DOJ compares AAPL share buybacks with R&D as 'evidence' of lack of competition
9to5mac.com
9to5mac.com
Does anyone have a market theory justification that makes them comfortable with the idea?
The company then has essentially two choices on how to return that money. It can pay dividends, which are taxed, or it can do stock buybacks, which are not taxed until investors choose to transact their holdings. Financially, for most investors, buybacks are better.
I'll also point out that buybacks don't obfuscate prices, but instead permanently change them. By reducing the equity outstanding, the equity remaining gets more valuable.
So if someone had 500 shares the split took then to 515. Then the buyback bought 15 of those shares. Net result: the person had 500 shares, just like before, plus some money from the company.
The idea was that this would be capital gains income to the shareholders rather than ordinary income.
The IRS was not amused. I don't remember the name of the company of if they got away with it, but the result was an addition to the tax code to make sure it would not work in the future. Then some buybacks that clearly were legitimate got classified as dividends under the new rules, so the rules were modified again so that those would be OK. I think there may have been another round or two of tweaks for more edge cases.
Money spent on innovation is returned to the market efficiently, and ratchets science and technology forward across the marketplace.
Other countries have fixed this by allowing dividends to be tax free.
I would much prefer having reliable dividend pay outs that stock buy backs.
Tilting the tax code against us is tilting it against the people and for politicians, unchecked bureaucrats with their uncontrollable spending thirst.
That leaves out, based on figures I've seen, roughly half of America's population.
Get out of your bubble.
Those stocks reliably pay out a dividend every month and is very much in he reach of the working poor.
I make more monthly income out of my UK pension than I do from stock buy backs.
This is how the stock market used to work in America before the 80s.
B.S. Last time I checked, accounts at most online brokers were free. And they even allowed purchase of fractional share - so you could start investing with 100 bucks. As long as you do save that $100 and not throw it all away on crap, of course.
There are inequalities, of course, (like Europeans falling behind) but the Americans are doing very well indeed. So please stop with your propaganda.
https://awealthofcommonsense.com/2023/10/americans-have-neve...
Americans have that disposable $100. Now they may very well be deciding to throw it away on cigarettes, alcohol, weed, various entertainment (tv) or all sorts of crap - but that is a whole other discussion altogether.
A large component of senior employees' salary at tech companies tends to be stock awards, which requires somebody to buy up the "free" stock to be usable as cash. If the company itself is doing this, then it amounts to a really roundabout way of paying employees. I'm still not comfortable with this idea, but it did change my attitude from "this is an outrageous practice" to "our tax laws are fucking broken."
Those sellers are already going to be paying taxes no matter who they sold to, and then they’re out of the market. So if the stock price goes up, only the people who held would gain any value from it.
And I would argue that those who hold didn't actually gain any value from it, unless the stock price was lower than it should've been at the time of the buy back.
> “Prior to 1982, stock buybacks were considered illegal stock manipulation, but President Reagan's Securities and Exchange Commission implemented a rule to exempt them.
http://chuygarcia.house.gov/media/press-releases/representat...
Companies exist because they are allowed to.
I didn't take that as toomuchtodo trying to make an argument personally.
toomuchtodo pointed out that they were illegal in the past, and shared a statement from a politician who wants to outlaw them again. Both of these are direct responses to mjburgess. That stock buybacks were illegal in the past is a relevant factual statement, as is a politician having a platform (seemingly) aligned with the wishes of mjburgess.
It's an interesting tidbit and gives a jumping off point for the person who was asking about it to research further if they want. I wouldn't have guessed that they were illegal once, but after toomuchtodo's comment I looked it up. Now I know more!
One shouldn't assume that just because someone chimed in with a fun fact they're an expert on it or have some opinion they want to push for unless they said or implied otherwise, which toomuchtodo didn't do.
As an example: I have minimal interest in anything related to stocks or finance. My only interest here was your response seeming a bit out of place :)
Why not use that money on more impactful things? Like higher salaries, social programs, or just R&D in general.
Because that could be a waste as well.
Stock buybacks are just a tax-advantaged form of dividends (and shouldn't be legal for those reasons). Just do dividends.
The main idea people need to remember is that if a company buys back its stock, someone else is selling it.
For equality sake, assume that it's been held for a year (so both the cap gains and equivalent dividend would be taxed at the same rates).
For an X amount of dollars, dividends and buybacks are going to generate the roughly a similar kind of 'tax footprint' for lack of a better term. The potential taxable events are just filtered to 'the entities that wanted to sell their shares' vs 'every equity holder'.
A dividend is always taxed as income.
If you inflate the price of the stock to pay the dividend (stock buyback), it's taxed as capital gains.
I think people fixate too much on pricing dynamics. Kind of at a Gaussian surface level, the simple way to explain a price is eps * earnings multiple, where your inflated demand dynamics get lumped in with the multiple. The issue is an earnings multiple encompasses so much information as to be of little use, it's not trivial to quantify anything from it.
Let me be clear, buybacks can be a bad use of capital. The stock can go down to any number of factors, general market downturn etc. A buyback is an investment of the company in itself, and investments can be bad.
But if you have a number of earnings and a number of shares, if you reduce the number of shares, you have more earnings per share. At a constant multiple, an increase in eps should dictate an increase in price. That's as real as you and me.
Given that tech salaries tend to have a sizable pay component made up of stock, my gut feeling is that share buybacks are in large part a roundabout way to pay their employees.
(Now, let's also go fix the laws that make it tax-advantaged to pay people via such an indirect manner.)
Whether this is a good deal for the employee is a bit complicated: you're effectively holding stock for 4 years but taxed at ordinary income rates (as opposed to long term capital gains). On the other hand, if the stock goes up you've locked in being paid substantially above market. During the hot market times this effectively was an option: if they stayed they got stock granted at a low price, but they could leave if a different company was paying more.
Private companies can offer ISOs which do have a nice tax treatment, but this is all predicated on public company buybacks where that doesn't apply.
Because the money would not be spent on any of those things. Buybacks are a favorite boogeyman, but they are just tax efficient dividends. They certainly give people something to complain about though.
"Tax-efficient" is weasel language. If the money was spent as dividends it would be taxed and then would benefit someone besides the executive suite and investors. If they were unwilling to pay that tax, then the money would need to be reinvested in the company in the form of higher salaries or R&D. So yes, if buybacks were illegal the money WOULD go to one of these things.
The potentially taxable dollars are the same (non-withstanding the buyback excise tax), it's just shaped differently.
Buybacks were justified by a whole lot of things that simply are outright lies. Take away the tax benefit and you'd see them go away overnight.
What is the difference between a stock buy back and a dividend? Both increase shareholder value by returning cash to investors. If not share buy backs, they would just issue a special dividend to accomplish essentially the same thing just without reducing the outstanding share count.
If companies have the ability to issue new shares, why shouldn't they have the ability to reduce the shares with a buy back? What is the negative consequence?
Further, if a company is flush with cash but the stock price is too low, is there any reason they shouldn't be allowed to buy it back to tell the market that they're wrong?
I don't know, I'm not convinced yet, buybacks just seems like a fast way to increase price/"returns on investment in the stock" and market cap and appease investors with large holdings. Surely, yes, you could take loans out against the new market cap or issue debt, but why not just have used the existing cash to do that already. The only explanation could be that investors can cash out and different taxes have affect (or not!) and innovation is less of a need than continuing to exist and buy back stocks.
We have a spending problem in this country, not a lack of tax money.
Yeah. People seem to think if a company didn't do a buyback they would spend the money on salaries or R&D. No, the company would issue a dividend instead. One consequence of a dividend is they typically trigger a taxable event vs. a buyback which gives the investor more options to control their tax burden. Personally, I prefer buybacks over dividends in stocks I own for this reason.
The recent movement against stock buybacks in the US makes US stocks much less attractive to foreign investors like me. Aside from the tax thing, I don’t see what’s the practical difference between buybacks and dividend either (besides potentially a difference in opinion of the company’s view on the stock price) , but apparently some people are outraged at one but not the other.
A dividend payout is cash in your hand, a share buyback is theoretical gains that may be gone by the time you sell.
Get someone from management on their good side with planted leaks, then drop something like “wow, management is talking about how absurd this comparison is, I mean look!!1!! this is absurd” to them. Bam you have yourself a stew of PR.
The fact that they leverage their all encompassing 30% App Store fee, a tax on actual PRODUCTIVE smaller businesses, and then funnel that back directly to their investors for capital gains is a cause for concern.
That's in contrast to Apple with has essentially zero costs on the things sold in their store and has a sky-high net margin.
Take a company with X non-liquid value and Y liquid value. They want to spent some part of Y, let's call it Z, doing a stock buy back. There are M stocks to start with, and after a buyback there will be N stocks.
Default (do nothing): Original stock holders have M stocks worth (X + Y) total. Total value, X + Y.
Pay dividends instead: Original stock holders have M stocks worth (X + Y - Z) total and Z dividends. Total value, X + Y.
Do stock buyback: Original stock holders have N stocks worth (X + Y - Z) total and Z buyback payments. Total value, X + Y.
The only difference between 1 and 2 vs 3 is how the value is split. In 1 each stock holder holds stock proportional to how many stocks they held at the start. In 2, each stock holder holds stocks and dividends proportional to how many stocks they held at the start. In 3, stock holders hold different allocations of stock and buy back money based on if they sold or not, but with the total value proportional to how many stocks they held at the start.
What makes 3 so much worse than 1 or 2?
There should be a cap on executive compensation - say 100 times the average employee salary. Barring that, there should be a millionaires and/or wealth tax, so that they at least pay the same tax rate as their secretary.
If you want to increase taxes on the wealthy I would go after loopholes instead, which Sen Warren & others are also trying to do to be fair. You could also look closer at trying to slightly increase tax on sales transactions or taking loans against your equity. It would need to be a small enough amount that makes a difference to tax income but not enough that people try hard to avoid it.
Apple the only one being able to make money while Google based manufacturers are competing for scraps.
Google’s indirect monetization of Android makes it impossible for competitors to emerge.
DOJ is shooting at the wrong guy if what they want is more competition.
Yes, this is exactly what the DOJ likes in that part of the situation. Companies that compete.
Suppose Apple spent more on R&D, made the iPhone even better, and thus increased its market share. The DOJ would probably cite that market share as evidence of a monopoly too.
The DOJ wrote up their exact rationale for the suit, so it would be nice if people would take the time to understand the actual situation instead of arguing against their prefered strawman.
I will never understand why people are out there falling over each other to be the white knight for a company with a 2.6 trillion dollar market cap.
Law Prof from Madrid:
https://twitter.com/laz_radic/status/1771152693291057439
> The DOJ complaint against Apple filed yesterday has led me to think, once again, about the increasing chasm that exists between antitrust theory and basic common sense & logic. I think this dissonance is getting worse and worse, to the point of mutual exclusion.
> Here's where I'm coming from: what I have always viewed as a modest tool for correcting blatant anticompetitive conduct is increasingly being wielded as a weapon to redraw minute product design choices, redesign markets, and pistol whip companies for political gain.
> What worries me aren't a couple of contrived cases brought by unhinged regulators at either side of the Atlantic, but that this marks a much broader move towards a centrally-administered economy where choices are made by anointed regulators, rather than by consumers.
> And, to be clear, I am aware that the DOJ is saying that Apple is maintaining its iPhone market position thanks to anticompetitive practices but, quite frankly, discounting the possibility that users simply PREFER the iPhone in this day & age is ludicrous to me.
> But in the real world, there exists no legal obligation to be productive or to use one's resources efficiently. People aren't punished for being idle. Yet a private company harms us when it doesn't design its products the way public authorities thinks is BEST?
> Would X be better if the length of all tweets was uncapped? Would McDonald's be better if it also sold BK's most popular products - like the Whopper? Would the Playstation be better if it also had XboX, Nintendo and PC games? I don't know, maybe. Does it matter?
> The magic of antitrust, of course, is that if one can somehow connect these theoretical shortcomings to market power — no matter how tenuously — all of a sudden, one has a blockbuster case against an evil monopolist & is on the right side of history.
> But this puts the cart before the horse. Competition authorities need to stop pinning contrived market failures on companies they dislike, and go back to pinning companies on market failures. Ultimately, we're fighting the latter, not the former.
Because a company is giving us awesome products and services which we willingly spend our hard-earned money for.
It's also creating (well paid) jobs which we can choose to take and platforms where other businesses thrive and build even more jobs.
Finally, as investors, it's allowing us to participate in and benefit from its success.
On the other side we see politicians - bureaucrats that never built anything in their lives. Parasites living off our work. Greedier and greedier every year they forcefully confiscate more and more of our sweat and blood while "giving" us crappier and crappier services in exchange. Finally, when a psychopathic leader inevitably takes over - they literally send us to die in their sick wars or attack others for their enrichment.
Slow down there, John Galt.
How is discouraging monopolistic practices going to line the pockets of these parasitic bureaucrats? If Apple has enough control of the marketplace that nobody can meaningfully compete with them, do you think that's better or worse for "us"?
Three easy ways come to mind:
1) Play the stock market using the insider info on decisions and regulations politicians know well in advance.
2) Regulations and laws once enacted have to be implemented. So many compliance chief or consultant positions suddenly opening up at multinational corporations.
3) Cheap populism moves work wonders on economically-ignorant voters. "I smacked Apple/Microsoft/Google" guarantees years of sucking from the public teat
The bitter irony is that the only effective way to deal with monopolies is though free market competition. And regulation is the polar opposite of that: regulation discourages startups and favors the incumbents.
So, yes, heavily regulated markets guarantee less competition which is worse for "us".
But I can't fight the government. I wouldn't even try. It's an immovable object. There is nothing to win there. It's all dead. Better to just get a cushy job at some gov agency. Just like most of Europe's best and brightest currently do - leading to a continent left behind, while the US high tech (both startups and giants) are soaring.
Many companies are able to build a phone these days.
But not every company will be able to build a top-notch AI assistant.
The race is on. Whoever will have the best AI will dictate everybody else the conditions for using it.
If it turns out that only Google has the infrastructure to digest all the world's information in real-time and feed it into a top-notch LLM - that would be the biggest threat. Then maybe nobody can compete. Because nobody has built a search engine on par with Google yet. Which probably means that nobody else has figured out how to ingest data on the scale Google does.
>In fiscal 2023, which ended September 30, the company spend $29.9 billion on research and development
What people are looking for is software which does their work for them.
The two big assets Apple has at the moment are the trust of their users and good chip production capabilites.
We'll see where that leads to.
My feeling is that software is more valuable than brand and hardware. So I have the feeling that Google and Microsoft currently have a better starting position into the advent of AI than Apple.