What do we make of Apple's plan B for a down quarter – that $110B buyback of shares? Apple had a moderately glum first three months of the year, though the iGiant found a way to keep the most important people happy. Yes, we mean Wall St. Was it to invest in the next actual-must-have tech? Maybe build its own iSearch engine so that it doesn't have to rely on, or dare we say compete against, Google? No, it was …
Follow Aston Martin, Porsche... and diversify into property?
‘They’ve got the car, the hat, the T-shirt[iPhone, the iPad, the watch, the monitor stand]. The apartment is the natural progression’
With a "Genius Bar" where the residents can enjoy Apple themed drinks
It's a thorny issue, and sometimes the distinctions between fame, snob appeal and earned reputation is blurry. Am I typing this on a Thinkpad because the brand, or at least that of the product line means fancy, or because they've established that it's a quality product, albeit a more expensive one[1]. Are my phone, desktop computer and tablet Apple because I'm a sucker/cultist, because their kit has been very reliable in my experience, because it's UNIX that still runs stuff like Photoshop, or some combination thereof? Same goes with saving for Leica or Hasselblad camera equipment.[2] All of these things have brand name fame/cachet, and all have reputations for both quality and "arm and a leg" pricing.
[1] Although, I must admit, I'm typing this on a Thinkpad because I inherited it a couple of years ago.
[2] I must admit that has a bit of a "white whale" level of obsession for me, and has for some time. I *had* an M6 that got stolen following a betrayal.
"Brand" is a fascinating topic. Done properly the brand develops substantial value quite separate from sales volume.
And vice versa : some years ago Fendi managed to spoil their own brand. They then spent hundreds of millions rebuilding over a couple of years or so then got their mojo back.
And there can be numerous factors influencing a brand's reputation, with hype, innovation, quality, appeal (whether popular, cult or just snob) and length of establishment/reputation being perhaps the biggest five. And those can easily blur together or even overlap entirely. It's quite possible for a product to be quite good, perhaps excellent, and still be over-hyped. And of course, these things can rise and fall. Your example did both, enshittification means plenty have fallen, Google for one *was* the best search once upon a time but is now crap. Hyundai was absolute garbage at one point, but put in the work to at least get to "solid", although I don't know which they are today as a non-driver. And yeah, the list goes on.
WRT Apple, while they definitely deserve most, if not all, of the flak they get, and are insanely over-hyped, I keep buying stuff from them because all of the BS aside, their kit suits my needs best, has been reliable for me for far longer than the hardware upgrade cycles they'd prefer buyers to have,[1] and also fills in a few wants.[2] That said, I do wish they were using those piles of cash to do real R&D, make their kit even slightly more affordable, or even just pay workers more than give even more cash to execs/major shareholders, but that's another discussion entirely.
[1] It's partially for economic reasons, but also because I simply don't see the point in replacing anything that is still fit for whatever purposes I'm throwing at it.
[2] In some regards, I find that their baked-in restrictions less chafing by far than feeling confined to their kit because the alternatives mean *more* compromises that I'm unwilling to make. I want at least the option to use Linux or de-Googled android for everything without having to give up certain essentials.
Indeed! Rather than stock buybacks, Apple should aggressively diversify (as noted in earlier komments), particularly with European investments (get on EU's good side), beyond buying the Netherlands (GDP of $1 trillion), by strengthening their position in France instead ... Not through Atos mind you, but by investing in women's football teams (much as Qatar Sports Investments owns the PSG, and Frank McCourt owns Olympique de Marseille).
In particular, the Ligue de Football de Normandie could be a right focus for the mega-corp, especially for its regional location near Calvados (France), that most awesome of finest digestive firewaters, distilled straight from hard apple cider. This could be where serendipity meets the infinite loop's ouroboros, on the Möbius strip of fruity diversification, in a uniquely European friends-with-benefits sort of way (and NO, Manchester United doesn't even compare!). A win-win for all parties (and no share buybacks)!
Apple invests more in R&D than all but a handful of companies. How could they possibly make effective use of another $100 billion a year in R&D? Should they become a big conglomerate like Samsung and start building container ships and DRAM fabs? Should they take on Nvidia head to head in datacenter AI?
Buybacks reduce the share count, so all shareholders own a larger percentage of the company than they did before. If I want to invest in a company building ships or datacenter AI, I can sell a bit of my Apple stock so that I'm back at my former ownership percentage and use the proceeds to buy stock in Samsung or Nvidia. That's a more effective strategy for Apple shareholders than for them to ask Apple to try to find something worthwhile in which to invest another $100 billion in R&D.
One of the reasons I have held Apple stock so long is that I like how they are much more narrowly focused than most companies. They generate a lot of cash but don't waste it on big acquisitions (i.e. all the people who constantly think of someone Apple should buy like Netflix, Tesla, Disney, etc.) or use it to expand their footprint into more and more different product lines.
They invested who knows how many billions in the long rumored 'Apple car' which went nowhere. Just because you shovel lots of money into R&D doesn't mean you're going to get a return on it.
This would all make for a great argument to improve your R&D and product focus. Apple's grip on personal electronics seems to be weakening even though it's big money for them. They dabbled in media production but that feels like it's fading too AR was a big failure. Apple car was a failure. They need something new to sell.
I wouldn't mind if they invested another Billion a year in increased software and hardware security and exploit reduction. They once had the reputation of being near untouched by flaws, viruses and exploits. Lately, probably with growing popularity of their products it also attracts more hackers, quite a few such problems have been discovered. I don't say it's worse then the Android / pc / x86 world, but I think making I-products the obvious choice for safety and security once again is a good investment in an age with growing problems of scams and malware.
Currently I have a mix of PC, Android and Apple devices. Safety and for IOS some amount of privacy and ease of getting some amount of safety and privacy are THE reason why I bought the Apple devices, despite competing (lower end, suiting my need too) devices being cheaper. Now, that argument doesn't sound as solid anymore as it used to be.
Note: I consider the element ease of security important. There are devices and operating systems that can get you even better security if you manage them well and keep up with all latest exploits. But many people just want increased security and privacy without having to play whack a mole every day.
Should they become a big conglomerate like Samsung and start building container ships and DRAM fabs?
Apple could make the shittiest and most basic rowing boat ever but twonks would still pay top-end powerboat prices just to say they own an iBoat.
"Look, it's got a glass hull and the iOars give you up to two hours of rowing before they need recharging."
@DS999 "Buybacks reduce the share count, so all shareholders own a larger percentage of the company than they did before."
Share count is reduce, but it's impossible for all shareholders to own a larger percentage than before. For a shareholders to own a larger percentage other shareholders will have to own a smaller percentage due to selling shares back to Apple.
So only shareholders that hold on to their shares will own a larger percentage than before. But why would the majority of shareholders sell after Apple's announced buy back plan has increased demand causing the share price to rise. Shareholders will hold on to shares waiting for what they believe is the optimal share value to sell.
Buy backs smack of market manipulation not because a company buys it own stock. It's the company announcing a buy back which influences the market creating demand pumping the share price. Announcing a $110 billion buy back is pumping on an industrial scale.
"Buybacks reduce the share count, so all shareholders own a larger percentage of the company than they did before."
Shareholders cost money so having fewer can save money. Apple could spend more on R&D by turning the company back to a consumer/computing company and away from being iPhone centric since that seems to be dying. Honestly, what the last killer feature that's come out on any phone? Another camera? Professional photographers use professional cameras, not an iPhone. I could use a really good multi-core Mac that doesn't need replacing every year and can be upgraded unlike the Studio or the stupid expensive MacPro. Apple has been leaving their core applications behind with every product cycle to the point where I almost never use Safari anymore and Mail is just barely hanging on as I play with some alternatives. There doesn't appear to be any real improvement in anything either. Just changes for change's sake. Steve Jobs seemed to have a good intuition for things being messed with in the R&D lab to pull out and get finished for the mainstream. Tim doesn't have that. He's just been holding the rudder until the next person come along with vision. If that happens, they'll need a very good R&D shop that runs more like Bell Labs where lots of things get tried out for laughs rather than trying to make something like the VR goggles that seem to have been handed from the top down like SLS. It won't be until there is an application like the metaverse in Snow Crash or Ready Player One that VR gear is going to be worthwhile. Go ahead and play with it in the lab, but a few gamers that have stolen grandma's bank accounts to buy gear aren't a big market.
《It almost feels like a pyramid scheme where shares are used to boot share price.》
The thought that crossed my mind was its like a ponzi scheme but sort of in reverse. :)
I guess the bet is you buy USD110billion worth of shares hoping the aggregate remaining shares increase in value by considerably more than USD110b and that is without the business doing very well in previous reporting period. I imagine it would harm the P/E ratio but does the Nasdaq even care about E (only P) these days?
It's neutral on P/E since a company buying back shares essentially doesn't hold them, instead the shares are effectively withdrawn and each remaining share represents a larger portion of the company. Thus the price of a share goes up but so does the earning per share.
And no, share buy backs are not some postmodern management wheeze, returning value to shareholders for their investment is a business fundamental, whether that is either buybacks or dividends. The Ponzi scheme is assuming a company can carry on investing ever larger amount of generated cash in itself, expecting the same returns and never giving anything back to the shareholders. Ultimately once a company reaches a given size in a particular sector further investment will not produce representative returns. Diversification is the alternative but that spreads management focus thinner.
One thing to consider that until recently, share buybacks were illegal and classed as illegal manipulation of the share price.
So why is it done? because share buybacks and the rise in value of the remaining stock is not taxable, and paying dividends is. its all about the tax avoidance..
There is some truth that it is more tax efficient, but it's minor and affects a small proportion of total shares out there. For private investors gains in share price are capital gains - still taxed, but frequently at a lower rate, although not in the UK. For corporations and institutional investors where the big money is it makes no difference.
"It's neutral on P/E since a company buying back shares essentially doesn't hold them, instead the shares are effectively withdrawn and each remaining share represents a larger portion of the company"
Not entirely correct. The company redistributes a considerable part being hundreds of millions or at times billions worth of shares to the CEO for "reaching the target of increased stock *price per piece*" *not total market cap* by manipulating stock price this way.
Any company doing buybacks while compensating its execs via stock price or EPS targets is being stupid. They should account for the share total changes or replace those targets with market cap and total earnings, respectively.
Boards that knowingly make it easy for the execs to make company policy based on how it impacts them personally are derelict of their duty. That's pretty common unfortunately, but buybacks are the tip of the spear. There are far larger abuses available to them that still fall short of the legal definition of fraud, and of course we read all the time about execs that don't fear stepping well over that line and doing things that are outright illegal to cook the books and help them earn more.
It is a pyramid scheme. The only ones who make real money are the guys at the top of the organization, same as any other such scam. But I consider the whole approach of the modern stock-market to be gambling and scams. It is quite clear that the actual potential for a business to really earn their hockey-stick projection revenues isn't being considered in stock market valuations, and that stability and viability of a business has little to do with their valuation.
That. Should. Not. Be.
its much worse than that. the share buybacks boost the stock price, then the ultra wealthy are able to take out loans backed by the value of those shares. They then have a wad of cash to spend for which they paid no taxes because thet never sold the shares. this was more effective when rates were near zero, but I'm sure their accountants will finds way to make sure billionaires pay as little tax as possible
If you sell your shares then the profit is taxable, there is nothing special about the buyback in that regard. But had they just paid out dividends instead then all shareholders would have taxable income that is more difficult to get around. That's why the strategy I mentioned above is used
I understand that is the wheeze, what I don't understand is why the tax dept goes along with it.
If I was paid dividends in bananas, the tax dept expects tax in cash based on the value of the bananas. If the company gives me some of the products it makes, the tax dept expects tax in cash based on the sale price of those products.
But somehow if the company buys shares, and the value accrues directly to me, then oh no, that is not payment in kind, but some special capital non taxable thingy.
I don't see it myself.
Another way to put it is that stock buyback shows the board and/or shareholder's lack of faith that the company itself has a good plan to use that cash to grow profits, which is consistent with the most recent news from Apple. Apple doesn't need all of their cash pile if just continuing incremental improvements in their current products.
Since 2016, Apple has suffered from Failure to Scale. That's resulting in losing track of the details and not caring when users point out the messy results via their Feedback Assistant.
But the warning sign that clobbered me is the decay of "Apple Official Support" to the point of uselessness when any new or complex problem is addressed. The company has also turned off accepting incoming calls to their former customer complaint, aka "Apple Customer Support" phone line. The verification of corporate rot came when I pointed out a problem with their iCloud service via their website and received a return email that plainly stated:
"Thank you for contacting Apple.
Messages sent to this email address aren't monitored."
IOW: Give up. We don't care.
But by all means feed the stockholders while the company sinks into its self-made mire.
They used to be my favorite company.
Are not share buybacks rather more corporate model incest than subversive ponzi market manipulation for exclusive self-gratification orgies..... with either and both of them being an unpleasant and unhealthy degenerative sign ?
What happens whenever one overcooks any Apple confection or golden egg laying goose? And is the kitchen or the head chef to blame and to be held responsible and accountable for the shame?
Try everything again differently to ensure nothing is like anything as bad as it was before ...... thus guaranteeing progress into the future is assured and insured to be greater and better ...... would be a not totally unreasonable and most attractively priced, inexpensive master C-suite plan to boot for a new refreshed and rehashed Operating System reboot, too.
Does Apple have all, or even any, of the necessary wherewithall for that simply complex market leading fix?
It's a totally different situation of course, but Boeing were in the habit of injudicious share buy backs...
How have they done this? Have they borrowed money against overseas holdings to fund the buy back, and then claimed tax relief on the debt? They've pulled that sort of trick in the past...
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