Last night Tim Cook told the world that Apple bought $US14 billion worth of Apple shares in the last two weeks.
After Apple’s stock dropped 8% in reaction a worse than expected earnings report, Cook said he wanted to be “opportunistic” and snap up some shares when he thought they were cheap.
There are a number of valid reasons to buy Apple shares, but if Cook was doing it to bump the stock price, he’s going to be mighty disappointed this morning. The stock is up just 1.71% this morning.
In addition to news about the $US14 billion, Cook said that Apple has spent $US40 billion buying Apple shares in the past 12 months. After spending $US40 billion on Apple shares, what does Apple have to show for it? A 10% increase in the share price. A 10% bump is welcome, but Apple is still well off its highs.
This should be a warning to anyone that buys into Carl Icahn’s plan for Apple. He wants Apple to do a $US50 billion share buyback. He seems to think a buyback would goose Apple’s stock.
Well, as Apple has demonstrated, a big share buyback isn’t going to have much an impact on its share price.
The truth is that if Apple wants to get the share price moving, there’s only one thing that’s going to do it: Growth.
Share buybacks are nice, but it’s growth that investors really want.
Last quarter, Apple’s revenue was up 5.6% on a year-over-year basis. Its EPS was up just 2%. iPhone units were up 6.7%. If it delivers its midpoint guidance for revenue this quarter, then it will have a drop in revenue.
On the earnings call analysts pointedly asked Cook if Apple was a growth company anymore. He insisted that Apple was a growth company, but the numbers say otherwise.
So, how does Apple get growth?
It could go on a crazy acquisition spree snapping up companies like Twitter, Netflix, or Square. But, odds are against that happening.
It could get really aggressive with pricing on the iPhone and iPad. That should increase sales globally, but it would dent Apple’s profits. Apple has shown no inclination to sacrifice near term profits for long term platform growth, so nix this one.
Another way to get growth is to release new products. This seems to be Apple’s plan.
Yesterday, Tim Cook said, “There will be new categories. We’re not ready to talk about it, but we’re working on some really great stuff.”
Because, if Apple cares about its share price, and Tim Cook says he does, it needs something to boost growth. Buybacks aren’t enough.