6 ms·

Apple’s cash pile - The tech giant should give cash back to shareholders

16 points by dazbradbury 15y ago

severedipity 15y ago
If you don't like it, don't buy into it. I didn't find a single argument for why they _should_ give that cash back.
joshu 15y ago
Actually, this is easy: If Apple thinks the NPV of holding the money is greater than the NPV of not holding it, then they should do so.
brudgers 15y ago
I'll say it again. Apple should buy Disney because they can provide Apple with gold plated content, it would actually be a halo brand for Apple, and their worldwide brands are highly compatible. When Apple had $30 billion and Jobs was alive, it was possible for Apple to take control. Today they could buy all of it at a premium and still have $10 billion left over.
- RexRollman 15y ago
  So you want them to be like Sony, who has gone down the drain since purchasing entertainment businesses? I would prefer Apple to continue doing what they do.
  - jballanc 15y ago
    Based on the number and independence of the business units at Sony, such a comparison is strained at best. The real reason they shouldn't buy Disney is that it would be an ideological step backward. Disney creates entertainment in the same way it's been done for decades. Apple is interested in how the future of entertainment will be produced/consumed.
  - michaelbuckbee 15y ago
    This is a really good analogy that I hadn't previously considered. Sony has often seemed to trip over itself as it tries to sync up what's happening in their electronics and their content divisions.
  - brudgers 15y ago
    Sony is an interesting comparison. But they haven't had an iconic product associated with their brand since the BetaMax, and I don't think anyone could differentiate their content from Fox in the way that Disney's content is readily identifiable. I.e. name three specific Apple products and three Disney movies - now try that with Sony electronics and movies.
    - RexRollman 15y ago
      What about the Walkman or Playstation?
- protomyth 15y ago
  If Apple is really looking to buy a big company, I would guess they wouldn't buy anyone that killed agreements with other media or network companies (Sprint at $7.3b market cap(1) for example). AMD/ATI might be nice at $5b would be good for the chip tech, but would probably have serious problems with Intel and a lot of PC industry. NVIDIA at $9 would be interesting. Adobe at $16b has been a rumor favorite. It would probably be a buy-it and then spin off / sell a lot of the enterprise facing parts to someone else. 1) expect to pay a premium over cap
protomyth 15y ago
First, quite a lot of the money is overseas and at the current tax rate isn't coming home. At this point, I would favor acquisitions over cash to shareholders. Although, being cautious in this economy is probably a good thing.
mynegation 15y ago
Paying dividends is a bad signal. That did not work well for Microsoft's share price. And even though OP argues that Apple will not repeat their fate, the argument is weak. There is only so much more iStuff that you could sell when everyone and their mother has an iPhone. Paying dividends essentially signals that company does not see how to spend money and has no long-term strategy for growth.
- tpurves 15y ago
  Actually this not reflected in the empirical data. Studies of the data comparing longrun performance of companies with high payout to low payout ratios show significantly that average companies* perform better when they retain less cash. This is counter-intuitive because a strategist would tell you that companies with more cash have more options, companies with less cash have to go through all the expense of going back to the market every time they need to make capital investments. One thing that turns out to be the factor is agency costs. Companies with large cash hoards might waste money on bad or frivolous projects or more often bad, overpriced acquisitions. In apple's case they have more cash than they can reinvest in their own business. The market could get better returns on that cash than apple can. Therefore the market will value the cash on Apple's books at discount to it's true value. The cash is discounted by apple's low sub-market rate of return on that capital and by the implicit risk that management might any day choose to do something dumb with it. Instead companies that have to go to the market more often to raise cash, that have to file more prospectuses, turn out to be more transparently run and more accountable to shareholders. In the long run managers who "have to open the kimono" more often, turn out to perform better for shareholders. When Microsoft announced the first huge one time dividend in 2003 or whenever it was, something funny happened. When they transferred X billion dollars to shareholders, their stock should also have dropped by exactly X billion dollars reflecting the value transferred out of the company. Instead their market cap only declined by 0.8X. Meaning than hundreds of millions of dollars of shareholder value was created out of nowhere. This was because the cash was worth that much more to shareholders who had a use for it than in the of microsoft who couldn't do anything with useful with it. The 0.2X was the implicit discount of the value of that cash on MSFT's books that was unlocked by setting it free. In fact because dividends are hard to take back, a dividend usual signals to the market that management have confidence in future earnings growth. Stocks usually jump on dividend announcements even though theoretically it shouldn't make a difference. That's the signalling effect. *the big caveat being that APPL famously never performs or does anything exactly like an average company.
jballanc 15y ago
Just to give some perspective on how much money Apple has, they almost have enough to re-build the US Interstate Highway system (http://en.wikipedia.org/wiki/List_of_world%27s_most_expensive_transport_infrastructure http://en.wikipedia.org/wiki/List_of_world%27s_most_expensiv...) or construct their own space station (http://historical.whatitcosts.com/facts-space-station.htm http://historical.whatitcosts.com/facts-space-station.htm)... The article hits on a key point, though. Consider that during Jobs life he saw giants like AT&T and IBM falter, and other giants like Microsoft rise from nothing, and then falter. He used to tell a story about how they were 1 week from defaulting on payroll when he returned in 1997. I think he certainly wanted to keep the money for a "rainy day" scenario. Which brings me to the most interesting thing that Apple could purchase: they could afford to pay an average salary of $300,000/yr to every one of their employees for 5 years with absolutely no revenue, and they still wouldn't exhaust their bank vault. If it were up to me, I would say they should start something equivalent to Bell Labs or PARC, but they won't. To do so would be antithetical to the very character of the company. In other words, quite the bind to be in...
- gwright 15y ago
  Apple is a publically held company. Disposing of profits by giving it all to employees would be a wonderful way to create an instant shareholder lawsuit. The cash held by Apple is built in to its share price. If a stock holder wants some of that all they have to do is sell some shares. Undoubtably there are some tax considerations regarding capital gains vs. dividends but the fact remains that if Apple distributed a significant amount of its cash to shareholders, then the share price would inevitably drop by the same amount.
stevengg 15y ago
I see a lot of posts like this one talking about how apple NEEDS to do something to lower its stockpile of money but none of them seem to explain why. could someone tell me why holding $100 billion in cash is worse then doing stock buy backs and or issuing dividends if the market takes into consideration its large cash reserves when pricing its stock.
Skroob 15y ago
My problem with this, and all other stories on the same theme, is "Why?" Why does Apple NEED to do anything with its cash reserves? The story says: "Last month Mr Cook admitted that the firm has more cash than it needs for its operations. It’s a nice problem to have. The obvious solution would be to give cash back to shareholders, either via dividends or share buybacks." They claim having more cash than they need as a problem, and then spend 5 paragraphs detailing solutions, without further explaining WHY it's a problem. Speaking as an (extremely minor) shareholder, I have no desire for dividends or anything else. My AAPL portfolio has gained 100% in 2 years, that's good enough for me.
- jballanc 15y ago
  They NEED to do something with the cash reserve because they are a publicly traded company, and investors are greedy. While it would never realistically happen, a coalition of investors could demand cash distributions and threaten to vote out the board if they don't comply.
  - Skroob 15y ago
    What kind of psychotic, suicidal investors group would kick out the board that has secured the kinds of returns this board has? I mean, I understand what you're saying but it seems like it would go against common sense to do something like that.
    - jballanc 15y ago
      The kind that feels they could put in their own board members and have them immediately distribute Apple's cash hoard to the investors, at which point the investors cut and run. I don't think Apple has so much money that this is a profitable gambit at the moment, but at some bank balance you'd be stupid not to at least contemplate the option (especially since you can't expect the stock value to grow at its current rate indefinitely...).
- jcampbell1 15y ago
  I am also an apple investor. If they have $50B of cash they have no use for, then they are forcing me to be invested in government bonds. I'd rather have the money myself, and invest it in something that gets better than a .5% annual return. Using the dividend to buy more Apple stock would be better than the current situation.
cmillllllls 15y ago
I think they should of bid for t-mobile to provide network plans for all of their devices (ipad, iphone, and the coming apple TV). The acquisition would pay for itself just in subscription fees. Instead, AT&T is buying it and will probably roll all the customers up into their own network.

16 points by dazbradbury 15y ago

If you don't like it, don't buy into it. I didn't find a single argument for why they _should_ give that cash back.

joshu 15y ago

Actually, this is easy: If Apple thinks the NPV of holding the money is greater than the NPV of not holding it, then they should do so.

brudgers 15y ago

I'll say it again. Apple should buy Disney because they can provide Apple with gold plated content, it would actually be a halo brand for Apple, and their worldwide brands are highly compatible. When Apple had $30 billion and Jobs was alive, it was possible for Apple to take control. Today they could buy all of it at a premium and still have $10 billion left over.

RexRollman 15y ago
So you want them to be like Sony, who has gone down the drain since purchasing entertainment businesses? I would prefer Apple to continue doing what they do.
- jballanc 15y ago
  Based on the number and independence of the business units at Sony, such a comparison is strained at best. The real reason they shouldn't buy Disney is that it would be an ideological step backward. Disney creates entertainment in the same way it's been done for decades. Apple is interested in how the future of entertainment will be produced/consumed.
- michaelbuckbee 15y ago
  This is a really good analogy that I hadn't previously considered. Sony has often seemed to trip over itself as it tries to sync up what's happening in their electronics and their content divisions.
- brudgers 15y ago
  Sony is an interesting comparison. But they haven't had an iconic product associated with their brand since the BetaMax, and I don't think anyone could differentiate their content from Fox in the way that Disney's content is readily identifiable. I.e. name three specific Apple products and three Disney movies - now try that with Sony electronics and movies.
  - RexRollman 15y ago
    What about the Walkman or Playstation?
protomyth 15y ago
If Apple is really looking to buy a big company, I would guess they wouldn't buy anyone that killed agreements with other media or network companies (Sprint at $7.3b market cap(1) for example). AMD/ATI might be nice at $5b would be good for the chip tech, but would probably have serious problems with Intel and a lot of PC industry. NVIDIA at $9 would be interesting. Adobe at $16b has been a rumor favorite. It would probably be a buy-it and then spin off / sell a lot of the enterprise facing parts to someone else. 1) expect to pay a premium over cap

protomyth 15y ago

First, quite a lot of the money is overseas and at the current tax rate isn't coming home. At this point, I would favor acquisitions over cash to shareholders. Although, being cautious in this economy is probably a good thing.

mynegation 15y ago

Paying dividends is a bad signal. That did not work well for Microsoft's share price. And even though OP argues that Apple will not repeat their fate, the argument is weak. There is only so much more iStuff that you could sell when everyone and their mother has an iPhone. Paying dividends essentially signals that company does not see how to spend money and has no long-term strategy for growth.

tpurves 15y ago
Actually this not reflected in the empirical data. Studies of the data comparing longrun performance of companies with high payout to low payout ratios show significantly that average companies* perform better when they retain less cash. This is counter-intuitive because a strategist would tell you that companies with more cash have more options, companies with less cash have to go through all the expense of going back to the market every time they need to make capital investments. One thing that turns out to be the factor is agency costs. Companies with large cash hoards might waste money on bad or frivolous projects or more often bad, overpriced acquisitions. In apple's case they have more cash than they can reinvest in their own business. The market could get better returns on that cash than apple can. Therefore the market will value the cash on Apple's books at discount to it's true value. The cash is discounted by apple's low sub-market rate of return on that capital and by the implicit risk that management might any day choose to do something dumb with it. Instead companies that have to go to the market more often to raise cash, that have to file more prospectuses, turn out to be more transparently run and more accountable to shareholders. In the long run managers who "have to open the kimono" more often, turn out to perform better for shareholders. When Microsoft announced the first huge one time dividend in 2003 or whenever it was, something funny happened. When they transferred X billion dollars to shareholders, their stock should also have dropped by exactly X billion dollars reflecting the value transferred out of the company. Instead their market cap only declined by 0.8X. Meaning than hundreds of millions of dollars of shareholder value was created out of nowhere. This was because the cash was worth that much more to shareholders who had a use for it than in the of microsoft who couldn't do anything with useful with it. The 0.2X was the implicit discount of the value of that cash on MSFT's books that was unlocked by setting it free. In fact because dividends are hard to take back, a dividend usual signals to the market that management have confidence in future earnings growth. Stocks usually jump on dividend announcements even though theoretically it shouldn't make a difference. That's the signalling effect. *the big caveat being that APPL famously never performs or does anything exactly like an average company.

jballanc 15y ago

Just to give some perspective on how much money Apple has, they almost have enough to re-build the US Interstate Highway system (http://en.wikipedia.org/wiki/List_of_world%27s_most_expensive_transport_infrastructure http://en.wikipedia.org/wiki/List_of_world%27s_most_expensiv...) or construct their own space station (http://historical.whatitcosts.com/facts-space-station.htm http://historical.whatitcosts.com/facts-space-station.htm)... The article hits on a key point, though. Consider that during Jobs life he saw giants like AT&T and IBM falter, and other giants like Microsoft rise from nothing, and then falter. He used to tell a story about how they were 1 week from defaulting on payroll when he returned in 1997. I think he certainly wanted to keep the money for a "rainy day" scenario. Which brings me to the most interesting thing that Apple could purchase: they could afford to pay an average salary of $300,000/yr to every one of their employees for 5 years with absolutely no revenue, and they still wouldn't exhaust their bank vault. If it were up to me, I would say they should start something equivalent to Bell Labs or PARC, but they won't. To do so would be antithetical to the very character of the company. In other words, quite the bind to be in...

gwright 15y ago
Apple is a publically held company. Disposing of profits by giving it all to employees would be a wonderful way to create an instant shareholder lawsuit. The cash held by Apple is built in to its share price. If a stock holder wants some of that all they have to do is sell some shares. Undoubtably there are some tax considerations regarding capital gains vs. dividends but the fact remains that if Apple distributed a significant amount of its cash to shareholders, then the share price would inevitably drop by the same amount.

stevengg 15y ago

I see a lot of posts like this one talking about how apple NEEDS to do something to lower its stockpile of money but none of them seem to explain why. could someone tell me why holding $100 billion in cash is worse then doing stock buy backs and or issuing dividends if the market takes into consideration its large cash reserves when pricing its stock.

Skroob 15y ago

My problem with this, and all other stories on the same theme, is "Why?" Why does Apple NEED to do anything with its cash reserves? The story says: "Last month Mr Cook admitted that the firm has more cash than it needs for its operations. It’s a nice problem to have. The obvious solution would be to give cash back to shareholders, either via dividends or share buybacks." They claim having more cash than they need as a problem, and then spend 5 paragraphs detailing solutions, without further explaining WHY it's a problem. Speaking as an (extremely minor) shareholder, I have no desire for dividends or anything else. My AAPL portfolio has gained 100% in 2 years, that's good enough for me.

jballanc 15y ago
They NEED to do something with the cash reserve because they are a publicly traded company, and investors are greedy. While it would never realistically happen, a coalition of investors could demand cash distributions and threaten to vote out the board if they don't comply.
- Skroob 15y ago
  What kind of psychotic, suicidal investors group would kick out the board that has secured the kinds of returns this board has? I mean, I understand what you're saying but it seems like it would go against common sense to do something like that.
  - jballanc 15y ago
    The kind that feels they could put in their own board members and have them immediately distribute Apple's cash hoard to the investors, at which point the investors cut and run. I don't think Apple has so much money that this is a profitable gambit at the moment, but at some bank balance you'd be stupid not to at least contemplate the option (especially since you can't expect the stock value to grow at its current rate indefinitely...).
jcampbell1 15y ago
I am also an apple investor. If they have $50B of cash they have no use for, then they are forcing me to be invested in government bonds. I'd rather have the money myself, and invest it in something that gets better than a .5% annual return. Using the dividend to buy more Apple stock would be better than the current situation.

cmillllllls 15y ago

I think they should of bid for t-mobile to provide network plans for all of their devices (ipad, iphone, and the coming apple TV). The acquisition would pay for itself just in subscription fees. Instead, AT&T is buying it and will probably roll all the customers up into their own network.