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Apple To Launch Largest Stock Repurchasing Plan In History
An anonymous reader writes "In conjunction with its earnings report for the second quarter of 2013, Apple issued a press release announcing some major plans for its ever growing stockpile of cash. It is increasing its quarterly dividend payout to investors by 15%. What's more, the company will spend $60 billion in stock repurchases, making it in Apple's words, 'the largest single share repurchase authorization in history.'"
In my opinion, they just will burn their cash. It is inevitable: they must lower device prices, so their shares will fall. No way out.
But I'm glad I invested in Bitcoin.
Why do they increase the divident if they want to purchase their stock? They are driving up the price they will have to pay.
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If the company repurchases its stock, the shares go away, thereby increasing the value of the remaining shares.
Companies exist to make money for their shareholders. Sometimes they run out of productive things to do with the money they have, so the most responsible thing to do is return it to shareholders. Apple's strategy is to make a lot of money now, not invest for some far future payoff.
No, they're not.
Dividends encourage investors to hold their shares for long periods of time by giving some income along the way. A buy back is something which boosts the price of the shares, but does nothing to generate a revenue stream for the investor. And if it doesn't inspire new investors to buy in, it can result in little or no benefit to the investor.
What's more, you can issue a dividend regardless of what the price of the stock is with respect to it's actual worth, whereas you shouldn't be buying back stock unless the shares are worth less than the management thinks they're worth.
Dividends themselves are generally something that only make sense when the firm doesn't have somewhere to invest the money themselves. It basically says to the investor that you're going to make more money investing the money elsewhere than we're going to derive by investing it ourselves. And frequently that means that the business can't expand any further for regulatory reasons.
$60 Billion is only a small fraction of the company's overall value
The current market cap is $381B. $60B is an enormous buyback.
nevertheless, 1/6 is a small fraction
It is in general a good idea for a company to buy back shares when they are low, especially if the company expects good business going forward. In a way, this plan makes clear that they are very confident in their upcoming new products.
Also, individual investors have to pay taxes on dividends. I'm not sure if corporations have to establish a cost basis for potential sale when they acquire their own shares. Not my problem. If the stock pays no dividends but goes up in price, I don't pay tax on the capital gains until I sell. If I never sell, I can leave the shares to my heirs who will get a new tax basis.
Disclaimer: IANAfinancial/tax advisor...
For all intensive purposes, "whom" is no longer a word. That begs the question, "who cares"?
What a stupid comment. "small" is a relative term. In this case it isn't and it's very significant.
Just like a 10% GDP growth for a mature economy would be insanely large, yet it's only 1/10. "a small fraction" as you would say.
You're out of your depth. Stick to watching cartoon pony porn and playing WoW. Leave the real big boy talk to others.
Share buyback here.
Results here.
The problem is you're assuming that the money in Apple's bank account is as valuable to an investor as the money in their own bank account, but this is not really the case.
That, OR they might want to start coming up with some new ideas.
Well Apple takes on average about two-three years to deliver products that create entire markets.
So they are about due, and Cook said there were some surprises coming in the fall.
But it's absurd for you to mention Jobs in this context, products take many years to complete. It will be at least two more years before we see products that never had input from Jobs, including this one.
It's also kind of funny how Apple "needs" to come up with new ideas, when no other company seems to have the same need... or at least no-one ever says they do.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
Stick to your roots guys, this isn't a stock forum and 99% of the people here clearly don't know one blessed thing about investing, how companies work, or even what these big numbers actually mean.
Actually its worse then that, but I'm being politic.
-Matt
You know what Apple could have done in the real world with that kind of money? Imagine if they decided to use it on philanthropy.
as fractions go, I'm pretty sure 1/6th is smaller than 5/6ths of all fractions between 1/0th and 1/1th.
-Clio
Karma: Bad (mostly from not giving a fuck)
Blog: http://clintjcl.wordpress.com
Ok, but this was the context:
Is a company buying back 1/6 of their stock going to result in shares costing "a fortune" or "significant less stock"? No. So you are the one who fails to understand the context, not me.
What are you talking about? they have created 1 new market, tablets.
The Kruger Dunning explains most post on
It depends upon what you mean with the word "created." They certainly changed the face of computing, mobile music players, smart phones, and tablets. All of these categories existed before Apple got into the market, but once Apple decides on an approach, other companies seem to try and do things in a similar way.
If the company repurchases its stock with company funds, the company funds go away thus decreasing the value of the remaining shares. Get it? The net effect is zero. What people like is that there are fewer shares around so that FUTURE gains per share are greater.
Seven puppies were harmed during the making of this post.
If the company repurchases its stock with company funds, the company funds go away thus decreasing the value of the remaining shares. Get it? The net effect is zero. What people like is that there are fewer shares around so that FUTURE gains per share are greater.
Additionally, *anybody* purchasing shares tends to increase the share price. If someone buys up $60 billion worth of shares at price X, everyone who thinks the stock is worth price X or less who has those shares will sell them, and the remaining shareholders will be those who think it is worth more than X, thus future sales will need to be at above X. From a "supply/demand" point of view - a buyback program decreases the supply side of things, and while it is occurring it increases the demand side of things, both of which tend to increase the price paid.
One of the "rational" pricing "explanations" for the value of an investment is that it should be equal to the current value of all expected future payments adjusted by the return on a "risk-free investment". Much of the angst about the US defaulting on obligations is that typically US obligations have been thought of as that foundational "risk-free investment" against which all other investments have been being compared to - but I digress. Decreasing the number of outstanding shares, as Dunbai points out, increases the potential future payments on a per-share basis.
Apple: New Product Development for Microsoft since 1985!
Any insufficiently advanced magic is indistinguishable from technology.
No, the net effect is not zero. Think of it this way, if there were a company that made $0, but had $150B in the bank, what would that company be worth to investors? It would not be worth $150B. Think of it another way, what kind of return do investors expect for their money? If you believe that apple's cash is added directly on top of their value, that means their value minus cash is $230B. On a profit of $45B, that's a P/E ratio of just 5! That would be an incredibly good investment, but it's not because money in apple's bank account isn't worth as much to an investor as money in his own bank account. So if apple can reduce the number of shares, while also reducing their cash, that's a net benefit to their (remaining) investors.
Governments should fix the loopholes that allows Apple to pay too little taxes. Obviously this company has more money than ideas of how to spend it.
I feel stupid having to add a disclaimer, but even someone that isn't a huge Apple fan (namely me) can admit that, between ipods, iphones, and ipads... they really did break their respective markets wide open.
Mp3 players existed before the ipod, but they were borderline niche devices. Business types had Blackberrys and some people had shitty winmo smartphones, but it was nothing like what happened when the iphones came around. Windows tablets existed before the ipad, but it was never anything like what happened with the first ipads hit the market.
And all of those markets did well as a result, and let's not lie to ourselves because they're not slashdot's favorite company.
Incorrect! Who do you think sold them BASIC for the Apple II?
...I'm kidding; they had their own.
Until 1979.
When Microsoft sold them a better one.
Bio questions? Ask me to start a Q&A journal. Computer analogies available for most topics!
Because you make money buying high and selling low, right?
I run: Windows, OS X, Linux, FreeBSD. Just because you have a hammer, doesn't mean everything is a nail.
They're privately owned.
I run: Windows, OS X, Linux, FreeBSD. Just because you have a hammer, doesn't mean everything is a nail.
they really did break their respective markets wide open.
Kudos for coming up with a much more accurate way of phrasing this than I did - "Created" really was a wrong term compared with "elevated" or "break wide open" as you said.
Basically they expanded the market greatly for a number of different product categories, and not just hardware - iTunes and online music counts as well, it was really Apple that made that a consumer market (against the will of the music industry).
"There is more worth loving than we have strength to love." - Brian Jay Stanley
It's also kind of funny how Apple "needs" to come up with new ideas, when no other company seems to have the same need... or at least no-one ever says they do.
Other companies need Apple to come up with new ideas.
I'll let you fill in the reason why...
Both the cash dividends and share repurchase of same value have equivalent effect on the wealth of the shareholders. This assumes that all other factors such as the taxation are the same.
also here (pdf)
While buybacks and dividends are mathematical equivalents, executives and investors conceptualize them very differently.
They're privately owned.
They will be privately owned at this rate. This is a leveraged buyout.
That's just bullshit.
Executives conceptualize them differently because they aren't mathematical equivalents when it comes to the effect on the wealth of the shareholders. In both cases they return wealth to the shareholders, however they have different tax consequences and different methods by which one can tap that revenue source. When I get a dividend, I can have it reinvested or I can have that money available for other uses. With a stock buy back, I have to sell shares in order to make use of the extra money. What's more, I have to pay for the privilege.
What's more, in any given case they aren't going to come out the same. If you have a company with plenty of cash that's trading well below it's value, it can be quite profitable for all the investors for the company buy back shares. Now, for a company that's overvalued it can be a waste of money to buy back those shares whereas a dividend payment would be the more efficient way of getting investors money back.
In other words, it takes a certain level of misunderstanding to think that they're equivalent when there's so much involved, the tax situation alone ensures that the two are not equivalent.
Right and then there's the situation of taxable account versus non-taxable account and whether one is using a DRIP.
But, in either case, the effect can be substantial for a lot of people. Enough so that it pays to pay attention to the consequences and the preferred method of a company.
Dividends encourage investors to hold their shares for long periods of time by giving some income along the way. A buy back is something which boosts the price of the shares, but does nothing to generate a revenue stream for the investor.
Dividends take stockholder value out of the company represented by the stock itself, and convert it into a cash form, that is then send to the stockholders (value is removed from the stock and sent to shareholders).
Buybacks take stockholder value out of the company represented by the stock, or by acquiring debt, that is then used to reduce the number of shares outstanding.
In theory... a buyback does not change the value of the company, or its business prospects -- a big enough one may effect the share price, similar to a reverse split, since there are fewer shares on the market (the company just owns them circularly), but the market capitalization should be the same, or worst (if the buyback was financed).
If I have $20,000 invested in a company before buyback, then after buyback, the market capitalization after the buyback is the same (only that outsiders hold fewer of the shares), at best -- in the short term, I should still have $20,000 invested in the company, and my share should still be worth approximately the same, not really improved by a buyback; hey the company bought all these shares -- great, now my share in the company includes these shares, the company has just converted some cash to shares.
Now, if the company borrowed money to perform the buyback, and cannot produce earnings at a sufficient rate, my shares could actually lose value over buyback, due to the added cost of the debt..
Another way I could lose money, is when the company does a buyback and then provides shares as compensation to insiders, or issues extra options or shares as executive compensation --- buyback does not assure that my value will not be diluted.
The buyback makes sense if the company's shares are greatly undervalued, as the leverage of my shares are essentially increased.
This only works, if the company buys back the shares for substantially less than they will ultimately be valued at.
Example: say I own 100% of the stock of a company's whose assets are $50, which is undervalued by 10x. If the value is realized in a few months, there will be great profit for me, much more than if the company had simply held $50 in cash, and earned 2% interest on it.
If the company's shares are undervalued by 5x, and the company buys back 1/4 of its shares... the increase in stockholder value could be tremendous, at the time in the future, when the market begins to give the shares the value that they deserve.
If the company repurchases its stock, the shares go away, thereby increasing the value of the remaining shares.
More significantly, it increases the value of stock options. Dividends don't do anything for option holders. (They're also taxed at a higher rate than the capital gain after a stock buyback. Buybacks and taking on debt are actions successful companies take primarily for tax reasons.)
Executives conceptualize them differently because they aren't mathematical equivalents when it comes to the effect on the wealth of the shareholders. In both cases they return wealth to the shareholders, however they have different tax consequences and different methods by which one can tap that revenue source. When I get a dividend, I can have it reinvested or I can have that money available for other uses. With a stock buy back, I have to sell shares in order to make use of the extra money. What's more, I have to pay for the privilege.
So when you get dividends, you have to pay transaction fees if you want to re-invest. If there is a buy-back (and you choose not to sell), then you effectively have your "divident" re-invested for you, and you have to pay not to re-invest. So in both cases there is a "default" and you have to pay transaction fees if you do something other than the default. The thing with being over/undervalued is that everyone has their own opinion and there is no obvious reason why the opinion of management is espeically important. After all, if it was really obvious that managment only made buy-out offers when the stock really was undervalued, no one would agree to sell their stocks once the buyback was announced. On tax, I agree there is a difference, but given that the original question was about the mechanics of a buyback, I think the term "functionally equivalent" is quite fair.
A buyback increases the stock price because of supply and demand. Assuming the company has all the same fundamentals before and after the buyback, then the demand for the stock will remain the same. Since the supply has diminished, naturally the stock price will increase until equilibrium is reached.
"First they came for the slanderers and i said nothing."
Neh... too big to prosecute.
New Economic Perspectives
Move all assembly lines back to the USA, while maintaining the same price on products. You will incur some losses at the beginning, but you will score $h*tload of political points (a.k.a. goodwill) that you can cash in later via issuing new shares, neutralizing the losses.
New Economic Perspectives
Besides the mechanics of the free market (is there any?) works so that if someone comes up with a nice product of course others will copy it because otherwise they would lose their share. To differentiate from the others some details are changed or improved. Some just clone the current winning concept. So far the successful product of Apple's have been like hot knife in butter, but the market is not so vertical anymore.
So there's no innate need to innovate at all. It's an option The past is pretty much meaningless. The sales happen now and the appreciation comes from the expectations. Successful companies can differentiate and deliver. If similar product has been released and it wasn't a success then it's a bad example of a product and management.
Very much like Nokia once was. So if history is anything to go by, they will bring out one more great product in a sea of mediocrity that will be a commecial flop and by the end of the decade they will devolve into a patent troll propped up from the shadows by an unlikely ally (like Canon for instance)
With the Fed just giving away money, every company should do this.
Who do you think built the mass-market platform for Microsoft to release their basic for?
I run: Windows, OS X, Linux, FreeBSD. Just because you have a hammer, doesn't mean everything is a nail.
"It's also kind of funny how Apple "needs" to come up with new ideas, when no other company seems to have the same need... or at least no-one ever says they do."
That's because Apple keeps it's product plans secret so people assume it's doing nothing, whilst Google has been open about glass and Samsung has been open about the fact it's building a smart watch.
People aren't saying other companies need new ideas, because we already know they have them and are pursuing them, with Apple we've no idea, for all we know they may well not be doing anything at all, though that's unlikely.
If they didn't know what to do with the money, they'd leave it in the bank.
I run: Windows, OS X, Linux, FreeBSD. Just because you have a hammer, doesn't mean everything is a nail.
Touch screen smart phones.
GUI based computers.
Portable music players.
Note: Creating a market is not the same as creating a product, or inventing a product.
It's also kind of funny how Apple "needs" to come up with new ideas, when no other company seems to have the same need... or at least no-one ever says they do.
Apple sells more expensive products than their competitors. If they don't have new and unique features, then nobody will want to buy them.
The world is not as you say only because you wish it to be so. I doubt that any of us would work our asses off and risk everything to promote commerce or to support a bunch of other people who are looking for jobs. It's all about making money and improving our lives...or furthering our agenda (whether political, environmental, etc.)
My God can beat up your God. Just kidding...don't take offense. I know there's no God.
Not absurd at all. Jobs was on until the end when he was working on Apple TV. This was a warm hand off, they didn't need to wait two years. And all companies have a need to create new products or improve on old ones, but it's the crafy innovators who stay at the top of the food chain. Jobs was an idea man who's time had come, and Apple needed an idea man badly. Now, the golden goose is gone. Since then, we got the iPad mini, which is basically capitalizing on an established market. Good product, but in terms of innovation it doesn't rank up there with making music and move downloads legal and easy to use.
I'm often surprised how little engineers know about investing and business in general. Engineers often take a very middle class, employee mindset, and fail to see the business and investment opportunities around them.
My God can beat up your God. Just kidding...don't take offense. I know there's no God.
http://www.penny-arcade.com/comic/2001/08/29
- Otaku no naka no otaku, otaking da!!!
Going to have to go with tapi0 on this one. It's Tramiel, Tramiel all the way down!
Bio questions? Ask me to start a Q&A journal. Computer analogies available for most topics!
The reason that Apple "needs" to come up with new ideas is that coming up with new ideas is their business model. Really it isn't "coming up with new ideas" it is repackaging existing ideas in a way that turns a niche market (or market segment) into a mass market.
Apple is a high margin manufacturer. If they don't move into new markets or market segments, they quickly become overwhelmed by companies making that produce products at a better quality/price/feature ratio. They did that with GUI Desktops, MP3 Players, PDAs, Smart Phones, Tablets, and *nix on the desktop. They were overwhelmed in the GUI Desktop market. MP3 players are now a niche market again because MP3 players come free inside every smartphone sold now. PDAs are niche market for the same reason. They have lost the lead in the Smart Phone market, and are seeing serious chinks in the armor of their tablet market. They are still doing well profit wise on with Unix on the desktop, but they have not had the success in taking it really mass market like their other products. Their market share is still very low. At the same time that they are making progress on that front, they are educating the public that they don't need Windows while a dramatically cheaper alternative *nix is waiting in the wings to move from every other market into the desktop. Some (not I) would argue that the desktop market is going niche anyway.
Commodore?
They are doing the only correct thing: Buying.
If the bubble bursted, apple would be done for.
If they buy back stock, they:
* increase the stockprices again - stabilizing the apple-bubble.
* lowering the risk of a popping bubble.
Apple II pre-dates the C64 by a number of years. The VIC-20 wasn't really mass-market.
I run: Windows, OS X, Linux, FreeBSD. Just because you have a hammer, doesn't mean everything is a nail.