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Why not? They can spend their money however they want, but Wall Street demands endless share buybacks over everything else. Do you think there is any downside

Why not? They can spend their money however they want, but Wall Street demands endless share buybacks over everything else. Do you think there is any downside to just transferring wealth to the (already rich) shareholders over and over and over again? Seems to be their top priority nowadays.

dangus 7y ago
There’s a really obvious ceiling to R&D. I can spend a trillion dollars and hire a million engineers but that won’t build me a time machine or a perpetual motion device.
- Retric 7y ago
  Until they make up a significant percentage of global R&D spending they could increase it while spending money on useful things.
  - scarface74 7y ago
    Like what?
    - Retric 7y ago
      Camera tech seems to be an obvious choice. But, they could go as far out there as doing drug research. Apple is a giant multinational corporation, they could get into any market.
      - scarface74 7y ago
        Drug research? Really? There is no part of Apple that is optimized for drug research. Even with the iPhone, they already had an OS that was the basis for it.
        Retric 7y ago
        As I said, cameras or something similar would be working to their strengths. Hell, build a game console, Microsoft eventually pulled that off and Apple has a huge leg up. But, the thing is they don’t need to be good at something. Giant companies regularly expend into new areas. Employ the right people, make some investments, and suddenly they are competitive. I am not saying Apple should diversify like this. However, it is an option.
        scarface74 7y ago
        Game consoles are also not hugely profitable. In fact they are sold at a loss for the most part for the first few years. Microsoft loss billions selling game consoles on the first two or three generations. Even now, the mobile app market is larger and more profitable than the console market for Apple with them taking a 30% cut. On top of that, Apple already announced the subscription Apple Arcade service and their games will run on iPhones, iPads, AppleTVs and Macs. Between Microsoft and Sony, they sold a little over 100 million of the current generation consoles during their entire existence (https://www.cinemablend.com/games/2417541/ea-reveals-how-many-xbox-one-consoles-have-actually-been-sold https://www.cinemablend.com/games/2417541/ea-reveals-how-man...) - many of them at a loss. Apple sells 50-70 million iOS devices every quarter. Heck Apple will probably sell more Watches (at a profit) than that during its first 5 years. People are already spending more time on mobile devices than consoles. As far as cameras, the standalone camera market has been declining for years because of the smart phone. There is only so much you can do with cameras in phones because of both physics and the cost has to be low enough to make the entire phone affordable. I’m sure no one at Apple is thinking about releasing the Apple QuickTake 2.
        Retric 7y ago
        The point of this exercise was to find areas they could have spent that 17 billion on R&D. A few billion losses for a few years for a net long term gain is the point of investing in R&D. Further, as I have listed areas they could be investing in but are not that you have had zero objections to. I think it's clear they have less focus on R&D than was possible.
      - kaokien 7y ago
        Do you know what apple did in the 80s? Overextend by following foolish ideas like yours, focus is what led to them reaching their success, and focus is what will extend them to the next product that, guys like you will complain about not being innovative.
mruts 7y ago
What is exactly wrong with share buybacks? Clearly they have more capital than they can deploy effectively right now, so they plan for the future by putting some powder in their gun. Share buybacks serve three main purposes: 1) increase the share price (as you mentioned) 2) signal to investors that the company is bullish on it's future (they wouldn't buyback shares if they thought the shares would be lower in the future) 3) Give the company the option to sell the shares in the future in case the extra capital can be used for a prudent use. It's really mystifying why people are so against share buybacks while no one talks about dividends. They share a lot of similarity, but buybacks provide more options and greater tax efficiency so they should be preferred over dividends in most cases. > Do you think there is any downside to just transferring wealth to the (already rich) shareholders over and over and over again? Seems to be their top priority nowadays. That's not what's really going on (see above). Also, I would hazard to guess that most people who have exposure to the stock market have direct market exposure to Apple. Moreover, about half of households have direct (non-pension) exposure to the stock market. So I don't think your claim about it only benefiting the "already rich" shareholders hold much water. Hell, I would bet that 90% of HN users have direct exposure to equity markets. Also, I bet you do as well.
- mythz 7y ago
  > What is exactly wrong with share buybacks? AOC presents a good argument against Buy Backs from Big Pharma which incentives CEO's who's compensation is tied to stock price, which as a result she attributes as the cause of rising costs of health insurance: https://twitter.com/AOC/status/1154794058272972801 https://twitter.com/AOC/status/1154794058272972801 Although Big Pharma doesn't operate in a natural economy where products are priced at optimal demand / supply for max Revenue. Instead their cost is hidden from the end-user, absorbed by insurance companies and amortized across all plan holders with rising cost of health insurance. In the long-term Buy Backs shouldn't increase a companies value as it's just trading one Asset for another, i.e. it's cash reserves for shares in their own stock, they'd choose to do this if they've maxed out their R&D budget (very healthy at $14B) and if they believe their share price is undervalued, which at a 17 P/E is significantly lower than all other FANG stocks. They could try and follow in AMZN's footsteps and try to expand into all areas outside of their core competency, but it's not their style which is to do a few things and do them well. IMO it's due to protecting and not wanting to dilute the high appeal of their Brand and Products. The result of which they've ended up with an excessive amount of capital and no effective place to invest it, although IMO they should've invested a lot more in content like Netflix a lot sooner than they have with Apple TV+.
jknoepfler 7y ago
It's impossible to evaluate the marginal return to Apple on increasing R&D by $1 versus increasing $1 in spending buying back stock in light of a tax windfall. They are both sources a potential value, neither is obviously correct, and the value of each dollar spent is highly non-linear. Also who do you think the top shareholders of Apple are? Apple making a profit doesn't necessarily hurt the Vanguard ETFs my government-employeed middle class American family members sock retirement saving into...?

dangus 7y ago

There’s a really obvious ceiling to R&D. I can spend a trillion dollars and hire a million engineers but that won’t build me a time machine or a perpetual motion device.

Retric 7y ago
Until they make up a significant percentage of global R&D spending they could increase it while spending money on useful things.
- scarface74 7y ago
  Like what?
  - Retric 7y ago
    Camera tech seems to be an obvious choice. But, they could go as far out there as doing drug research. Apple is a giant multinational corporation, they could get into any market.
    - scarface74 7y ago
      Drug research? Really? There is no part of Apple that is optimized for drug research. Even with the iPhone, they already had an OS that was the basis for it.
      - Retric 7y ago
        As I said, cameras or something similar would be working to their strengths. Hell, build a game console, Microsoft eventually pulled that off and Apple has a huge leg up. But, the thing is they don’t need to be good at something. Giant companies regularly expend into new areas. Employ the right people, make some investments, and suddenly they are competitive. I am not saying Apple should diversify like this. However, it is an option.
        scarface74 7y ago
        Game consoles are also not hugely profitable. In fact they are sold at a loss for the most part for the first few years. Microsoft loss billions selling game consoles on the first two or three generations. Even now, the mobile app market is larger and more profitable than the console market for Apple with them taking a 30% cut. On top of that, Apple already announced the subscription Apple Arcade service and their games will run on iPhones, iPads, AppleTVs and Macs. Between Microsoft and Sony, they sold a little over 100 million of the current generation consoles during their entire existence (https://www.cinemablend.com/games/2417541/ea-reveals-how-many-xbox-one-consoles-have-actually-been-sold https://www.cinemablend.com/games/2417541/ea-reveals-how-man...) - many of them at a loss. Apple sells 50-70 million iOS devices every quarter. Heck Apple will probably sell more Watches (at a profit) than that during its first 5 years. People are already spending more time on mobile devices than consoles. As far as cameras, the standalone camera market has been declining for years because of the smart phone. There is only so much you can do with cameras in phones because of both physics and the cost has to be low enough to make the entire phone affordable. I’m sure no one at Apple is thinking about releasing the Apple QuickTake 2.
        Retric 7y ago
        The point of this exercise was to find areas they could have spent that 17 billion on R&D. A few billion losses for a few years for a net long term gain is the point of investing in R&D. Further, as I have listed areas they could be investing in but are not that you have had zero objections to. I think it's clear they have less focus on R&D than was possible.
    - kaokien 7y ago
      Do you know what apple did in the 80s? Overextend by following foolish ideas like yours, focus is what led to them reaching their success, and focus is what will extend them to the next product that, guys like you will complain about not being innovative.

mruts 7y ago

What is exactly wrong with share buybacks? Clearly they have more capital than they can deploy effectively right now, so they plan for the future by putting some powder in their gun. Share buybacks serve three main purposes: 1) increase the share price (as you mentioned) 2) signal to investors that the company is bullish on it's future (they wouldn't buyback shares if they thought the shares would be lower in the future) 3) Give the company the option to sell the shares in the future in case the extra capital can be used for a prudent use. It's really mystifying why people are so against share buybacks while no one talks about dividends. They share a lot of similarity, but buybacks provide more options and greater tax efficiency so they should be preferred over dividends in most cases. > Do you think there is any downside to just transferring wealth to the (already rich) shareholders over and over and over again? Seems to be their top priority nowadays. That's not what's really going on (see above). Also, I would hazard to guess that most people who have exposure to the stock market have direct market exposure to Apple. Moreover, about half of households have direct (non-pension) exposure to the stock market. So I don't think your claim about it only benefiting the "already rich" shareholders hold much water. Hell, I would bet that 90% of HN users have direct exposure to equity markets. Also, I bet you do as well.

mythz 7y ago
> What is exactly wrong with share buybacks? AOC presents a good argument against Buy Backs from Big Pharma which incentives CEO's who's compensation is tied to stock price, which as a result she attributes as the cause of rising costs of health insurance: https://twitter.com/AOC/status/1154794058272972801 https://twitter.com/AOC/status/1154794058272972801 Although Big Pharma doesn't operate in a natural economy where products are priced at optimal demand / supply for max Revenue. Instead their cost is hidden from the end-user, absorbed by insurance companies and amortized across all plan holders with rising cost of health insurance. In the long-term Buy Backs shouldn't increase a companies value as it's just trading one Asset for another, i.e. it's cash reserves for shares in their own stock, they'd choose to do this if they've maxed out their R&D budget (very healthy at $14B) and if they believe their share price is undervalued, which at a 17 P/E is significantly lower than all other FANG stocks. They could try and follow in AMZN's footsteps and try to expand into all areas outside of their core competency, but it's not their style which is to do a few things and do them well. IMO it's due to protecting and not wanting to dilute the high appeal of their Brand and Products. The result of which they've ended up with an excessive amount of capital and no effective place to invest it, although IMO they should've invested a lot more in content like Netflix a lot sooner than they have with Apple TV+.

jknoepfler 7y ago

It's impossible to evaluate the marginal return to Apple on increasing R&D by $1 versus increasing $1 in spending buying back stock in light of a tax windfall. They are both sources a potential value, neither is obviously correct, and the value of each dollar spent is highly non-linear. Also who do you think the top shareholders of Apple are? Apple making a profit doesn't necessarily hurt the Vanguard ETFs my government-employeed middle class American family members sock retirement saving into...?