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If profits and revenue are dropping. Isn't that an indication of harder times? Shouldn't they be saving money right now to invest more in their R&D to tide this

by capybara_2020 2y ago

If profits and revenue are dropping. Isn't that an indication of harder times? Shouldn't they be saving money right now to invest more in their R&D to tide this over and continue growing?

infecto 2y ago
$110B is a drop in the bucket for them though.
- aczerepinski 2y ago
  I saw in the news yesterday that someone was looking to buy Paramount for $26B or thereabouts. I hope they at least went through the thought exercise of whether this builds more value than five huge acquisitions that could strengthen their offerings.
  - infecto 2y ago
    Apple has done buybacks for a while though, it is only much larger now. I believe their historical buybacks were around the $25b. Doing this buyback is an indication that the roic is not great enough and deem it better to give it back to shareholders. Huge acquisitions are neither easy or cheap, cheap in the sense of not only the multiple you are paying but also the costs downstream of having to take over that company.
  - pjc50 2y ago
    Acquisitions tend to destroy value, especially "non core" acquisitions. I think they understand that not becoming a chaebol owning half the economy is actually a good idea.
  - lupire 2y ago
    It is common to "buy" a company using shares. That's why it's called Mergers & Acquisitions.
  - WarOnPrivacy 2y ago
    > someone was looking to buy Paramount for $26B Sony and Apollo Capitol 'expressed an interest'. BigCorp buys BigCorp deals seem to be about consolidating the market to 1)reduce competition 2)raise prices 3)kill jobs = a)raise bonuses b)promise a higher stock value. Also synergy. We'll get a pre-merger announcement about creating new jobs; biz media everywhere will excitedly amplify it. Typically, the DoJ can't rubber stamp these deals fast enough but sometimes they balk - or at least pretend to.
- amne 2y ago
  is it? don't they need money for the buyback? and they only have about $160b. what am I missing?
  - infecto 2y ago
    You tell me what am I missing. They had $17,645,500,000 in unlevered FCF last quarter. With $32,695,000,000 in Cash and CE on their balance sheet. Edit: I see the gap now with your question. The buyback plan/funds are not executed all at once. A company approves amounts to be used for buybacks and then it happens over time. My point is that these buybacks are pretty normal for apple. You can look at Apples historical buyback plans and I think the last announced one was a year ago for $90b.
- edgyquant 2y ago
  Dont be ridiculous that’s a huge percentage of their market cap
  - infecto 2y ago
    How is it ridiculous. Go look at their historical buyback plans. 2018 - $100b 2021 - $90b 2022 - $90b 2023 - $90b 2024 - $110b Is it a large? Yes. Is it out of the normal for them? No. It is also not especially a difficult reach when looking at their existing cash/security balances and FCF.
ramesh31 2y ago
>Shouldn't they be saving money right now to invest more in their R&D to tide this over and continue growing? That is precisely what a stock buyback is. They could invest that cash on the open market, or return it to investors through dividends. Instead this sends it to the common pool to fund current business operations.
- ragazzina 2y ago
  ??? This returns money to investors just like dividends do (but it's better tax-wise).
  - ramesh31 2y ago
    >This returns money to investors in a way similar to dividends. Not really, it only helps to prop up the stock price. It has no effect on actual yield the way dividends do.
    - infecto 2y ago
      Yes really. It is less about "propping" and more about returning capital back to investor and doing it in a way that does not trigger a tax event. - Buybacks are more tax efficient - Buybacks can be a signal that the company thinks its current market price is undervalued. - Can increase control to existing shareholders.
      - ramesh31 2y ago
        Sure, but that's all hypothetical. There is no law stating "higher EPS = higher share price". Stocks can (and do) still go down after a buyback. Whereas dividends are laid out exactly ahead of time and can be predicted.
        neogodless 2y ago
        The one thing it does not do with their cash on hand is "send it the common pool to fund current business operations."
airstrike 2y ago
It's an indication of harder times in the past, not in the future. Management has specific information about what the future holds that we as investors do not Also Apple doesn't have a cash issue. Companies that need to think about liquidity are those on the verge of bankruptcy, which isn't the case here. There's sufficient cash (from the Balance Sheet but also from Operating Cash every year) to fund R&D at Apple. Heck, if you divide their annual R&D spend ($29B in 2023) by the cash sitting on their balance sheet ($148B in 2023), they have enough cash today[1] to fund 5+ years worth of R&D without selling a single additional iPhone during that time Buying back stock when the price drops is just taking advantage of the current situation to return capital to investors "cheaply". --- [1] Technically today = September 30, 2023, when they reported their 2023 10-K, if we're being pedantic. Both cash and R&D figures from that 10-K available here: Ctrl+F "$148.3 billion as of September 30" for the cash balance and "Research and development" (there are multiple matches) for the $29B in R&D

If profits and revenue are dropping. Isn't that an indication of harder times? Shouldn't they be saving money right now to invest more in their R&D to tide this over and continue growing?

infecto 2y ago

$110B is a drop in the bucket for them though.

aczerepinski 2y ago
I saw in the news yesterday that someone was looking to buy Paramount for $26B or thereabouts. I hope they at least went through the thought exercise of whether this builds more value than five huge acquisitions that could strengthen their offerings.
- infecto 2y ago
  Apple has done buybacks for a while though, it is only much larger now. I believe their historical buybacks were around the $25b. Doing this buyback is an indication that the roic is not great enough and deem it better to give it back to shareholders. Huge acquisitions are neither easy or cheap, cheap in the sense of not only the multiple you are paying but also the costs downstream of having to take over that company.
- pjc50 2y ago
  Acquisitions tend to destroy value, especially "non core" acquisitions. I think they understand that not becoming a chaebol owning half the economy is actually a good idea.
- lupire 2y ago
  It is common to "buy" a company using shares. That's why it's called Mergers & Acquisitions.
- WarOnPrivacy 2y ago
  > someone was looking to buy Paramount for $26B Sony and Apollo Capitol 'expressed an interest'. BigCorp buys BigCorp deals seem to be about consolidating the market to 1)reduce competition 2)raise prices 3)kill jobs = a)raise bonuses b)promise a higher stock value. Also synergy. We'll get a pre-merger announcement about creating new jobs; biz media everywhere will excitedly amplify it. Typically, the DoJ can't rubber stamp these deals fast enough but sometimes they balk - or at least pretend to.
amne 2y ago
is it? don't they need money for the buyback? and they only have about $160b. what am I missing?
- infecto 2y ago
  You tell me what am I missing. They had $17,645,500,000 in unlevered FCF last quarter. With $32,695,000,000 in Cash and CE on their balance sheet. Edit: I see the gap now with your question. The buyback plan/funds are not executed all at once. A company approves amounts to be used for buybacks and then it happens over time. My point is that these buybacks are pretty normal for apple. You can look at Apples historical buyback plans and I think the last announced one was a year ago for $90b.
edgyquant 2y ago
Dont be ridiculous that’s a huge percentage of their market cap
- infecto 2y ago
  How is it ridiculous. Go look at their historical buyback plans. 2018 - $100b 2021 - $90b 2022 - $90b 2023 - $90b 2024 - $110b Is it a large? Yes. Is it out of the normal for them? No. It is also not especially a difficult reach when looking at their existing cash/security balances and FCF.

ramesh31 2y ago

>Shouldn't they be saving money right now to invest more in their R&D to tide this over and continue growing? That is precisely what a stock buyback is. They could invest that cash on the open market, or return it to investors through dividends. Instead this sends it to the common pool to fund current business operations.

ragazzina 2y ago
??? This returns money to investors just like dividends do (but it's better tax-wise).
- ramesh31 2y ago
  >This returns money to investors in a way similar to dividends. Not really, it only helps to prop up the stock price. It has no effect on actual yield the way dividends do.
  - infecto 2y ago
    Yes really. It is less about "propping" and more about returning capital back to investor and doing it in a way that does not trigger a tax event. - Buybacks are more tax efficient - Buybacks can be a signal that the company thinks its current market price is undervalued. - Can increase control to existing shareholders.
    - ramesh31 2y ago
      Sure, but that's all hypothetical. There is no law stating "higher EPS = higher share price". Stocks can (and do) still go down after a buyback. Whereas dividends are laid out exactly ahead of time and can be predicted.
      - neogodless 2y ago
        The one thing it does not do with their cash on hand is "send it the common pool to fund current business operations."

airstrike 2y ago

It's an indication of harder times in the past, not in the future. Management has specific information about what the future holds that we as investors do not Also Apple doesn't have a cash issue. Companies that need to think about liquidity are those on the verge of bankruptcy, which isn't the case here. There's sufficient cash (from the Balance Sheet but also from Operating Cash every year) to fund R&D at Apple. Heck, if you divide their annual R&D spend ($29B in 2023) by the cash sitting on their balance sheet ($148B in 2023), they have enough cash today[1] to fund 5+ years worth of R&D without selling a single additional iPhone during that time Buying back stock when the price drops is just taking advantage of the current situation to return capital to investors "cheaply". --- [1] Technically today = September 30, 2023, when they reported their 2023 10-K, if we're being pedantic. Both cash and R&D figures from that 10-K available here: Ctrl+F "$148.3 billion as of September 30" for the cash balance and "Research and development" (there are multiple matches) for the $29B in R&D