“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.
Is he implying/stating that AAPL is trading at its fair value at $114/share? What will he say when its back in the $130’s or $140’s?
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.
And you know all of this because you’re the resident expert/genius. Thanks for the update.
Give Tim Cook a break, he’s not Steve Jobs, for crying out loud.
Hmmm did someone forget about the 7 for one stock split?
Jacksons articles are missing MAJOR reality points.
READ WITH CAUTION!
Really!
Has anyone ever seen anything of value come out of the Forbes Walking Dead Network?
MDN – why do you publish anything from that source of landfill?
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.
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.
…so they *are* losing money on each car sold (but we shouldn’t care)?
….so you “are” playing the stupid card?
Uh, OK.
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.
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.
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?
Pundits. And consider the source: Forbes. The persecution rests.
This is all part of their “green” initiative: power for the main office is generated by Malcolm spinning in his grave.
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!
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.
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.
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?
Answering my own question, yes that is what he did.
Buy backs are bad and even used to be illigal …
http://www.theatlantic.com/politics/archive/2015/02/kill-stock-buyback-to-save-the-american-economy/385259/
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).
Eliminate buyouts for good, increase the dividends by 25%, pay off the debt and be done with it.
What is always ignored in these ideas of buying this or that is the dilution of focus and management resources to integrate the firms, and manage the more diverse product line. And of course the writer cherry picked a surely temporary low in AAPl due to the fear around what impact the China situation will have on the company AND to speculation about Watch sales and etc.
By buying back shares, Apple returned cash from it stockpile (where it earned almost no interest) to shareholders, who can then use it to invest in whatever they want and try to get a higher return than Apple shares.
Multi-billion dollar mergers are hardly a guaranteed success (aQuantive, Nokia) and would’ve required a significant amount of attention from Apple executives, potentially affecting employee retention rate and the product pipeline.
Twitter and Facebook will be disrupted within the next decade by the better way to keep up on the Joneses. There is low barrier to entry for such endeavors and smart people will jump those barriers to do the next better thing. Attempts have not been successful yet but it will come. Look what happened to the once unassailable MySpace. (Hint: what will widely available and easy to use add blocking do to Twitter and Facebook’s business?) Tesla will also be disrupted, most likely by hydrogen fuel cell cars. If you look at how much fossil fuel is needed to produce the electric charge to drive a Model S one mile, including all the losses along the production and transmission chain, they are getting about 27 miles to the gallon — many internal combustion cars do better. And battery production and disposal is and will be a huge environmental problem. They are loosing $14k/car now and making it up on volume.
The barrier to entry for what Apple has is monumental and is extremely unlikely to be overcome. Many have tried and failed miserably (Google + Motorola, Microsoft + Nokia). Operating Systems enthusiastically developed for, ecosystem covering the gamut of human needs and growing, unmatched and highly patented hardware and the synergy that comes form having all these organically growing together in the same company cannot be duplicated any more. The one risk would be a run of bad leadership but that’s unlikely due to “Apple University” educating each new generation of leadership.
Why would Apple want to buy one of these companies that have iffy futures and distract itself from what it already does better than any other company has or likely will? That would be truly bad leadership. They buy small companies they need and when they have more money than they need to run the business they give it back to the shareholders. Sounds reasonable to me. When they buy a large business outside their expertise that would distract them from the synergistic triumph that is their current business, it’s time to sell AAPL.
Another good for nothing no point existing on this planet ANAL-yst!
I have been saying the same thing. The buy back and dividend plan killed Apple that Steve Jobs built. It was stupidity of the highest order. Now Tim Cook can dance in the rain but the Apple stock will forever be in the mud with no future prospects of matching returns of other technology stocks. The Board should act now and fire Cook for destroying a great company. This stock thing is on top of other blunders–maps, watch OS, Apple Music muddle etc.
In hindsight from the way Apple is being dumped all over, I’m thinking maybe Apple should have gone M&A because all the companies that are doing something about grabbing quick revenue are being favored by Wall Street. Apple acquired Beats but Wall Street hated that because everyone thought it was an overpriced company that had useless products. I would like to see Apple go for some powerful and proven cloud storage server business. Wall Street seems to love that cloud storage stuff. It’s just that Apple can afford so much but doesn’t seem to do anything investors like.
I really had thought Wall Street wanted Apple to do stock buybacks but all it’s doing is draining Apple domestic cash reserve and causing shareholders lots of grief. For all I know maybe nothing Apple tries will work in shareholders favor if Wall Street simply doesn’t like who’s running the company.
I’m really frustrated seeing how easy it is for Amazon and Google to boost their P/Es and share prices without much trouble at all. Investors are always pleased with what those companies do but they’re never pleased with Apple. It’s like Apple is always hanging from a thread despite the solid fundamentals. From the accounting I had learned, Apple is the sort of company that should have the least risk involved, not the most. It’s obvious my understanding of the stock market is totally wrong but I still don’t quite understand why Apple’s share price is all messed up the way it is.
He’s Tim Cook and you’re not. Get over it.
Does this idiot know how to look at charts?
Does this idiot know how to read charts?
Or he wants to cherry pick dates that suite his stupidity !
I would not be surprised if after Apple Pay gets going Apple goes on a financial buying search…..for perhaps American Express or other financial card company….
I wish there were a way to tag analysts like this so that if you run across them in a year or so, you know to discount everything they say.
At one point he claims that Apple bought back shares with debt because they didn’t have cash on hand in the US. They actually do have a enough cash domestically, but they chose to use debt because it was cheaper to do it that way.
Also, his choices for M&A are poor. Facebook has a PE of 98 (it will take almost a hundred years to get your investment back). Quite obviously, unless you are a gambler, and hope someone stupid comes along later, this is not worth buying. (The fact that Nasdaq has a PE of 22 also undermines his entire argument.)