![]() ![]() However, one cannot judge buyback’s effectiveness or success by merely looking at the current stock price. It’s tempting to think that Apple’s share buyback has been a success because Apple shares are trading 265% higher than the average price management paid to repurchase shares. Since beginning to repurchase shares in 2013, Apple has spent $380 billion to buy back 10.6 billion shares at an average price of $35.80 per share. ![]() Apple’s share buyback pace shot higher and has been trending at $70 billion per year.Įxhibit 1: Apple Share Buyback Pace (Annual - FY) tax reform, Apple was able to repatriate its foreign cash at more attractive tax rates. As shown in the exhibit below, Apple kept share buyback to a $30 billion to $45 billion per year pace despite having more than $150 billion of net cash on the balance sheet. The company was penalized for bringing foreign cash back to the U.S. tax reform, Apple was constrained in terms of the amount of cash that could be spent on buyback. When looking back at Apple’s share buyback activity, one event stands out: passage of the Tax Cuts and Jobs Act of 2017. Said another way, some thought Apple was sacrificing its growth potential just to buy back shares. The primary concern held by those skeptical of Apple buying back shares was that by using cash to repurchase shares, Apple would have less cash to spend on capital expenditures (capex), research & development (R&D), and mergers & acquisitions (M&A). At the time, none of Apple’s high-growth peers were buying back shares, which made Apple look even more like an outlier. ![]() Those who followed the “what would Steve Jobs do” doctrine were convinced that Cook had placed Apple on a path to ruin since Steve Jobs had famously viewed dividends and buyback as nothing more than distractions. ![]() Some thought Tim Cook was pressured into buying back Apple shares. While Wall Street mostly applauded the move, Silicon Valley was convinced Apple had made a big mistake. In March 2012, after consultation with top shareholders, Apple announced it would begin paying a quarterly cash dividend and buying back shares. On a free cash flow yield basis, Apple was priced like a junk bond. Apple was trading at a single digit forward price-to-earnings multiple – a valuation typically afforded to companies with little to no growth potential. In the early 2010s, many on Wall Street viewed Apple as the iPhone company, and the iPhone was said to be “dead in the water.” A few activist hedge funds began circling around Apple shares due to their low valuation metrics relative to peers and the overall market. What explains such a dramatic change? The Apple share buyback debate ended, and Apple was declared the winner. To be precise, I didn’t receive an incoming question about buyback in nine months - from when the stock market put in a bottom in April 2020 to the start of 2021. I received far fewer questions about Apple’s share buyback program. Why doesn’t Apple use cash to buy larger companies instead of buying back its shares? Is Tim Cook trying to take Apple private?ĭoes buying back shares signal anything about Apple’s future product plans? Everyone wanted to know about Apple’s share buyback program. In previous years, one topic has been far ahead of any other as a source of questions. I receive many questions about Apple from Above Avalon readers, listeners, and members. ![]()
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