sacto joe

Cash is considered dead money by the market, and given zero value. So saying the “value” of a company decreases when it’s excess cash is used to buy back shares is wrong. The cash never had value in the first place. Now, one could argue that buying back overvalued shares is a sketchy idea. But that may depend on the future value of those shares, so even that might turn out to be a good idea. BTW, if the market actually started to value cash (hasn’t happened yet), then this calculation would change.

Does buying back shares provably increase the stock price? For Apple, I have a graph that shows a strong correlation between EPS and stock price over the last 11 years, much stronger than against revenue growth or net income. Is that proof? Maybe not, but it shows a very strong correlation. In my opinion, that puts the onus on proving it ISN’T correlated! And it does make sense, because the percentage ownership represented by a share increases as the share count reduces, and valuation has nothing to do with excess cash anyway.

But there’s something else to keep in mind in the case of Apple, and that’s it’s low relative valuation. I haven’t done the numbers lately, but if you add up the cost to Apple of it’s buybacks at absurdly low valuations, the average they’ve paid per share since they started buybacks is far, far below even today’s stunted valuation. Ergo, it’s paid off long term AAPL investors handsomely thus far, and shows every indication of continuing to do so for years to come.

franklinjackcon said:

FileMakerFeller said:

franklinjackcon said:

sacto joe said:

franklinjackcon said:

I completely agree with everything said in the article and yes, some of the reporting is so wrong it almost looks intentional. But perhaps the crux of the Ives message is correct, even if the details are totally wrong. iPhone revenue is down this year and wearables/home/accessories + services revenue growth is only just making up for it. If iPhone revenue continues declining but the other two growth categories start flattening off, can Apple keep growing? Or it's possible that iPhone sales only look slow this year because of the large jump last year. At the very least, it's a reasonable question, even if CNBC framed it completely wrong.

Nope. The message, as usual, is myopic, especially since Apple no longer publishes iPhone numbers, thus making the assumption that iPhone sales are permanently declining ridiculous on the face of it.

It doesn’t take much digging to find out that iPhone sales, along with smartphone sales generally, started peaking 4 years ago. A clue to the actual facts about the iPhone's prospects can be found in a more detailed analysis of the one piece of information Apple still supplies: revenue. Apple breaks out revenue for iPhone, iPad, Mac, Other, and Services. I've got a chart that looks at all these areas. Guess what: Yes, there was a big pullback in iPhone revenue in 2019. But that's CLEARLY an outlier, caused by the huge impact of the Trump Trade War on Apple sales in China (a negative $8 Billion in  fy '19 comparative revenue). Disregarding that blip, the trajectory of iPhone revenue is up, not flat, and certainly not down!

It is, however, flattening, which is to be expected as we hit peak smartphone.

As you say, Apple publishes iPhone revenue figures and that was what I was referring to. I'm not sure how you can call the last data point in the line a blip and disregard it. Besides, even if we assume you are right and iPhone revenue is flattening off, my point still stands. Can Apple's other categories grow fast enough to offset iPhones in the company's next phase?

Does the iPhone need to be offset? Isn't it OK that the rocket ran out of fuel and we're back to travelling at a speed that is still quite fast?

There seems to be an assumption that growth rates will, can and must continue indefinitely for a company to remain "successful." That assumption doesn't seem sound, to me.

If you're a shareholder then yes, it does need to be offset. I agree that there is room in the market for different companies, those that are growing, shrinking, profitable, not, but if you have X dollars to invest then they either need to replace the revenue stream or find one that is smaller but more profitable or their share price will decline.

You missed FilemakerFeller’s point, although he could have made it clearer. Think of the rocket as in orbit, and the fuel as a way to raise the orbit. The smartphone rocket will inevitably reach some orbit, and unless displaced by a new paradigm shift (like smartphones replacing cell phones), will stay in that approximate orbit, even after the “fuel” is gone. Although really, for the iPhone, there is a way to keep climbing to a higher orbit, by essentially displacing Androids. And, of course, vice versa. Several years ago, I referred to this as the “endgame phase”, and I believe we are now entering that phase.

So if I’m right, your vision of an iPhone market that begins decreasing from now won’t happen, and this year’s pullback, like others in Apple’s past, is an anomaly. In fact the iPhone market will continue to grow, but more and more slowly. One can look at the Mac and see that same kind of slowly increasing growth.

In the meantime, any growth in other areas gets added to the total, which can amount to a net quite decent amount of growth.

But there’s more to it. Where the rubber really hits the road is in net income. Apple’s net income growth has also been slowing, and also has taken a bit of a hit this fiscal year. But it’s still absolutely fabulous, and if growth restarts, will be even more so. The thing about a high net income is, it’s got two places to go: It can go to acquire other companies, or it can get returned as dividends to stockholders. The neat thing about Apple is that they’ve realized that the very best company they can invest in is themselves, and particularly so when the market seriously undervalues them. So they are using huge gobs of that net income to massively reduce their float, essentially buying themselves back from the market.

But looky here! When they massively reduced their float, they massively increased the percentage ownership of Apple for the shares remaining! Thus, when they’ve bought back half the stock (about five years from now, I figure), they will have doubled the percentage ownership of Apple for each remaining share!

And that’s all made possible by the massive amount of net income Apple is generating. Now, they could also choose to give back more cash in the form of dividends, but dividends get taxed. And frankly, if the market ever woke up and realized that they were selling AAPL to Apple for a song, and raised the P/E ratio up where it should be, then that’s probably what Apple would do; raise dividends significantly.

Bottom line: Apple has a LOT of potential for seeing it’s valuation go up significantly as time goes by. So long term investors like myself are going to do quite well, thank you very much.

franklinjackcon said:

I completely agree with everything said in the article and yes, some of the reporting is so wrong it almost looks intentional. But perhaps the crux of the Ives message is correct, even if the details are totally wrong. iPhone revenue is down this year and wearables/home/accessories + services revenue growth is only just making up for it. If iPhone revenue continues declining but the other two growth categories start flattening off, can Apple keep growing? Or it's possible that iPhone sales only look slow this year because of the large jump last year. At the very least, it's a reasonable question, even if CNBC framed it completely wrong.

Nope. The message, as usual, is myopic, especially since Apple no longer publishes iPhone numbers, thus making the assumption that iPhone sales are permanently declining ridiculous on the face of it.

It doesn’t take much digging to find out that iPhone sales, along with smartphone sales generally, started peaking 4 years ago. A clue to the actual facts about the iPhone's prospects can be found in a more detailed analysis of the one piece of information Apple still supplies: revenue. Apple breaks out revenue for iPhone, iPad, Mac, Other, and Services. I've got a chart that looks at all these areas. Guess what: Yes, there was a big pullback in iPhone revenue in 2019. But that's CLEARLY an outlier, caused by the huge impact of the Trump Trade War on Apple sales in China (a negative $8 Billion in  fy '19 comparative revenue). Disregarding that blip, the trajectory of iPhone revenue is up, not flat, and certainly not down!

It is, however, flattening, which is to be expected as we hit peak smartphone.

Color me skeptical of most companies that signed this. The real question is, who walks the talk? It’d be interesting to see “grading on a curve” with these companies.

Classic example: Cloud computing. Who runs their data centers with the cleanest energy? Hint: It’s not Amazon....

zoetmb said:

antoniofonseca said:

I'm sorry, but given Apple's direction in recent years, anything, including names and nomenclatures, lends themselves to justifying the increasingly expensive pricing.

Apple's current business model is that of luxury brands. There is no difference here whether the product is a computer, phone or a watch band.

Here's how it works: the luxury-brand companies sell a leather purse for the price of a car to people who want to imitate the rich and give the same purse to really wealthy people to consolidate status.

We saw this clearly happening at the time of the Apple Watch release. And we see today, with each product release, Apple giving influencers units for free so they can use and evangelize about the wonders and status that these products provide.

The watch was the test balloon. Bringing this expertise to Apple was the role given to Angela. And the instrumentation was done by Jony, turning the products into decorative objects (see the Butterfly keyboard and end of the utility product lines, like routers and monitors).

The next step was to stop advertising the sales volume of any product to focus solely on profit. Then we had an average 30% price increase for just about everything from products to AppleCare services. The stores have also been converted into high-end boutiques.

The transition from product company to luxury product company has been achieved. The current administration assumes this status openly and without any embarrassment.

Therefore it is important to understand that any action within Apple, including the adoption of nomenclature for products and services, nowadays will always be to reinforce and refine the luxury brand perception.

So when the first Mac (with just a floppy) sold for $2495 in 1984 ($6282 in current dollars), that wasn't a luxury product?   The Apple II+, without drives or monitor was $1195 in 1979 ($4241 in current dollars).   Sounds pretty luxurious to me.  

While prices have increased, Apple was never the low- or medium- cost leader.   Apple was always expensive.   It's up to each consumer to decide whether it was worth it.   And I say that as someone who was pretty frustrated with what I had to pay for my last MBP.

You’re serious, right? You think that utterly revolutionary device was a “luxury”?

I’ve seen some dumb comments in my time, but that takes the cake. Were the creators of that marvelous product not supposed to make a profit? Without a profit, how could Apple grow? What are you, one of the deluded who thinks creativity, guts, and willingness to take a chance shouldn’t have an opportunity to be rewarded? You know who the people are who think that? They’re the people who don’t have what it takes.

In 1984, my wife and I barely managed to secure the credit to buy that first little Mac and a printer, with it’s two programs, MacWrite and MacPaint. It literally changed our lives. And you sit here, decades later, in a cornucopia of computer capability, and have the unmitigated gall to claim that product, of all products, a LUXURY???

Unbefrickingleivable.