Why isn’t Google’s stock more like Apple’s?

From Andrew Bary’s “Google’s Sundar Pichai Can Boost Alphabet’s Stock. These 4 Things Should Help” ($) in the Dec. 9 issue of Barron’s:

The executive shuffle [at Google], effective immediately, is getting Wall Street excited about the stock again. Alphabet (ticker: GOOG) shares rose nearly 4% in the days following last Tuesday’s announcement to a record close of $1,341 on Friday. The stock has advanced 29% this year, slightly ahead of the overall market but way behind the gains of other tech giants like Apple (AAPL) and Facebook (FB), which are up 70% and 53%, respectively…

No. 1: Boost the stock buyback. Third-quarter stock repurchases of $5.7 billion—more than double the $2.2 billion a year ago—are a start, but the company should increase the pace. Alphabet can sustain a $30 billion-plus annual buyback pace without denting its growing net cash position.

Apple, which has the most aggressive buyback program among the tech giants, has repurchased $67 billion in the past year and has been willing to draw down its cash holdings to do it. Alphabet’s buybacks, by contrast, have totaled $15 billion in the past four quarters.

While the number of outstanding Alphabet shares is down less than 1% in the past year, to 692 million, Apple’s is down 6%, to 4.5 billion. Since Alphabet began its buyback program in 2015, its share count is up 1%, while Apple’s is down 20%.

My take: Yes, Apple’s buybacks have been aggressive, something readers here appreciate, but which the general public might not. Didn’t Tim Cook tell Mad Money’s Jim Cramer that Apple’s repatriation tax windfall would be poured back into the U.S. economy?

See: Cramer calls Apple’s $350 billion investment in the US economy a ‘modern-day Marshall Plan’

10 Comments

  1. Peter Kropf said:
    “Didn’t Tim Cook tell Mad Money’s Jim Cramer that Apple’s repatriation tax windfall would be poured back into the U.S. economy?”

    You seem to be ignoring the economic impact of Apple’s rising share price. How many new cars and Christmas gifts have been upgraded because the stock has rocked from its last bottom?

    You also are ignoring Apple developers’ revenue, the revenue paid to Apple’s supply chain, and Apple’s capital investments. Those positives lead directly to many new jobs.

    8
    December 9, 2019
    • Michael Thompson said:
      @Peter

      I just bought a new house in La Jolla: Apple Did This.

      No Apple shares were sold in the acquisition of the property.

      0
      December 9, 2019
  2. Marc Bosch said:
    PED did not ignore those. That is what he said (that Apple said)!

    0
    December 9, 2019
  3. “But wait a minute, PED. Are you saying that this cash should have been spent solely on building jobs in the US?”

    Solely? No. What I’m reporting is that rewarding shareholders is not what lawmakers say they expected when they passed the tax cuts. See, any number of press stories. First to come up in a Google search, from the AP:

    “US companies’ tax windfall fuels record share buybacks”

    “2017′s tax overhaul was trumpeted as a way to give companies more cash to invest to grow their businesses. But its timing coincided with signs that the global economy had begun to slow, an incentive for companies to instead give the cash back to investors.

    “The practice has come under scrutiny by members of Congress, who criticized companies for using their extra tax benefits to boost the value of their own shares instead of investing in outside growth or their workers.”

    1
    December 9, 2019
  4. Fred Stein said:
    Addressing two threads:

    1) Pouring wealth back into the US economy: Apple is doing this is in so many ways. Just a few: Direct job creation; Increasing wealth for employees and investors; Paying taxes at the corp level, the dividend level, employee payroll & employee gains when they sell stock, and various local real estate and sales taxes*; All the third parties in the ecosystems who pay taxes on their earnings; And Apple’s $2.4B into housing. That said, buybacks will tend to increase wealth for those who have wealth, and the savvy to have bought Apple. So the wealth disparity issue remains.

    2) Different buyback strategies: Apple has a fiduciary responsibility to make good investments. Apple’s IRR is more that twice the 10 year t-bill averaged over the last year. Even at today’s higher stock price, buybacks pencil out. Apple has ramped up spending in R&D, and video content production, etc. By contrast, Apple wisely avoids large acquisitions, as especially in a world with $T’s of capital sloshing around pumping up valuations. It’s tough for Apple spend the capital. So far, they’re doing the best IMHO.

    *In Apple’s home, the Bay Area, sales tax is 9%, paid for by us eager consumers and going into our local communities.

    Disclaimer: Liberal, not progressive. In favor of wealth creation and wealth distribution.

    2
    December 9, 2019
  5. Jerry W Doyle said:
    If Congress’ intent truly was to direct repatriated companies’ overseas cash targeted to capital investments within the USA, then all that our good Congresspersons had to do was to insert a provision within the tax bill so that the final legislation passed prohibited the use of repatriated funds for stock buybacks. It’s that simple. Congressional staffers know that, too. Our good Congresspersons inserted no such prohibition.

    It was no dirty little secret how companies would respond; and, it is no “eye-popping” revelation to Congresspersons (and those who are complaining) to also know that companies would most likely use those funds for stock buybacks, increased shareholders’ dividends, employee and executive pay compensation. This is not the case, though, for Apple.

    In the scheme of things, I believe Apple did pretty good. They did build new plants and factories. I remember a few weeks past where Tim Cook and the president together showed off one of those new plants in Austin (that would have closed) after Tim Cook decided not to offshore manufacturing to Asia, but keep those jobs within the USA at dozens of plants across the nation for final assembling in the Austin facility.

    Apple opened multiple new campuses across the country hiring new workers and spent $1B alone to build a second corporate campus in Austin where 15,000 employees will come aboard. This effort and others in use of repatriated funds did hire more workers in the USA. It also resulted in new equipment expansion that leads to more economic boost for USA workers.

    Apple also is putting as much money into research as it believes that it needs. All this money has resulted in hundreds of other public and private companies who are benefiting from those off-shore recovered funds.

    Also, the president’s Tax law has led to a plethora of M&As in multiple USA industries and Apple has acquired some companies’ operations, such as Intel bringing jobs to Apple; jobs that Intel would have jettison. Few can argue that M&As are not an excellent growth strategy. And growth leads to increased hiring.

    It is true that Apple is a huge buyer of its own stock, but Apple also invests a humongous amount in R&D. Apple spent $14.2 billion in R&D for 2018 according to regulatory filings. Apple will spend over $16 billion in R&D in 2019. What you need to know is that Apple is spending more than ever on R&D.

    Also, Apple is committed to spend $350B in the USA over the next five years, including $30B in capital expenditures.

    The fact that Apple has repurchased massive amounts of its stock is because Apple produces profits as far as the eyes can see. Apple generates so much profits that they have to use it as efficaciously as possible, and the company is doing so.

    It seems disingenuous for anyone to target Apple as not using its repatriated overseas funds consistent with the president’s Tax law; which by the way, has been a wild success in boosting the nation’s continued economic growth.

    1
    December 9, 2019

Leave a Reply