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Apple announces largest-ever $110B share buyback as iPhone sales drop 10%
- SushiHippie 3y agoCan someone explain to me (a person who does not know much about finances) what Apples tactic is with a share buyback? Why do they do this and how does it help them?
- dcchambers 3y agoNot an expert by any means, but my understanding is that share buybacks basically increase the value of the remaining shares by reducing the total number (it indirectly helps raise the price anyway). It's a way to help elevate the stock and keep investors happy if results are less than stellar...and Apple has cash to burn. There are two ways companies can provide value to investors through their shares - pay dividends or do buybacks.
- otterley 3y agoBuybacks have tax advantages, which could be another reason Apple opted for it instead of a dividend. https://www.taxpolicycenter.org/sites/default/files/publication/165800/what_is_the_us_tax_advantage_of_stock_buybacks_over_dividends.pdf https://www.taxpolicycenter.org/sites/default/files/publicat...
- brutus1213 3y agoI think it boosts share price. Supposed to reduce tax burden vs. just giving investors dividends? With dividends, I think valuation only gets affected if it is done on a regular cadence (so old companies that are cash cows but don't really grow). IBM used to do this crap a lot but also promised a target dividend (back in the 2010s). IBM may have borrowed to pay dividends .. again some kind of financial engineering which may have made sense.
- saulpw 3y agoIt undilutes the stock, indirectly raising the stock price. I've heard it's like paying a dividend, except taxed differently. So shareholders should be happy, and the executives at the company who are making this decision typically own a bunch of shares as well, so they should make out. If Apple thought they could spend $110B more efficiently, I guess they would. But it's difficult to deploy massive capital.
- lowkey 3y agoWhen a company reaches saturation in their core market and can no longer find new ways of investing free cash flow from the business into new markets that are likely to grow the value of the business greater than their cost of capital it has two options: 1. Pay dividends 2. Buyback shares Microsoft and now Google started paying dividends. Apple is choosing buybacks. Both options also mean that these companies have run out of ideas for further growth and are now transitioning into cash cows with reduced future growth prospects.
- pinkgolem 3y ago>have run out of ideas for further growth That's not true, it's simply means they have more cash then they can invest. Not that they do not invest any more.
- alberth 3y agoEarnings Per Share (EPS) When a company buys back it stock, that removes from the market available shares to buy. a. So now, the companies EPS gets boasted because the total # of shares outstanding is a smaller denominator. b. Conversely, a lot of tech companies give stock options to employees. This (increases the # of shares) and dilutes the number of shares outstanding which then hurts your EPS. So it’s also common for a company to offer employee stock options and then perform a stock buyback, to neutralize the EPS swing.
- paulddraper 3y agoSelling shares trades dilution for cash. Buying shares trades cash for dilution. These are simply inverse operations. --- MyCorp has 10 million shares, valued at $10 each, for a market cap of $100m. Next year, its market cap grows by $15m, resulting in a per-share valuation of $11.50. --- But suppose MyCorp had first done a $5m buyback. Then it would have 9.5 million shares, valued at $10 each, for a market cap of $95m.* Next year, its market cap grows by $15m, resulting in a per-share valuation of $11.58. The shareholders' "bet" is that MyCorp would increase its market cap, even it gives up $5m of cash. In this case, the bet paid off. --- * Note that buybacks (and fundraising) change the capitalization but do not immediately raise or lower the value of the stock, in a perfect market. It if it did, it would be hard to buy/sell the stock. Rather, it increases shareholders exposure to rewards/losses later (i.e. the opposite of dilution).
- sirspacey 3y agoWhen you have an absolutely massive amount of cash, like Apple, there are near term and long term benefits to a buy back. Near term, buy backs stabilize your share price. Share price is a major driver of many incentives inside Apple as well as perceptions without. Long term, Apple is betting their shares will increase in value. Investors are not rational or accurate in their assessments of a company’s performance (why market “expectations” is the bar, not performance), stock markets are not perfect information systems, and most finance professionals regard stock price as the final say on a company’s performance & value. Put together, this means a company’s best defense (when as successful as Apple) against being under-priced in the stock market is to buy back their own stock. To do that, you need a massive cash war chest or sources of cash like PE/hedge funds/etc. so far only companies with the first option live very long.
- lotsofpulp 3y agoThe answer is far simpler and less cynical. The business has cash saved up. It has 3 options. Give the cash to the business’ owners, spend the cash on improving the business (such as R&D), or keep the cash sitting around. And businesses often times do all 3 in varying amounts. However, for a publicly listed business, giving cash to the business’s shareholders is taxable income. An equivalent way to reward shareholders without requiring shareholders to pay tax now is to buy outstanding shares and hence causing the price to go up because the supply of shares relative to demand goes down. Also, if a publicly listed business awards equity to employees, such as RSUs which tech companies famously do, then buying back shares simply negates the effect of that since giving the employee equity increased the supply of shares relative to demand.
- SamReidHughes 3y agoLong term, buybacks aren't about supply/demand -- they increase a share's percentage ownership of the business.
- tw8345 3y agoPrimarily they are used to reward executives who have options and therefore get a disproportionate gain on the buyback.
- erikson 3y ago[dead]
- SushiHippie 3y agoThanks for all the answers!
- sciencesama 3y agoWhen money is expensive to borrow, give it to yourself !!
- chipweinberger 3y agothe money is going to shareholders, i.e the public
- deleted 3y ago[deleted]
- theknocker 3y ago[dead]
- ChrisArchitect 3y ago[dupe] Some more discussion on official post: https://news.ycombinator.com/item?id=40241119 https://news.ycombinator.com/item?id=40241119
- marcus_holmes 3y agoI might be too cynical, but when a company thinks that the best use of its cash is to buyback shares (and not, say, invest in a new product line) then it has reached its limits. It's a sign that the company is no longer engaged in developing new things (which requires cash) and is merely engaged in maintaining an existing business. Kinda sad to see Apple doing this.
- GenericDev 3y agoMy dude, what do you call the Apple Vision Pro? I don't like the technology or product, but they're LITERALLY making a new product line.
- rchaud 3y agoA half-hearted product launch of something even iPhone loyalists didn't buy because it costs 2 months' rent and has no real use case out of the box. Zero buzz online; even Apple appears to have forgotten it, seeding rumours instead of on-device LLMs to get the hype train going again. The news of production cuts is probably the biggest indicator that this isn't the Apple we know.
- subharmonicon 3y agoApple spent $100 billion in R&D over the last five years. They have a stated goal to get to net cash neutral through buybacks, dividends, and investments. They can’t easily pour another $100 billion into R&D in a year and expect to get a good return on that investment. The idea that they are doing a share buyback and not investing in new product lines is also not well founded. They are almost certainly doing both.
- marcus_holmes 3y agoYeah, good point. I kinda agree that it would be hard for Apple to spend all their vast cash reserves on R&D. But the point still stands that a company has choices about what to spend its money on, and if the best use it has for the money is buying back shares then it's not really innovating any more. Share buybacks are not creating more product lines, or investing in the company's future; they're (literally) shrinking the company. The executive team is saying "the best thing we can think of to spend this money on is shrinking the company". That's not a good sign, even if they are also spending big on R&D.
- ang_cire 3y agoSales down, share buyback, next step is a "realignment of resources" within 6-ish months, i.e. layoffs.
- theknocker 3y ago[dead]