Apple Reports 4Q 2017 Results: $10.7B Profit on $52.6B Revenue, 46.7M iPhones

[Carnegie]

We might be using different definitions of the word retire, but I would ask how you know those share can't be reissued. I believe they go back into the pool of unissued shares. Don't see why they would not. A company can't issue as many shares as they wish, the number is restricted by their charter and amendments. The total number of shares Apple is authorized to issue, I have no idea. Do you know how to find that number?

...

You might mean something different when you refer to retired shares or retiring shares, but I'm using the terms as they are typically used - e.g., by companies in SEC filings and consistent with SEC regulations. Here's a basic definition of retired securities.

There's a difference between retired shares and treasury shares; they are accounted for differently and subject to different rules. What you were describing earlier (in post #167) sounds more like treasury shares. You can probably do a search to learn more about the differences.

To answer your question about how I know those shares can't be reissued (though I didn't say that in my previous post), it's because I'm familiar with the SEC regulations. Retired shares can't be reissued. And Apple has been retiring the shares which it's been buying back. We know that from its SEC filings.

As for the number of shares authorized to be issued, it's also referred to in various SEC filings. It's been 12.6 billion (split-adjusted) for quite some time. At the time of Apple's IPO it was 8.96 billion (split-adjusted), but it was increased at some point in the 90's to 12.6 billion. So, as I indicated, Apple can issue new shares. That would be the case whether it had recently bought back (and retired) shares or not.

 

[IJ Reilly]

You might mean something different when you refer to retired shares or retiring shares, but I'm using the terms as they are typically used - e.g., by companies in SEC filings and consistent with SEC regulations. Here's a basic definition of retired securities.

There's a difference between retired shares and treasury shares; they are accounted for differently and subject to different rules. What you were describing earlier (in post #167) sounds more like treasury shares. You can probably do a search to learn more about the differences.

To answer your question about how I know those shares can't be reissued (though I didn't say that in my previous post), it's because I'm familiar with the SEC regulations. Retired shares can't be reissued. And Apple has been retiring the shares which it's been buying back. We know that from its SEC filings.

As for the number of shares authorized to be issued, it's also referred to in various SEC filings. It's been 12.6 billion (split-adjusted) for quite some time. At the time of Apple's IPO it was 8.96 billion (split-adjusted), but it was increased at some point in the 90's to 12.6 billion. So, as I indicated, Apple can issue new shares. That would be the case whether it had recently bought back (and retired) shares or not.

Good answer, thanks. Though just for clarification, I wasn't suggesting that Apple could not issue new shares without the buybacks, only that buybacks are effectively temporary reversals of dilution. This is the case whether the newly-issued shares come from repurchased shares or their existing authorization. Obviously if they are currently authorized for 12.6 billion shares they are a long way from this being a consideration. One other question I'd ask is, if the repurchased shares are truly retired, should not the authorization be adjusted downwards to account for shares they can no longer market?

 

[Baymowe335]

We might be using different definitions of the word retire, but I would ask how you know those share can't be reissued. I believe they go back into the pool of unissued shares. Don't see why they would not. A company can't issue as many shares as they wish, the number is restricted by their charter and amendments. The total number of shares Apple is authorized to issue, I have no idea. Do you know how to find that number?
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Points taken, with the understanding that these small edges are often illusory. What we're really doing in these instances is voting with the relatively small number of investors who believe that a company's future is better than (or not as bad as) it looks. This is basically what I was doing buying AAPL in 1997. Investor consensus had thrown the shroud over Apple, and not for no reason. At that time they were fielding takeover offers, which seemed to create some downside protection for the money I was risking, but in the end I can't honestly say I was doing more than playing a hunch. Which, if it works out, is not being smarter than the average bear, just luckier.

With the profitability and cash, I’d argue aapl is basically unlike any company and the market is still trying to figure out how to properly value this beast.

Side note: Did you study the quarter they posted a few days ago? It was incredible. Absolutely incredible, particularly because they didn’t even have the new products rolled out.

 

[IJ Reilly]

With the profitability and cash, I’d argue aapl is basically unlike any company and the market is still trying to figure out how to properly value this beast.

Side note: Did you study the quarter they posted a few days ago? It was incredible. Absolutely incredible, particularly because they didn’t even have the new products rolled out.

The markets are trying to value every company, in real time, so in that respect, Apple isn't different. Apple might be an arguably greater challenge for the markets to value, if only due to the immensity of the revenue being derived from a relatively small base of products. It's the latter that I believe gives the markets the most to think about. We've seen what happens when iPhone sales fail to thrill.

I haven't looked in detail at the quarterly results. What part was especially impressive?

 

[Abazigal]

Interesting that consumers are buying Macs in droves even as the tech crowd decry them as the worst Macs ever.

The needs of an increasingly niche group of users vs Apple's desire to make technology even more personal for its users.

 

[Bart Kela]

So, as I indicated, Apple can issue new shares. That would be the case whether it had recently bought back (and retired) shares or not.

Apple issues new shares all the time.

Like many other high tech companies, for decades Apple has offered a stock option grant to new employees and periodically offered additional grants as a performance bonus. This practice is so well known here in Silicon Valley that it has a nickname, the "golden handcuffs." A typical stock option grant would vest 20% after the first year with an additional 2% vesting every additional month.

Apple may have switched to RSUs since then, but the fact remains that they are constantly issuing new shares, not just to senior executives, but to regular line employees as well (albeit in small quantities).

Also, I believe Apple has an Employee Stock Purchase Plan (ESPP), another common benefit for Silicon Valley high tech firms. This allows employees to channel a certain percentage of their salary into buying AAPL shares at a discounted price. Many employees exercise a same-day sale which basically results in a predictable profit (like 15%).

 

[IJ Reilly]

Also, I believe Apple has an Employee Stock Purchase Plan (ESPP), another common benefit for Silicon Valley high tech firms. This allows employees to channel a certain percentage of their salary into buying AAPL shares at a discounted price. Many employees exercise a same-day sale which basically results in a predictable profit (like 15%).

These plans are hardly unique to the Silicon Valley or high tech. They've been common throughout industry for many decades. As you say they are not offered exclusively to top executives. My dad was hardly a top exec at his company but he got them, some of which he gifted to me. I sold that stock and bought AAPL.

 

[CWallace]

Best September quarter ever for Mac. Yep touchbar and keyboards and no Mac mini update are really dooming the Mac business.

It's impossible to prove or disapprove let alone infer anything that specific from data like this

Mac sales and revenues have risen sharply every quarter since the new models were released. We are now well past any remaining inventories of the previous models being in stock so everything Apple is selling is current-generation product - the product the pundits on this forum go on an on bitching about - which is why the revenues are rising. People like the new Macs and are comfortable paying the higher prices for them.

 

[turbineseaplane]

Mac sales and revenues have risen sharply every quarter since the new models were released. We are now well past any remaining inventories of the previous models being in stock so everything Apple is selling is current-generation product - the product the pundits on this forum go on an on bitching about - which is why the revenues are rising. People like the new Macs and are comfortable paying the higher prices for them.

That's not what I was referring to.

The lock in effect for those of us who love and use and are firmly invested in macOS makes it such that them simply releasing basically any updates are unlikely to fail as there are no alternatives short of fully leaving the macOS ecosystem. That's a prospect that's unrealistic, undesirable or impossible (perhaps all 3) for a huge chunk of Mac users.

Essentially, they have macOS users right where they want them. They can basically release any hardware they want and our options are "buy it and keep working" or rearrange our entire lives/offices/workflows and go to Windows (a huge "yuck" for so many).

 

[Carnegie]

Good answer, thanks. Though just for clarification, I wasn't suggesting that Apple could not issue new shares without the buybacks, only that buybacks are effectively temporary reversals of dilution. This is the case whether the newly-issued shares come from repurchased shares or their existing authorization. Obviously if they are currently authorized for 12.6 billion shares they are a long way from this being a consideration. One other question I'd ask is, if the repurchased shares are truly retired, should not the authorization be adjusted downwards to account for shares they can no longer market?

You're welcome.

I didn't think you were suggesting that. I just wanted to be clear that Apple was actually retiring shares when it bought them back. That wouldn't have to be the case. Bought back shares could be held as treasury shares, that's just not what's happening with Apple.

As for your question: No. The authorization doesn't represent the maximum number of shares that can be issued over time, regardless of whether some might get retired. It reperesents the maximum number of issued (unretired) shares that can exist at a given time. If there's an authorization for 1 million shares, a company could issue 200,000 every year for 10 years if it also bought back and retired enough shares to keep the total out at any given time below 1 million.

So retiring shares can increase the number of new shares that a company has authority to issue. But as you suggest is the case, with Apple having 12.6 billion authorized shares, the shares that it has bought back (and retired) haven't really affected its ability to issue new ones.
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Apple issues new shares all the time.

Like many other high tech companies, for decades Apple has offered a stock option grant to new employees and periodically offered additional grants as a performance bonus. This practice is so well known here in Silicon Valley that it has a nickname, the "golden handcuffs." A typical stock option grant would vest 20% after the first year with an additional 2% vesting every additional month.

Apple may have switched to RSUs since then, but the fact remains that they are constantly issuing new shares, not just to senior executives, but to regular line employees as well (albeit in small quantities).

Also, I believe Apple has an Employee Stock Purchase Plan (ESPP), another common benefit for Silicon Valley high tech firms. This allows employees to channel a certain percentage of their salary into buying AAPL shares at a discounted price. Many employees exercise a same-day sale which basically results in a predictable profit (like 15%).

Yes, it issues new shares regularly.

And yes, it does have a fairly generous employee stock purchase plan and meaningfully all of its employees are eligible to receive RSU awards.

 

[CWallace]

The lock in effect for those of us who love and use and are firmly invested in macOS makes it such that them simply releasing basically any updates are unlikely to fail as there are no alternatives short of fully leaving the macOS ecosystem. That's a prospect that's unrealistic, undesirable or impossible (perhaps all 3) for a huge chunk of Mac users.

First off, I want to note that in general I agree with you.

My comments were aimed at the constant narrative we hear from many on this forum that these sales and revenue spikes are due to customers buying the older models (2015) and that the new models (2016-2017) are not selling and Apple must restore the "status quo" with HDMI and USB-A ports lest the Mac line's sales drop precipitously as people move to Windows 10 PCs that still maintain legacy ports.

That narrative is clearly wrong based on the continued growth in Mac sales and Mac revenues. Apple cannot grow revenues stronger than sales if they are selling discounted clearance models. They are clearly selling only current product with the higher prices.

As such, people are accepting "Dongle Gate" (even with the legitimate issues with legacy USB-A devices not working [well] with non-Apple adapters) by either paying the premium for the Apple adaptors, researching what third-party adapters work or just replacing Legacy USB-A products with new, compatible versions.

In other words, Apple does not have to change. The existing customer base will adapt (as you noted) and new customers coming in will start fresh with compatible hardware so it won't be an issue for them.

 

[turbineseaplane]

First off, I want to note that in general I agree with you.

My comments were aimed at the constant narrative we hear from many on this forum that these sales and revenue spikes are due to customers buying the older models (2015) and that the new models (2016-2017) are not selling and Apple must restore the "status quo" with HDMI and USB-A ports lest the Mac line's sales drop precipitously as people move to Windows 10 PCs that still maintain legacy ports.

That narrative is clearly wrong based on the continued growth in Mac sales and Mac revenues. Apple cannot grow revenues stronger than sales if they are selling discounted clearance models. They are clearly selling only current product with the higher prices.

As such, people are accepting "Dongle Gate" (even with the legitimate issues with legacy USB-A devices not working [well] with non-Apple adapters) by either paying the premium for the Apple adaptors, researching what third-party adapters work or just replacing Legacy USB-A products with new, compatible versions.

In other words, Apple does not have to change. The existing customer base will adapt (as you noted) and new customers coming in will start fresh with compatible hardware so it won't be an issue for them.

Don't strongly disagree with anything there other than to add that Apple could have some legacy ports in there to ease this multi-year transition and be satisfying both, and quite feasibly be growing even *more*, to say nothing of user satisfaction that could be yet even higher.

I was refreshed to hear Ben Thompson on Exponent podcast comment about the user minefield and opposite of simplicity that USB-C has offloaded on the users.

Apple used to be all about solving the hard and complicated stuff for its users. That was literally one of the selling points of buying a Mac. USB-C's port itself is wonderful, but once you get into what connects to it, how and the myriad of transparent to the user restrictions and issues, it could not be farther from the simplicity it purports of "just plug something in with this one standard port and it all works".

They are taking an enormous long term risk by abandoning the philosophy of solving the hard problems and making the life complexity reducing decisions for their users.

Like the Mac Pro, I really hope we can a slight modification of their track with the future of Mac hardware from them.
Not a reversal, just a course correction of sorts.

 

[CWallace]

I was refreshed to hear Ben Thompson on Exponent podcast comment about the user minefield and opposite of simplicity that USB-C has offloaded on the users.

Long-term, the industry is going to adopt USB-C and the USB Consortium will work out the bugs and USB-C will become as ubiquitous and effective as USB-A and USB-B are today.

Also, the significant portion of the issues today with USB-C are down to using cheap (in both price and quality) cables and adapters that do not conform fully (or at all) with the USB-C standards. As expensive as Apple's fully-complaint adapters and cables are, they appear to have a very high success rate as do third-party adapters that conform fully to the USB-C standard. Benson Leung's testing reviews on Amazon have been invaluable for me to find more cost-effective cables and adapters that are fully-compliant with the USB-C spec as well as steering away from those that do not and cause issues.

Apple used to be all about solving the hard and complicated stuff for its users. That was literally one of the selling points of buying a Mac. USB-C's port itself is wonderful, but once you get into what connects to it, how and the myriad of transparent to the user restrictions and issues, it could not be farther from the simplicity it purports of "just plug it in with this one standard port".

But Apple has also been all about dragging the industry forward. When the Apple iMac launched with USB-A only, USB-A was as much a nightmare as USB-C was and adapting legacy connectors to USB-A was far more painful than adapting USB-A to USB-C. If you stay with Apple cables and adapters (as most new customers are likely to do), they will experience few (if any) issues. And those who choose to go third-party need to take upon themselves to research rather than go with what is cheapest.

 

[turbineseaplane]

The problems with USB-C are far beyond bugs.

The obfuscation of what ports/cables/bus type of connection and bandwidth & capabilities as a result are the real issues.

One port that does everything sounds great except it's never actually going to be that in practice due to internal hardware differentiation that's completely undiscoverable to the user on the outside.

Ben Thompson nailed it.
Check out latest Exponent podcast real quick (near the beginning of show)