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When 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

When 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 2y ago
The 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 2y ago
  Long term, buybacks aren't about supply/demand -- they increase a share's percentage ownership of the business.
  - tw8345 2y ago
    Primarily they are used to reward executives who have options and therefore get a disproportionate gain on the buyback.
    - lotsofpulp 2y ago
      Please explain the math that concludes someone that holds [stock] options disproportionately gains from a business buying back shares (presumably relative to other shareholders).
      - 10u152 2y ago
        There isn’t any. The poster above you is incorrect.
      - blackeyeblitzar 2y ago
        It happens when they have a pay package that is dependent on moving the share price. So it’s not about stock market math but the explicit agreement between the company and the executive.
        lotsofpulp 2y ago
        Pay packages are incorporated into income statements. Reducing cash spend now in lieu of equity is priced in. An executive is also just an employee. So I am not sure what you are implying there. If it’s malfeasance between the shareholders, board of directors, and c suite, you will have to be more explicit.
      - tgma 2y ago
        The question has a flawed premise. An option/RSU holder is not a shareholder before they exercise their options or vest their RSUs, thus should not be getting a dividend allocation (i.e. a non-zero allocation to an option holder is a disproportionate allocation). In a buyback scenario, you are essentially issuing a dividend not to the current shareholders, but splitting that cash among all authorized and not-yet-issued shares (incl. RSUs and options).
blitzar 2y ago
> When you have an absolutely massive amount of cash Apples cash pile (~70bn) is very diminished from their hoarding / tax dodging days when it was >200bn. This cash is of course offset by ~100bn in debt that they have, most of which was issued at around 2% and when rolled over in the coming years will be reissued at >5%.

lotsofpulp 2y ago

The 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 2y ago
Long term, buybacks aren't about supply/demand -- they increase a share's percentage ownership of the business.
- tw8345 2y ago
  Primarily they are used to reward executives who have options and therefore get a disproportionate gain on the buyback.
  - lotsofpulp 2y ago
    Please explain the math that concludes someone that holds [stock] options disproportionately gains from a business buying back shares (presumably relative to other shareholders).
    - 10u152 2y ago
      There isn’t any. The poster above you is incorrect.
    - blackeyeblitzar 2y ago
      It happens when they have a pay package that is dependent on moving the share price. So it’s not about stock market math but the explicit agreement between the company and the executive.
      - lotsofpulp 2y ago
        Pay packages are incorporated into income statements. Reducing cash spend now in lieu of equity is priced in. An executive is also just an employee. So I am not sure what you are implying there. If it’s malfeasance between the shareholders, board of directors, and c suite, you will have to be more explicit.
    - tgma 2y ago
      The question has a flawed premise. An option/RSU holder is not a shareholder before they exercise their options or vest their RSUs, thus should not be getting a dividend allocation (i.e. a non-zero allocation to an option holder is a disproportionate allocation). In a buyback scenario, you are essentially issuing a dividend not to the current shareholders, but splitting that cash among all authorized and not-yet-issued shares (incl. RSUs and options).

blitzar 2y ago

> When you have an absolutely massive amount of cash Apples cash pile (~70bn) is very diminished from their hoarding / tax dodging days when it was >200bn. This cash is of course offset by ~100bn in debt that they have, most of which was issued at around 2% and when rolled over in the coming years will be reissued at >5%.