Cook's perfectly timed stock buyback raises Apple's valuation and rids it of a pest

Cook's perfectly timed stock buyback raises Apple's valuation and rids it of a pest
Late last month, Apple reported that it sold 51 million iPhones in its previous quarter. While that certainly sounds like like a successful three months, Wall Street's pencil pushers were looking for Apple to sell 55 million units in the period, leaving it 4 million phones short. Wall Street responded the way it always does when disappointed. The stock was taken to the back and shot, just like Old Yeller. The following day, Apple's shares declined 8% and that is when CEO Tim Cook went into action.

At the time, Apple's board was being pressured by investor Carl Icahn to use its Scrooge McDuckian cash hoard to buy back more stock, something that Cook rejected out of hand. The executive had spoken about making sure that Apple had the financial flexibility to take advantage of opportunities that might come up.

But Cook felt that the 8% decline in the stock gave Apple an opportunity to buy its shares on the cheap. As investors sold their shares by the handful, Cook was grabbing whatever big blocks he could buy. Up to a total of $14 billion was purchased by Apple, at a price of around $500. With the stock closing Tuesday at $546, Cook made Apple approximately $1.29 billion. Heck, with that kind of quick short-term trading, why get involved in the mundane business of making smartphones and tablets?

Besides the company, the big winner here are the stockholders who did not get spooked out by the decline in the stock. And for those Apple holders, more buy backs are coming. Last April, Apple increased its authorization for share buybacks to $60 billion. So far, the company has spent $42 billion over the last two years, leaving the company with $18 billion still to spend. In two months, Apple is expected to add to its buyback authorization figure and possibly raise its cash dividend.

Cook's move was brilliant for another reason. It helped Apple rid itself of a pest named Carl Icahn. Once the investor realized that he couldn't rattle Apple's cages like he does with other firms, Icahn had to pack it in. Besides, the investor was asking Apple to buy $50 billion in shares, something that the company was on pace to be doing anyway. Guys like Icahn can drain executives and force them to take their eyes off the ball. Most executives tremble at the mere mention of his name. Kudos to Tim Cook for making sure that Apple stood its ground, and then pulled off a perfectly timed buyback that in one fell swoop enriched shareholders and Apple, and removed a financial piranha.

When Apple bought back $14 billion in stock, the timing was perfect

When Apple bought back $14 billion in stock, the timing was perfect


source: AppleInsider

FEATURED VIDEO

27 Comments

1. _Bone_

Posts: 2155; Member since: Oct 29, 2012

Happened last year too, Samsung did it as well when it's stock dropped. More stock = more control, which is important in a changing environment.

2. a_merryman

Posts: 749; Member since: Dec 14, 2011

Agreed, it is much better for the company if they want to focus on long term growth to own more of their own stock than to allow people like Icahn to get it so they can use it to pressure the company to make stupid decisions for short terms gains as they (Icahn and his like) pick apart anything useful about the company. TheVerge had a great article on Icahn and his strategies not too long ago.

3. androiphone20

Posts: 1654; Member since: Jul 10, 2013

You had to see the comment section when Apple's shares took a dive, people spoke as if hell had frozen and yet it was but an opportunity to turn things around

9. Droid_X_Doug

Posts: 5993; Member since: Dec 22, 2010

I wonder if you aren't conflating under-whelming sales results and Tim's obligations to maximize shareholder value? Tim has resources (balance sheet cash account) that are available for strategic use. When AAPL's price dips, it is a potential opportunity, and Tim took full advantage. That doesn't excuse the fact that the analyst community was under-whelmed at Apple's sales. Apple needs to step up its game in the iToy business. Competition has dramatically improved from what it was 2+ years ago. Apple needs to do more than release a C version of the iPhone.

22. MySchizoBuddy

Posts: 159; Member since: Aug 23, 2011

so if the analyst community decides Apple should sell 1 billion iphones and Apple can't them. It's all Apple's fault. How dare they not sell the amount we said they should sell. Android fanboys go nuts over Apple.

26. Chaseism

Posts: 82; Member since: May 08, 2013

But I think that's the frustrating thing. The iPhone still sells incredibly well. Better than most smartphones out there. You're right, there is more competition so expecting ridiculously high sales is unrealistic, even if the iPhone is amazing. It's a lot like the music industry...you can't expect artists to go quadruple platinum anymore. Hell, even awesome commercial artists struggle to hit Platinum status nowadays because there isn't this funnel of music. People can discover new artists through more outlets than the radio or Mtv. Smartphones are the same way.

4. jacko1977

Posts: 428; Member since: Feb 11, 2012

Apple reported that it shipped not sold 51 million iPhones in its previous quarter

5. Napalm_3nema

Posts: 2236; Member since: Jun 14, 2013

Apple reported it sold, not shipped, 51 million iPhones: http://www.apple.com/pr/library/2014/01/27Apple-Reports-First-Quarter-Results.html

13. PAPINYC

Posts: 2315; Member since: Jul 30, 2011

Whether it claimed to have sold or claimed to have shipped 51 iMillion units, more than likely it wasn't the absolute iTruth since Apple lies about everything.

23. MySchizoBuddy

Posts: 159; Member since: Aug 23, 2011

No. public companies lying about money means the execs go to jail. plain and simple. Apple has always posted sold figures and never shipped figures.

6. tedkord

Posts: 17181; Member since: Jun 17, 2009

Wait. Apple doesn't make money on the shares it buys back. They retire them.

8. Finalflash

Posts: 4063; Member since: Jul 23, 2013

Yea I don't think Alan seems to understand that the company can't hold stock in itself. They didn't make any money on the trade but instead cemented the stock against any other big drops.

11. ardent1

Posts: 2000; Member since: Apr 16, 2011

FinalFlash: you say some of the dumbest things on PA. US companies that are publicly traded do repurchase its stock on the open market. Sometimes, they acquire the shares in a private transaction. What makes you think companies can't hold stock in itself? What part of "treasury stock" don't you understand?

10. ardent1

Posts: 2000; Member since: Apr 16, 2011

Dude, learn accounting. When a public company repurchase its stock, under US Gaap, it is considered treasury stock. Second, those treasury stock will help the Company when it issues stock grants, options, etc.

27. roscuthiii

Posts: 2383; Member since: Jul 18, 2010

Technically, it's only treasury shares if the company doesn't retire them. Once they're cancelled, they're null & void. Apple has only retired around 9% of the total $42B worth of shares bought back though, so the vast majority of the stock bought back will be available for reissue. Something to keep in mind is that treasury shares, while they very well indeed have the potential to be pretty beneficial (mostly to long term shareholders), are also not without their limitations and a few drawbacks. http://www.investopedia.com/ask/answers/05/retiredstock.asphttp://en.wikipedia.org/wiki/Treasury_stock

7. samirsshah

Posts: 61; Member since: Mar 10, 2011

10/10 to Tim Cook.

12. pongkie

Posts: 663; Member since: Aug 20, 2011

ha! loved that pest part

16. troutsy

Posts: 380; Member since: Feb 17, 2012

Wasn't Icahn's strategy to force Apple to take out low interest loans to buy back and retire company stock? I think this article cuts out a bit of the truth in order to glorify Cook's actions.

18. DnB925Art

Posts: 1167; Member since: May 23, 2013

Cook used cash they already had to buy back the stock, iCahn suggested taking out loans at lower interest rates to buy back the stock.

19. PBXtech

Posts: 1032; Member since: Oct 21, 2013

On the good side, anything that gets rid of Icahn is a positive. On the bad side, they spent $42 billion for it to only go up around $42 dollars a share. And where are all those analysts who predicted AAPL would be at $1000 a share? I even read one prediction that said $1300. Analysts should be paid by the correctness of their predictions.

21. Caralho

Posts: 119; Member since: Jun 18, 2012

You reminded me of stock guru Jim Kramer, who yelled for everybody to buy Bearn Stearns(which thousands of people did), just as the company imploded. To this day, he is ridiculed for it. I too read those $1300 price target predictions for Apple, and laughed out loud. So much for analysts...

24. MySchizoBuddy

Posts: 159; Member since: Aug 23, 2011

Sorry like droid_x_doug said it is Apple's fault it's stock isn't 1000 or 1300 like the analyst predicted. Once the Holy analyst predict something The humble companies should make it happen else face the wraith.

* Some comments have been hidden, because they don't meet the discussions rules.

Latest Stories

This copy is for your personal, non-commercial use only. You can order presentation-ready copies for distribution to your colleagues, clients or customers at https://www.parsintl.com/phonearena or use the Reprints & Permissions tool that appears at the bottom of each web page. Visit https://www.parsintl.com/ for samples and additional information.