What Tim Cook should have done with Apple’s $130 billion instead of wasting it on buybacks

“Apple has wasted $100 billion on dividends and buybacks over the last 2 years (they’ve spent another $30 billion since the end of the year on the failed policy),” Eric Jackson writes for Forbes. “They should have used that money on M&A instead, in my view. If they had, I believe Apple’s stock would be $50/share higher than it is today.”

“In September 2012, Apple had a $560 billion market cap, $120 billion in cash, no debt, and $55 billion in trailing 12 months EBITDA. The stock price topped out that month around $100/share (in today’s dollars),” Jackson writes. “Today, Apple has a $654 billion market cap, $200 billion in cash, $55 billion in debt and $77 billion in trailing 12 months EBITDA. The stock price – as I write this – is $114/share. That’s obviously a 14% increase in the last 3 years – or about 4.6% a year. The Nasdaq is up about 57% over that time – or about 19% per year.”

“During this time, Apple has disgorged $130 billion in cash (had they done no capital return plan, they would now have $330 billion in cash on their balance sheet as Ben Evans tweeted last month). They’ve also added $55 billion in debt. It’s low cost debt – just like you might get from a credit card company for a 12 month teaser rate – but of course it needs to be paid back one day,” Jackson writes. “Besides the dividends which Apple has paid out, it’s reduced its share count by about 14%.”

“What does this all mean? It means that in exchange for a program that’s spent $130 billion cash and saddled the company with $55 billion in debt, after growing its profitability by about 50% over 3 years, Apple has been rewarded by Wall Street for listening to what it wanted by receiving a 4.6% annual increase in the stock price over a time when the Nasdaq clocked an average annual gain of 19%. And Apple’s multiple has shrunk to boot,” Jackson writes. “Congratulations, Tim Cook. You’ve truly gotten nothing for something.”

Much more in the full article here.

MacDailyNews Take: As Jackson points out, for $130 billion Apple could have tried to buy Facebook for $100 billion back after it got valued at $50 billion as well as Twitter and Tesla and have had money left over. If Apple had done so, what would AAPL be trading at today? Would any combination of those acquisitions have hurt Apple more that they helped? Certainly there are arguments pro and con for the whole idea of buybacks vs. acquisitions just as there are for Apple buying Facebook or Twitter vs. something like Tesla.


    1. Tunnel Vision is an affliction that infects so many bloggers or other so-called “experts”.

      Where AAPL is trading today has absolutely nothing to do with its fundamentals. Apple continues to grow ala a startup, through off enormous amounts of cash and grow market share (not only in handsets but in computers as well).

      AAPL is in a trading slump because investors are a flighty group of people. They are reactive to the extreme in the face of uncertainty.

      The taller the tree, the further the fall.

      This dictum has more to do with sentiment for AAPL than any thing else. Simply put, investors still can’t believe that a firm the size of Apple can continue to grow like a startup. They fear the possibility of a Mac killer, an iPhone killer, an iPad killer, an Apple Watch killer, even though the Mac and iPhone continue to grow faster than the market, iPad is “growing” with the market and remains the number 1 tablet, and the just introduced Apple Watch zoomed to the top of the heap in just 3 months (while costing twice as much as the competition).

      For the record, Apple has been growing revenue at a compound 25% rate per annum (on average) since 2004. Fiscal 2015 revenue growth will be more than 27%.

      How Apple invested $130 Billion over the past 3 years has absolutely nothing to do with how AAPL trades today. Investor temerity and blogger ignorance does.

  1. IMHO, buying Tesla would be an enormous mistake for Apple Inc. The company is, arguably, losing money on each and every car it makes . . . that is, factoring in the federal and state government taxpayer subsidies it has received over the years. Apple needs no more government involvement in its affairs than it already receives, specifically in the areas of data encryption, offshore tax structuring, and ebook price-fixing. Maybe leaving Facebook and Twitter on the table was a mistake on Tim Cook’s part, but acquiring Tesla would have been–and be–much, much bigger.

    1. Tesla is NOT losing money on each car. You seem to have been brainwashed by the sensational headline the other day.

      Tesla is actually a “STARTUP”. It ploughs cash back into infrastructure buildout for superchargers etc. Massive buildout in Europe, China and NA. All such startups look like they are losing cash.

  2. I’ve been saying for a long time that the share buybacks are a waste of money. Wall Street couldn’t care less how many AAPL shares are outstanding or what its P/E ratio is. Wall Street is perpetually convinced that Apple’s best days are behind it. Cook could reduce AAPL’s share count by 50% and it would still be trading at $114-$125. AAPL’s P/E ratio could be 1.5 and it would still be trading at $114-$125. Tim Cook might as well have just piled up that $130 billion and lit it on fire.

    1. Yes. Wall Street is primarily populated by TRADERS not INVESTORS, thus prices are based on EMOTION (FUD), far more than fundamental financial information. Apple is spending money in a traditional fashion to beef up the fundamentals. If you are an investor, what Apple is doing is good, if you are a trader, how Apple manages their money is largely irrelevant to your trade, compared to FUD.

      Almost all the analysts are focused on traders, not investors. As long as the regulators in Washington fail to understand the difference between traders and investors, and favor the traders, don’t expect anything to change.

  3. There’s really not much point listening to these ANALysts.

    First, Apple was lauded for doing the stock buy backs, because that’s what they wanted… now, Apple’s screwed for wasting money on stock buy backs.

    Makes anyone wonder who listens to these ANALysts in the first place?

  4. So 14% of shares bought back equates to about 0.8B shares.

    At $130, the price it was not more than a week or so ago, that equates to $104B.

    So add that in with the $200B in cash/equivalents giving a grand total of $304B.

    That’s not at all bad. Plus we (shareholders) all got a lot of money from dividends. Thanks, Tim!

  5. This writer (and his supporters here and elsewhere) assume that the DOJ would have ALLOWED Apple to use its large cash hoard to acquire a Facebook or a Twitter or similar company it actually knows something about. That would NOT have happened in the day and age, folks. In the name of “fairness” and giving the underdog a helping hand, Apple is on its own. Definitely no M&A for Apple Inc with any company of significant size and influence.

  6. Reading analysts is like watching TV news. Find the one you agree with and close your mind to all others. Sort of like folks do with FOX or MSNBC. That way you only hear happy talk that you will like. Do that and your life will be easier. Will not change the market but you can quit worrying.

  7. Why is it that when I plot apple return for 2 years or 5 years vs. Nasdaq on Yahoo Stocks, Apple has done better? Did this writer purposely pick an Apple peak versus Nasdaq low?

  8. There’s no way Apple could have bought FB because, like GOOGL, it’s structured in a shady way such that Zuckerberg owns the majority of the voting rights. He’d surely demand some absurd premium before he’d sell (likely more than AAPL’s cash stockpile, and possibly more than their total market cap).

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