Look who’s buying Apple

From friend-of-the-blog Robert Paul Leitao:

In the largest series of acquisitions of a single company’s shares in history, Apple is buying Apple. Over the long-term it’s a better investment for Apple than purchasing Netflix, Tesla or Disney. Indeed. It’s time to put talk of those acquisitions to rest.

See the number of outstanding shares drop…

apple buys apple

As buyback spending accelerates… (Not seeing the Datawrapper chart? Click here.)

My take: In theory, these buybacks reward existing shareholders, although you wouldn’t know it from this quarter. Best use of the profits Apple repatriated in 2018? Also not immediately apparent.

See also:

20 Comments

  1. David Drinkwater said:
    The cheaper AAPL shares short term are a better investment for Apple and long-term investors long term. Everybody seems to “know the narrative”, but Apple knows the numbers.

    Merry Christmas to all!

    4
    December 25, 2018
  2. David Kettle said:
    Merry Christmas everyone.
    May the Buybacks be with us.

    5
    December 25, 2018
  3. Dan Pallotta said:
    There is probably no fact more important in assessing the health of Apple than that when the smart leaders with fiduciary responsibility at Apple, – who know better than anyone else what is actually going on inside Apple and what will transpire in its future – consider the most productive and responsible options for investing all of Apple’s cash, that they decide on Apple itself.

    7
    December 25, 2018
  4. Fred Stein said:
    Yes. We’re watching history in the making.

    Apple has bought $103B** and retired 14%. Apple committed to being cash neutral. With current cash and future cash flow, Apple can buy back another $300B (approximately, by coincidence, the recent loss in market cap) over the next five years.

    This becomes a financial case study at some future date..

    ** Does nor include this quarter.

    4
    December 25, 2018
    • Gregg Thurman said:
      retired 14%

      At my sister’s for Christmas, so don’t have access to my spreadsheets. But just napkin calculating I think the amount retired is more like 28% (7 Billion share down to 5 billion shares).

      Merry Christmas everyone. Hope you got, and will get, everything you asked Santa for. I wanted grandchildren, but alas won’t get any.

      0
      December 25, 2018
      • Robert Paul Leitao said:
        Gregg:

        I have the reduction of the fully diluted share count from FQ4 2012 through the end of FY2018 at 26.97%. But more important in my view than the reduction in the fully diluted from the peak six years ago is the ability of Apple to reduce the fully diluted share count from current levels by full percentage points each quarter.

        While little can be done at this moment to stop or impede the market-wide sell-off, continuing to invest in the interests of long-term shareholders through the ongoing repurchase program will reveal its value over time.

        2
        December 25, 2018
        • Fred Stein said:
          Thanks. I thought 26% was closer than what I calculated form the graphic.

          Back when AAPL was trading well above $200 Katy Huberty had a graphic of her model showing buybacks and services contributing the lion’s share of large EPS increases over the next five years.

          While her model is detailed and complex, the take-home is simple,

          1
          December 25, 2018
    • Robert Paul Leitao said:
      Fred:

      Since the repurchase program began and through the end of FY2018, Apple has repurchased 27% of the fully diluted share count since the peak in FQ4 2012. Although the share price is significantly higher than six years ago, the diminishment of the fully diluted share count to-date provides an excellent opportunity for Apple to reduce the fully diluted share count from current levels by full percentage points on a quarterly basis for the next several quarters.

      The repurchase program is the greatest transfer of assets from a publicly-traded enterprise to its shareholders in history. Rewarding long-term shareholders on a recurring basis through the share repurchase program while adequately funding expansive capital investments, product and services R&D, increasing employment and investing in the necessary infrastructure to support future growth has never happened before in history.

      Apple is investing not only in the interests of long-term shareholders through the repurchase program, the enterprise is also optimistically and adequately investing in resources needed to support long-term growth of the company and its future sustainability.

      3
      December 25, 2018
  5. Robert Paul Leitao said:
    The share repurchases are an efficacious use of retained earnings and over the long-term will definitely boost shareholder value. In addition, the repurchases are a huge capital infusion into the market.

    I’ve received correspondence asking if I think now is the time for Apple to splurge on buybacks and exhaust the current repurchase authorization. My response is one can’t stop the pull of a low tide by throwing buckets of water back on the beach. I believe any acceleration of the repurchase program should occur after the market finds a bottom. The dollars will be much better invested after the market finds a bottom than efforts to “fight the tide” at this time.

    In my view, Services revenue and the pace of Services revenue growth continue to be undervalued and the shares are trading now at a 50% discount to intrinsic value. The global installed base of device owners is growing rapidly and Services attachment will rise as the installed base continues to expand.

    3
    December 25, 2018
    • Fred Stein said:
      All great points, Robert. We can think of buybacks as a non-optional DRIP (Dividend Re-Investment Program). In that respect investor get an extra 5% annual dividend.

      That makes AAPL a dividend monster. Assuming a 16% boost soon, that’s over 7% at today’s price

      In a similar way, Apple bundles iOS software and support with each iPhone (and all other devices). In that respect, for each iPhone device the cost of the device is 80% and the OS and support is 20%. (The %’s are my fiction). But the OS support is fact. Android OS fragmentation proves that Android phones don’t get OS updates.

      That makes new and refurbished iPhones, the most cost effective in each price range..

      0
      December 26, 2018
  6. Dan Scropos said:
    Tomorrow is a big day for Apple. Touting some impressive record holiday numbers could ease a lot of fears, both on Wall Street and Main Street.

    1
    December 25, 2018
    • Fred Stein said:
      Good point. While Apple won’t announce anything, the financial press already talks about strong holiday shopping, overall.

      0
      December 26, 2018
  7. Robert Paul Leitao said:
    Although the Street might look askance at Apple’s massive share repurchase program, it increase the company’s Return on Equity (ROE) on the remaining net equity balance in a way that the acquisition of Disney, Netflix or Tesla can not possibly accomplish while also serving the interests of long-term shareholders. The desire is to reward shareholders and not to become a massive, complicated conglomerate. Apple’s global revenue base is already well over one-quarter trillion dollars per annum.

    I’ve yet to read a compelling argument as to how the acquisition of any of the three oft-mentioned enterprises would enhance shareholder value in ways that Apple can not accomplish on its own.

    1
    December 25, 2018
    • David Emery said:
      Apple buying its own shares generates a lot less cash for Wall St firms than any kind of takeover 🙁

      1
      December 26, 2018

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