
There's been plenty of opportunity for Apple to buy back its shares at low market rates, evidenced by AAPL shares dropping and staying depressed every time an analyst issued a reduced outlook based on illusory supply checks or the failure of the company to follow the analyst's desired strategies.
On the other hand, there's good reason to believe the company has recognized the current quarter as being as a unique opportunity for buying back shares, one which might not every occur again at today's prices.
In the June quarter, Apple faced reasonable uncertainty about whether its stock price might go down even further in the September quarter. The company knew it wouldn't be introducing any major new products before the end of September, and it had reason to believe that the market might react irrationally to risks inherent in its substantial transition to iOS 7, which it first unveiled in June.
Apple?s upcoming product introductions are all being timed to explode in a spectacular holiday buying season, where they will be met by tepid Android offerings, a weakly positioned Windows 8 and a much ballyhooed "smartwatch" competition that was essentially canceled due to a lack of interest.
Last weekend's iPhone 5s and 5c launch sold 9 million devices, generating at least $5.4 billion in additional revenues for Apple within the quarter, without counting accessories, AppleCare, App Store purchases or other retail-related sales related to that hardware, prompting the company to report that it expects to announce results at the high end of its previously stated guidance of $34 billion to $37 billion in revenue.
That 3 day launch made the company roughly $4 billion more confident than it had been about the current quarter's performance, with just ten days left in the quarter.
That's not only the most competent action Cook could possibly be taking given the circumstances, but also the very thing Cook announced he would be doing when the share repurchase program was outlined.
Apple was clearly racing to get its new iPhones done in time to include at least some of their initial revenues within the September quarter. The success of the launch is going to have an impact on Apple's share price, which has been beaten up by poorly informed sources fretting about "innovation? for nearly an entire year while the company has had virtually no new products to talk about.
Advancing the new iPhones' launch to occur before the end of the final quarter of Apple's fiscal 2012 means the market will have something satisfying to digest starting in October, just as Apple's peak holiday Q1 sales get started. At that point, having lots of money left over to spend on stock buybacks would greatly dilute the potential value of the buyback plan.
At a share price of $650 or $850, Apple's $44 billion budget would only be able to fetch between about two-thirds to one-half of the buying power that buyback fund could have achieved earlier this quarter.
It's also noteworthy that Icahn continued to push Apple's executive team to pursue buybacks into August, after the stock "recovered" to its highest point of 2013. If Icahn were merely after a short term gain, his continued tweeting and a push for dividends would make more sense than lobbying for Apple to buy shares at ostensibly its "new normal." Buybacks only make real sense if a stock is poised to go up.
Apple set records with its $16 billion worth of share buybacks in the June quarter. It could exceed those in the current September quarter. In fact, if it hasn't already it may have forever missed the opportunity to buy its own shares for so little, squandering the value of setting aside $60 billion expressly for the purpose of doing that very thing.
Source: Google Finance
At the beginning of the current quarter, Apple had $44 billion left of its buyback budget, which wasn't due to be spent before 2015 according to the terms of the buyback plan. It?s also optional; Apple could decide to stop buying shares and simply let the plan expire.
However, given that Apple splurged a third of its allocated share buyback funds in the June quarter to buy up 36 million shares at an average price of $444, it appears likely that it has continued to aggressively take advantage of its acutely low stock price over the past three months (apparent in the trough of the chart above).
The current September quarter began with AAPL stock at $409 and continued below the average share price Apple had been paying to buy up stock in the prior quarter through the final two days of July. Since then, the stock has only bumped up to a peak of $502, its highest point of 2013 but still 30 percent lower than its highs from one year ago.
Another quarter of big stock purchases could reduce the company's total shares by 4 percent to as much as 11 percent.
That means Apple could turn in another record quarter of buybacks that match or exceed the value-performance of the June quarter, easily erasing another 36 million outstanding shares or potentially as many as 100 million shares, were Apple to buy all the stock its current buyback plan allowed at the price levels available in July.
Before retiring any new buybacks, Apple had 908 million shares outstanding, so another quarter of big stock purchases could reduce the company's total shares by 4 percent to as much as 11 percent, resulting in a significant impact on its revenue per share and earnings per share metrics.
The company won't actually report the size of its September quarter buyback until late October when it is scheduled to disclose its overall quarterly results.
Why wait?
The only reason for the company to not have vigorously exercised its buyback program would be if Apple had expected its stock to drop in the future, or if it weren't able to find sufficiently cheap shares to buy.
There's been plenty of opportunity for Apple to buy back its shares at low market rates, evidenced by AAPL shares dropping and staying depressed every time an analyst issued a reduced outlook based on illusory supply checks or the failure of the company to follow the analyst's desired strategies.
On the other hand, there's good reason to believe the company has recognized the current quarter as being as a unique opportunity for buying back shares, one which might not every occur again at today's prices.
In the June quarter, Apple faced reasonable uncertainty about whether its stock price might go down even further in the September quarter. The company knew it wouldn't be introducing any major new products before the end of September, and it had reason to believe that the market might react irrationally to risks inherent in its substantial transition to iOS 7, which it first unveiled in June.
Window of opportunity for cheap buybacks closing
At this point however, 2013 has seemingly nowhere to go but up. Over the next month, Apple is expected to announce new Macs, new iPads and new software along with the new OS X Mavericks. If Apple hasn?t already blown its budget, it may have blown its best chance to do so.Apple?s upcoming product introductions are all being timed to explode in a spectacular holiday buying season, where they will be met by tepid Android offerings, a weakly positioned Windows 8 and a much ballyhooed "smartwatch" competition that was essentially canceled due to a lack of interest.
Last weekend's iPhone 5s and 5c launch sold 9 million devices, generating at least $5.4 billion in additional revenues for Apple within the quarter, without counting accessories, AppleCare, App Store purchases or other retail-related sales related to that hardware, prompting the company to report that it expects to announce results at the high end of its previously stated guidance of $34 billion to $37 billion in revenue.
That 3 day launch made the company roughly $4 billion more confident than it had been about the current quarter's performance, with just ten days left in the quarter.
Cook?s quiet competence
While more than one irate Apple investor has fumed in public about an apparent lack of action from the company?s chief executive to prop up its share price, it's very likely that Tim Cook has been taking analysts' lemons and making buyback lemonade.That's not only the most competent action Cook could possibly be taking given the circumstances, but also the very thing Cook announced he would be doing when the share repurchase program was outlined.
Apple was clearly racing to get its new iPhones done in time to include at least some of their initial revenues within the September quarter. The success of the launch is going to have an impact on Apple's share price, which has been beaten up by poorly informed sources fretting about "innovation? for nearly an entire year while the company has had virtually no new products to talk about.
It's very likely that Tim Cook has been taking analysts' lemons and making buyback lemonade.
Advancing the new iPhones' launch to occur before the end of the final quarter of Apple's fiscal 2012 means the market will have something satisfying to digest starting in October, just as Apple's peak holiday Q1 sales get started. At that point, having lots of money left over to spend on stock buybacks would greatly dilute the potential value of the buyback plan.
At a share price of $650 or $850, Apple's $44 billion budget would only be able to fetch between about two-thirds to one-half of the buying power that buyback fund could have achieved earlier this quarter.
End of an illusion
Going forward, it will be far more difficult for hedge funds, analysts and competitors to again seed the notion that Apple is doomed and that Samsung can be nothing but successful in taking its place, given how Apple has done nothing but grow stronger this year, while Samsung has erased its legendary reputation for unbridled growth, ?forward thinking? innovation and all-around competence. It has lost in the market, in the courts, and in public perception.It's also noteworthy that Icahn continued to push Apple's executive team to pursue buybacks into August, after the stock "recovered" to its highest point of 2013. If Icahn were merely after a short term gain, his continued tweeting and a push for dividends would make more sense than lobbying for Apple to buy shares at ostensibly its "new normal." Buybacks only make real sense if a stock is poised to go up.
Apple set records with its $16 billion worth of share buybacks in the June quarter. It could exceed those in the current September quarter. In fact, if it hasn't already it may have forever missed the opportunity to buy its own shares for so little, squandering the value of setting aside $60 billion expressly for the purpose of doing that very thing.
Comments
Absolutely LOVE.
I don't think Munster and his ilk will be exactly over the moon at the thought of a private AAPL…
Tim Cook and his team are doing a pretty good job!
For Apple to go private it would have to raise the cash independently to buyback all shares. That includes the shares I have. I can't see how Apple could ever raise $400-500BB to achieve this.
I agree, Tim is doing a great job! After so much negativity about Apple's lack of innovation, Tim kept Apple focused on its strategy and that ficus is starting to win the race for Apple. It is amazing that Tim announced the Fall season and 2014 would see a steady stream of Apple's innovations. Right on time, the stream has started.
Apple are currently buying back shares and reducing the number of outstanding shares.
For Apple to go private it would have to raise the cash independently to buyback all shares. That includes the shares I have. I can't see how Apple could ever raise $400-500BB to achieve this.
Do they need to buy the whole company or just half of it?
Then, if a shitty company that innovates o like verizon can raise 150 Billion, Apple should have no problem to raise at least 250 billion (that would be half), especially with the amount of cash they have now.
But if they have to buy the whole thing, why not stop releasing products for a while, let the analysts do what they do best (FUD) and truly go for it?
It would be a very different move from companies like Dell. BTW, I feel sorry for Dell. When they were trying to have unique products and had to obviously turn the back to cheap trash, consumers stop buying.
Oh well, life is a b*tch. But I have hope for most costumers, now. Maybe not almost everyone is a bunch of ignorant fools and can actually learn:
http://www.dailytech.com/Report+Samsung+Smartphone+Tradeins+Soared+Ahead+of+iPhone+5s+Launch/article33454.htm
Apple are currently buying back shares and reducing the number of outstanding shares.
For Apple to go private it would have to raise the cash independently to buyback all shares. That includes the shares I have. I can't see how Apple could ever raise $400-500BB to achieve this.
Aren't you misunderstanding the concept of a company going private? It doesn't go private by buying its own shares. That would be kind of bizarre because then no one would own the company.
A company goes private when a small group of people buy all the shares and take it off the public stock exchange. They are the ones that would have to raise $400B+. Who has the ability to do that?
In March 2013 there were 940million shares outstanding.
After last quarter, there were 908million shares outstanding, and of the 36million shares bought only 22 was retired in time.
If they did a *full* buyback this quarter, they could have spent the $44b at an avg price of say $480 purchasing 91.6 million shares.
That would retire a whopping 22million from last quarter + another 91.6million this quarter, reducing the amount of total outstanding shares to 802 million shares.
It would make sense for Apple to take advantage of the low share price, and by looking at how much they accelerated the last quarters buyback I would not be surprised if they managed to spend it all this quarter.
If you look at the All Time High price of Apple shares at $704, it would have cost Apple $97 billion to retire the same amount of shares. Except Apple did it all for $60 billion.
March 2013: Apple Outstanding Shares: 940millions
October 2013: Apple Outstanding Shares: 802millions.
I hope Tim Cook continues this strategy aggressively, and issues another $100 billion to buyback more shares. At say $550 avg price that would equal a whopping: 181million shares retired, leaving the total amount of outstanding shares at only 621million shares.
It would bring them one step closer to going private, and it would mean that the Q1 2013 profit they made would equal a whopping EPS of $19.6 per share instead of what was reported at $13.1 per share.
If they lent the additional $100b, they could finance it by a mere 3% interest - which could easily be paid back in the next 1-3 years without much of an impact on their balance sheet. Icahn is right, Apple should take advantage of this opportunity and squeeze out as many market "players" and "traders" as soon as possible.
Tim Cook is no longer running Apple. So-called analysts like Misek and Munster are running Apple. What Munster says carries more weight on Wall Street than what Tim Cook says. Munster appears on TV and basically called Tim Cook a liar about iPhone sales and Tim Cook had nothing to say. That doesn't boost shareholder confidence at all. Tim can't let some two-bit, charlatan analyst bad-mouth him like that and get away with it. Munster acts like he knows more about Apple's sales than Tim Cook. It's no wonder investors are treating Apple like some plague. Jeff Bezos would never put up with that sort of crap. Analysts are taking all sorts of FUD-spewing liberties with Apple.
Apple is actively one of the most profitable companies around that has to buy back its own shares because no big investors will touch the stock. Apple is one of the worst performing stocks on Wall Street in 2013. Companies like Google and Amazon don't even offer dividends and they're certainly not buying their stock back and yet those companies' share prices continue to climb. Meanwhile, Tim Cook sits around scratching his head wondering why he can't put an ounce of shareholder value back into Apple. Apple bought $16 billion worth of shares back and yet the share price still looks like crap. Tim Cook can't even get the stock out of the red for 2013 while the rest of the market is up 20%. What's wrong with this picture.
Tim Cook is no longer running Apple. So-called analysts like Misek and Munster are running Apple. What Munster says carries more weight on Wall Street than what Tim Cook says. Munster appears on TV and basically called Tim Cook a liar about iPhone sales and Tim Cook had nothing to say. That doesn't boost shareholder confidence at all. Tim can't let some two-bit, charlatan analyst bad-mouth him like that and get away with it. Munster acts like he knows more about Apple's sales than Tim Cook. It's no wonder investors are treating Apple like some plague. Jeff Bezos would never put up with that sort of crap. Analysts are taking all sorts of FUD-spewing liberties with Apple.
Apple is healthy and they are making a ton of money.
But their $140B cash on the balance sheet is making the stock a major drag. It´s earning less than a 1% and it´s a *huge* part of Apple now. It´s not helping anyone, and it´s hurting Apple share price. That is a fact. However if they took advantage of this, and applied the cash to buy its own shares it would make the share more attractive.
No. Tim Cook is running Apple. So-called analysts like Misek and Munster are running AAPL. The stock is not the company.
Is Apple legally required to speak to analysts each quarter? If not, the company could make this quarter it's last. Even better would be for the company to announce last quarter was the last time.
They are a publicly traded company. They are legally required to speak to investors each quarter. They can avoid this by going private, but I don't see that being possible in the short term. At minimum, they would have to buyback ALL 900 million shares at a price of about $440 billion (currently) plus hefty acquisition fees. They have cash, but not that kind of cash.
Screw taking on debt. Screw dividends. Screw buy backs.
Lemon Bon Bon.
I sometimes wonder if "the market" is trying to teach Apple a lesson for not playing along. On one hand this is a bit of a nuisance to Apple because it deals out options to employees, and these are not going to be as attractive if the stock value does not increase. On the other hand Apple should like buying back more for cheap.
However, less stocks out there would mean higher dividends, even if profits would not go up. But profits will likely go up more.
What "the market" might be trying to make happen is making all the suckers sell too cheap while spring loading the stock for a dividend rocket launch.
Not an option. Not in a million years.
Technically, no. But de facto, yes. The sky will fall if a company decides to skip the post-earnings conference call. It is pretty much a required part of the disclosure process for all public companies now.
Aren't you misunderstanding the concept of a company going private? It doesn't go private by buying its own shares. That would be kind of bizarre because then no one would own the company.
Apple would own itself. It would become self aware on August 29th 2017 at 02:14 am Eastern Time. Apple would then launch its nuclear missiles at Russia to incite a counterattack against the humans who, in a panic, tried to short it.
Apple would own itself. It would become self aware on August 29th 2017 at 02:14 am Eastern Time. Apple would then launch its nuclear missiles at Russia to incite a counterattack against the humans who, in a panic, tried to short it.
I think you should have ran that past CNBC and Gene Munster first...
Apple wouldn't have to raise the money. Some group of investors would have to come up with the money - either from their own assets or debt (or some combination). Could it be done? Sure - at least theoretically. It would have to involve a number of investors putting up major portions of their assets and lenders willing to put up the rest. But the amounts involved are far too large for it to have even a tiny chance of happening. Your range is too low. The market cap is $440 B, so there's no way it would ever happen in the bottom half of your range. More likely, investors would demand a 20% premium, so you'd be looking at a minimum of $530 B. MINIMUM.
But I have a suggestion. Misek has a target price for AAPL of $425. Apple should offer to buy all of his shares and his investors' shares at $430 - a premium over where the thinks the price should be.
Well, the cash isn't really a drag on the share price, it's more of a neutral. The way most investors evaluate it is to look at the total market capitalization and subtract the cash to get a cash-adjusted market capitalization (i.e., what the market thinks the company is worth without the cash). They then evaluate the cash-adjusted P/E to see if it's reasonable.
Their current market capitalization is $440 B (or trailing P/E of 12.1). If your numbers are correct (I haven't checked), the cash-adjusted market capitalization is $300 B. That yields a cash-adjusted P/E of just over 8. Consider that the market's average P/E is more than twice that, it's really unfathomable that the P/E is so low. Even if you think Apple is only going to grow as fast as the market average, the share price should be twice what it is.
Apple is actively one of the most profitable companies around that has to buy back its own shares because no big investors will touch the stock. Apple is one of the worst performing stocks on Wall Street in 2013. Companies like Google and Amazon don't even offer dividends and they're certainly not buying their stock back and yet those companies' share prices continue to climb. Meanwhile, Tim Cook sits around scratching his head wondering why he can't put an ounce of shareholder value back into Apple. Apple bought $16 billion worth of shares back and yet the share price still looks like crap. Tim Cook can't even get the stock out of the red for 2013 while the rest of the market is up 20%. What's wrong with this picture.
Tim Cook is no longer running Apple. So-called analysts like Misek and Munster are running Apple. What Munster says carries more weight on Wall Street than what Tim Cook says. Munster appears on TV and basically called Tim Cook a liar about iPhone sales and Tim Cook had nothing to say. That doesn't boost shareholder confidence at all. Tim can't let some two-bit, charlatan analyst bad-mouth him like that and get away with it. Munster acts like he knows more about Apple's sales than Tim Cook. It's no wonder investors are treating Apple like some plague. Jeff Bezos would never put up with that sort of crap. Analysts are taking all sorts of FUD-spewing liberties with Apple.
You know your right, today no CEO runs it company, wall street does. Another person ask if Apple has to legal talk to analysis and the answer is no, they are only required to make full public disclosures of its action and provide the financials. The only reason CEO have to talk to analysis is to promote their company and stock. However, Cook is doing no different than Steve, saying very little and not responding to the FUD unless the buying consumer who really pays apples bills would be ultimately affect or would change then buy habits if they did not respond.
The only different now is when Steve was there people believed in him since the numbers spoke for themselves and there were plenty of analysis who said they would fail but Mutual fund manager and such could not ignore apple since if price kept rising in spite of what any analysis said. I know some very large government pension plans were complaining to the Mutual fund manager why they were not investing heavily in Apple when that happen the stock began raising faster. Today the Analysis took back control and they are basically blackballing Apple unless they do what they want. This tactic did not work on Steve, but Cook has already gone down the slippery slop when he announced the buy back and dividend. We all know Steve would never had agreed. He is now in the hand of the analysis and they will squeeze like crazy.