After more than a decade, Apple is surpassed by Google in one key financial measure
Yesterday's fiscal third-quarter earnings report from Apple revealed that for the first time since 2012, the iPhone accounted for less than 50% of the company's total revenue. Now Apple has grown as a company over the seven years from 2012 to 2019, so the fact that the iPhone no longer accounts for the majority of its business might not be the end of the world. But what might be somewhat interesting for some Apple investors is the big news that for the first time in over a decade, the tech giant is no longer the king of cash.
According to the Financial Times, Google parent Alphabet is now the leader in this category with cash and marketable securities totaling $117 billion at the end of its most recent quarter. The report that Apple released on Tuesday showed that Apple's cash holdings amounted to $102 billion at the end of its fiscal third quarter, which ended in June. As Apple CEO Tim Cook pointed out yesterday, the tech giant spent $17 billion buying back nearly 88 million Apple shares and paid out $3.6 billion in dividends during the quarter. The advantage of the buybacks is that it reduces the number of shares outstanding, decreasing the "supply" of the stock. That means that even if "demand" remains the same, the stock theoretically will rise. It also artificially raises the earnings per share number, an important figure used in fundamental stock analysis. Over the last 18 months, Apple has spent $122 billion on such buybacks.
Apple is spending part of its cash hoard to artificially goose the price of its stock
But Apple is doing more with its cash than just artificially goosing its stock price (which, we must point out, goes a long way toward determining the value of the restrictive stock units handed out to its executives). The company hiked it's research and development spending by 15% in the three months covering April through June. R&D spending, necessary to develop new and innovative products, was the highest in 18 years. Can we admit that perhaps some desperation has surfaced in Cupertino? This increase in spending on future products comes after some interesting comments made earlier this year by Cook. Nearly five months ago, the executive said that the products in Apple's pipeline will "blow you away."
While Alphabet can crow about having the largest cash hoard right now, most investors would rather see a company spend its cash on buybacks, higher dividends or R&D. Back in 2013, activist investor Carl Icahn spent over $2.5 billion purchasing Apple's shares and demanded that Apple put its cash to work by buying back $150 billion of its shares. Icahn noted than even if Apple were to borrow the funds at 3%, buying back the stock would pay off with a 33% rise in the stock. Apple didn't give in to Icahn but has been actively buying back its shares
Alphabet, on the other hand, has not spent that much on stock buybacks although it has recently added $25 billion to its stock repurchase program. It has authorization from its board to buy back $37.5 billion of its stock. It also spent $25 billion on real estate last year, adding new offices in New York City for Google.
In some related news, Apple once again surpassed the one trillion dollar valuation mark earlier today. The company's fiscal third-quarter earnings report showed a 12% drop in iPhone revenue but revealed an increase in iPad and Services revenue and a surge in Wearables. Last August, Apple became the first publicly-traded company in the U.S. to be valued at one trillion dollars. But shortly thereafter, the company's shares declined from $232 in October to $142 in January before rebounding to its current level.