this is exactly what they're trying to signal because its true. what's wrong with that? they've been extremely profitable while not spending the $45 billion they're giving back to shareholders, and they can continue to be profitable without it.
> In reality Apple could probably just become a private company by buying back most/all the public shares
no it couldn't. it's market cap is 550B. it's cash reserve is 100B.
more generally, a company cannot buy itself because the shareholders actually own the cash the company holds. generally, if a company has $X dollars of cash reserves, then the market cap on that company would be > $X.
edit: a factor of 10
It's actually Float Shares * Market Price.
This doesn't make much of a difference in Apple's case, because most of their market share is floating on the public market. Quick calculations:
932.37M Shares Outstanding x ~$600/share = $559.4B Mkt Cap
931.79M Float Shares x ~$600/share = $559.0B Price to go Private
$400mm, in this case, doesn't make much of a difference, but if you talk about this for other companies in the future, keep it in mind.
You're clearly alluding to Facebook being "forced" to go public, but they too could remain private with 501 investors. But once they're revealing their numbers, they figured they might as well jump in with both feet and do the IPO.
if (NumOwners >= 500) public = true;
Different than being a publicly traded company.
If Apple consumes about $15 billion a year in cash for its stock buybacks and dividends, it is generating so much new cash from its business that its total cash balance at the end of fiscal 2013 could be around $180 billion, estimated Gene Munster, an analyst at Piper Jaffray.
http://www.nytimes.com/2012/03/20/technology/apple-to-use-ca...
Market cap != Value assets
The 550B market cap is the value of all outstanding shares of the company which is not equal to value of the combined assets like buildings and $$.
For more information, you could look at Benjamin Graham's "The Intelligent Investor". This is a very good introduction to investment, but it's also quite a long read.
Source: http://www.businessweek.com/1997/34/roster34/aapl.htm
Dividends offer _true_ returns:
They send a message to shareholders that you want them to stay as shareholders and are rewarding them for their committment to your company. Its a reminder to shareholders that the business investments you have made have actually worked and the reward is that cash can be returned to shareholders . That profits are more important to shareholders over the long term than trying to convince wall street to increase your PE [via buybacks].
Meanwhile... buybacks just perpetuate insider dilution:
Companies continuously issue new shares to their managers without asking their existing shareholders. Those managers then leak that stock to the market a little at a time. It’s unlimited dilution of existing shareholders’ stakes, death by a thousand dilutive cuts. If that isn’t a scam, I don’t know what is. Individual shareholders have nothing but the chance to sell it to the next sucker. A mutual fund buys one million shares of a company with your and your coworkers’ money. You own 1 percent of the company. Six weeks later you own less, and all that money went to insiders, not to the company. And no one asked your permission, and you didn’t know you got diluted or by how much till 90 days after the fact if that soon.
[1] http://blogmaverick.com/2006/07/22/executive-pay-and-stock-p...
An individual investor might prefer dividends for tax reasons, while a mutual fund might prefer buybacks. But other things being equal, both sorts of investors don't want unnecessary dilution.
Is a golden parachute ideal for this? Perhaps not, as it does introduce some strange incentives overall; but I'm not aware of anything better.
I don't get the criticism that Apple has no better way to spend its money. It's been building a cash stockpile for years, so obviously they've had this "problem" for years. They're a public company that has to report the size of their cash stockpile every quarter; having a growing cash stockpile already signals they haven't found a way to somehow reinvest their cash. Paying a dividend, especially such a small one, hardly lets the cat out of the bag at this point.
Furthermore, interest rates are still rock-bottom. If Apple suddenly needed a whole bunch of cash to invest, it wouldn't be at all difficult for them to borrow at much, much lower rates than their rate of return. It might be more risky and costly than simply spending a war chest, which is a good reason to keep 55 billion around (plus whatever they pull in over the next three years) while distributing the other 45 billion.
The differences are
1. Buybacks are usually more tax efficient, because with dividends, profits are realised at the point of sale;
2. Buybacks tend to be procyclical, since companies get a bargain when their shares are undervalued and overpay when they are overvalued. There is some evidence that overall, companies do not get good value for their shareholders from share buybacks. Also, many stock options have the effect that buybacks reward shareholders better than dividends.
I think a mixed dividend and buyback policy is wise. Apple shouldn't be hoarding the cash, and they shouldn't make poor value acquisitions.
To take themselves off the stock exchange, they would need to issue bonds valuing around $500 million, and so become a highly indebted company. This would be tricky, and it is not obvious why this would be in Apple's interest.
$500 _billion_
With a P/E of 16.87, AAPL a growth stock. Or overvalued. With a P/E of 11.71, MSFT is value not growth. With a P/E of 135.1, AMZN is ... pricy.
In Apple's case, what it signals may be a little worse - i.e. that they have given up on trying to find those better ways despite having had several years to work on it as the cash accumulated.
If Apple had announced dividends a year ago, before Jobs' death, it would look like Apple had a long term vision - and there was certainly opportunity to have provided dividends.
More importantly, there was opportunity to spend the money. If Apple couldn't figure out how to make a dent in $30 billion or $50 billion or $70 billion, it doesn't look like their problem has gotten any easier.
"I was talking recently to someone who knew Apple well, and I asked him if the people now running the company would be able to keep creating new things the way Apple had under Steve Jobs. His answer was simply "no." I already feared that would be the answer. I asked more to see how he'd qualify it. But he didn't qualify it at all. No, there will be no more great new stuff beyond whatever's currently in the pipeline."
Looks like they probably won't be dreaming up innovative devices anyway unless a new Steve Jobs takes over.
They can't use the shareholders' money (which is what this is) to take themselves private. You can't buy something from someone with their own money.
EDIT: Any of these downvoters care to explain themselves? Apple can't buy back most/all of the public shares using this pile of cash, because it belongs to Apple, which belongs to its shareholders. (Even if they could afford to do it, which they can't)
You're getting downvoted because it doesn't make sense for a company to be able to move in one direction, but not the other.
The shares they purchase don't transfer the ownership they imbue to the board of the company -- they are either retired, held as treasury stock or given to other shareholders. The majority shareholders remain majority shareholders of a smaller amount of stock.
To think of it in a very simplified way, if the company bought back all the shares except 10 from some staunch holdout, that guy would own 100% of the shares of Apple, (and each share would have a stratospheric price).
For the board/management to take control of Apple from the shareholders (which is what people mean when they talk about going private, really), they have to personally acquire more shares.
They obviously can't do this with the company's money, because shares bought with that transfer to the company and either dissolve or are transferred. They have to use outside finance to do it.
This is what I mean about you can't buy the company from the shareholders with their own money.
(They could in the simplified world use the money to buy back the stock and grant it all to board members, but in this world there is a tonne of legislation preventing this, and if they did it to take control out of the hands of shareholders they'd be open to action.)
The ever-present notion that the leadership team of what is now one of the largest companies in the world has no real idea what they are doing is fascinating to me. Perhaps they deserve a bit of credit.
IMO, Apple starting down the dividend path is simply the only reasonable course when faced with that sort of cash flow.
You don't play with 100B in the same way that you play with 100K.
There are few times when a really compelling buyout opportunity emerges. And it is at those times that you want the warchest. Until then, you need to keep the dry powder.
As an example, Buffett wouldn't be able to negotiate the really sweet deal with BofA last year (5B, paper profit ~ 2.8B at the onset) without the cash balance.
NOTE:
Apple earned ~$13b profit last quarter and it's only going to grow. $15b x 4 quarters = $60b PROFIT PER YEAR.
They can easily afford $45b over the next 3 years considering they have more money than God.
Even Jobs only really got one money-printing-quality hit like this in his career. Most of "his" other stuff was great, sure, but mixed with equally great competitors (Pixar -- Toy Story was huge, but so was Titanic) or never managed to break into the market due to bad timing or market conditions (Mac OS).
Seriously: if all that Apple can do with that $100B is produce a top flight movie studio or a distant-second competitor to an established monopoly, it's not enough. They should give the cash back instead.
Titanic's studios have had plenty of flops and shitty movies to offset their successes. Pixar has had a string of commercial and critical successes.
My point is that (1) no, they really can't product another iPhone-like hit (that's a once-a-generation thing) and that (2) Jobs is dead, so there's a serious question about the "leadership team" that investors need to see as a risk. Is it really "safer" to leave your share of that $100B egg in one basket, or just to put it into a mutual fund?
Personally, I'd say Pixar seems to be the Apple of the movie industry. A few products, done right, and hugely profitable:
> As of February 2012, its films have made over $7 billion worldwide, with its $602 million average gross by far the highest of any studio in the industry. In addition all the films produced by Pixar are among the fifty highest grossing animated films of all time, with Finding Nemo (#26), Up (#43) and Toy Story 3 (#7) all in the top 50 list of highest-grossing films of all time. - http://en.wikipedia.org/wiki/Pixar
> My point is that (1) no, they really can't product another iPhone-like hit (that's a once-a-generation thing)
They've already put out three in a generation - iPod, iPhone, and iPad. Lumping those three distinct systems into one is intellectually dishonest.
But there's no need, so I'll simplify. If all Apple can do with that $100B is generate another Pixar, Macintosh, iPod or iPad, it is not enough and they should give the money back. To make it seem like a good bet, they need to produce another iPhone. And they can't, because no one can do that at will. We'll see another hit like that in 15 years or so if we're lucky.
The iPhone was the next step in omnipresent computing. You always have your iPhone. It's two steps down from laptops (leap-frogging the tablet, which has come after the iPhone). The next step is either glasses with computer screens (kind of geeky), or voice-interface computers.
With a voice interface, you can shrink a computer down to the size of a wristwatch. Getting data out is a problem (display glasses? some kind of projector?) is an issue, but not insurmountable.
15 years doesn't sound crazy.
http://www.codinghorror.com/.a/6a0120a85dcdae970b0163030a719...
You can't really compare iPhone and Pixar that way. IPhone was a product by an established company that was already producing the iPod. Pixar on the other hand was a startup (sort of), which Steve Jobs invested $10 million in and sold for $7.4 billion, quite an impressive return on investment.
Give it back.
Then I realized Apple earned $13b profit last quarter and it's only going to grow. $15b x 4 quarters = $60b PROFIT PER YEAR.
Not all of their profit will be used for the share buy back/dividend, but Apple can easily afford it and still have MORE cash (specially after you factor in cash inflow from its investing activities).
Combining a stock buyback plan is smart at least because perhaps they can balance the two and counteract the dividend effect by buying up shares.
In reality Apple could probably just become a private company by buying back most/all the public shares, but I doubt they want to do that. There are obvious PR benefits to being the "most valuable" or "most profitable" public company in the world.
Also, as far as space travel and exploration, that makes no sense for Apple. Apple is not a company that invests huge in R&D projects that won't pay off for decades. It would ruin their incredible focus on what they are doing now and for the next 5 or so years. If you get too far out ahead, you build things the world isn't ready for yet or you stop executing on the here and now products and services.
Apple's still got a ton of room for potential growth on phones, pc's, and tv's. There are also a whole slew of "post pc" computing interfaces and devices that haven't even been dreamed up yet. Space travel would be a distraction.