From Dan Gallagher’s Apple and the Art of the Buyback in Monday’s Wall Street Journal ($):
If Apple does indeed reach a market value of $1 trillion, the accomplishment may be all the more unique (sic) given the company’s effort to lighten its massive cash load.
Apple has been buying back its own shares at a furious clip since last year’s tax-overhaul package freed up more than $250 billion that the company had accumulated in its offshore bank accounts. Apple repurchased about 137 million shares on the open market during its fiscal second quarter that ended March 31, which is more than triple the pace of buybacks averaged over the previous eight periods. It also represented about 6% of the total volume of Apple shares traded during the quarter—the highest percentage seen in more than five years, according to Toni Sacconaghi of Bernstein.
Buying back shares is tax-efficient way to return cash to shareholders. In the case of Apple, it also may be helping boost demand for the stock during what is typically a weak period seasonally, as iPhone sales generally cool in the summer months ahead of upgrades in the fall…
What buybacks don’t do is raise a company’s market capitalization—at least not on their own. Although the share price does rise, all else being equal, the share count falls. But, for those obsessing about whether Apple will be the first company to hit the vaunted $1 trillion dollar mark, the math has been working out in its favor. Its number of shares outstanding has fallen by 25% on split-adjusted basis since the company began its first buyback plan in September of 2012, according to S&P Global Market Intelligence. But the stock price has doubled since, bringing the company’s total market value up by 49%. A steadily-rising share price has a way of taking on its own momentum.
Note to Dan: 1) There’s no such thing as “more unique.” 2) The math actually works against “Apple’s favor,” since lowering the share count lowers a company’s market cap. 3) But as you point out, Apple’s market cap continues to rise, which makes the situation pretty darn unique.