Apple Q4 Results
apple.com
apple.com
https://www.macstories.net/news/apple-q4-2019-results-64-bil...
https://sixcolors.com/post/2019/10/apple-results-64b-in-reve...
I won't go through it line by line but why highlight Q1 vs Q4 instead of prior year Q4 vs current period Q4 (ie, year vs year).
Highlighting periods with holiday sales against current nonholiday periods is ridiculous.
Cash neutral doesn't relate to growth, if you grew you'd need to increase cash to cover working capital needs generally (ie, Apple first has to pay for parts, inventory, factories, staff for them etc before it gets revenue from sales).
Excess cash above this - it can be argued is not useful for apple to hold. Ie, investors can earn as much on cash as apple AND might want to invest it in things that theoretically could earn more - especially now with low interest rates. They can get to cash neutral a couple of ways. Because gross net income is going down, share buybacks one option - they've already been doing lots of that. Dividends is another. Pushing a bit on R&D might be another. No rush on that change.
Though maybe this does not apply to Apple, as a potential buyout would have to be about 30x as large as the largest leveraged buyout in history.
They could put $1B in Bank X, then would borrow $1B from Bank X, using their cash in Bank X as security. If you squint it might almost look like they were borrowing their own money :).
I'm not that onto the details here so this might be totally wrong - but I didn't wonder why Apple had so much debt one time and this is what I think I was looking at.
One risk if they didn't repay and the bank took collateral would be that they would then have had to pay the taxes (it would have counted as a repatriation). They must have thought the risk was reasonably low.
And yes, the company still has to grow. But as a company executive you are viewing existing and new business opportunities through their net present value. If you don't have business opportunities that meet the thresholds you have in place for a project, then extra cash serves no purpose.
This ignores a whole bunch of complicated other stuff (stress testing capital requirements and what sort of balance sheet has great enough margins of safey, long term capital allocation given market dislocations, etc). But that's why being net neutral on cash is in general a good thing.
I'm almost didn't write this because I didn't want to deal with the "why do we have to grow" responses.
If you are a single proprietorship then go nuts. Do what you want. If you take investor money you are an investment, and you are legally obligated (at top levels, via fiduciary obligations) to operate things to generate return. That's also why you have other corporate structures like B/public interest corps, mutuals, credit unions out there that don't obligate growth.
Apple has to grow because it's public Delaware C corp. Or they have to return cash so owners can invest it elsewhere. Or the owners will fire the executives, or shareholder groups might vote for takeovers that offer greater returns. I'm not defending it, but explaining it.
It's worth emphasizing this point because it's a common misconception. Companies don't have a legal obligation to grow - they have a legal obligation to do what their investors want. But being publicly traded virtually gaurentees that your company is owned by people who want it grow or will be owned by people who want it to grow.
TLDR; stock price includes a portion reflecting increased future growth
EDIT: to show the impact of growth prospects: Right now, Apple's P/E ratio is 20x with share price of $243. But in 2016, P/E was 11x with share price of $100. That is a 143% increase. If you look at revenues, 2019:$259B compared to 2016:$216B - which is only a 20% increase. Look at the article[0] from 2016, it says stuff like:
Apple shares are tanking this week because of a report in Japan's Nikkei newspaper that Apple plans to slash its output of iPhone 6S and iPhone 6S Plus by 30%.
That comes on the heels of an Accenture report warning that demand for smartphones is waning. People don't believe the newer models are all that much better than what they currently have, so they don't want to pay for an upgrade.
[0] https://money.cnn.com/2016/01/08/investing/apple-stock-100/i...
A company that is primarily valued for its dividend is one that has promised such a big dividend that it risks cutting the dividend when it has to grow or fix problems (like GE.) Maestri is not going to let that happen, which is why they are approaching net cash zero carefully over time and majorly using buybacks, which do not set the same expectation for investors as dividends.
I love Apple Pay, have all my cards in Wallet, don’t have an Apple Card. So I don t see how it’s a lock-in feature.
[1] https://www.sec.gov/Archives/edgar/data/320193/0000320193190...
A $4B margin is a pretty big margin...
In which case, it's small (around 2.5% up or down way).
I’m waiting for another dip... hoping to cash in. Might be waiting a while after this earnings report & fed announcement today.
Also this BS about stock buybacks and dividends to become cash neutral is stupid. They should be betting on moonshot things that will be the next iPhone instead of all of this financial engineering.
In all of history there have only been a few iPhone class disruptors. They are rare, and they come based more on timing and the presence of enabling technologies than any particular company simply investing billions in R&D.
Although I do wish Apple would buy some AAA game studios and make some AAA-quality games for their platforms..
Sony just announced their quarterly numbers. The PS4 just crossed the 100 million unit threshold over its entire lifetime. Apple sells that many phones in two quarters.
Stock buybacks were illegal until 1982, being considered a form of stock manipulation. Even though it's legal now, it's still one of the best forms of stock manipulation.
A company buying its own stock at market price is a wash. The reduction in the value of the company and the increase in the value of each remaining share balance out.
Almost by definition, there won’t be a larger market than one that already has 80%* market penetration among adults worldwide.