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Apple's Stock Reaches its Highest Price Ever
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Only a fool believes Apple has been resting on their laurels.
If some people had their way, Apple would still be selling only Macs today and nothing else. I think Apple absolutely should try something new and enter new markets and release new products, and if the price of doing so is at the expense of some of their other products, then so be it.
I won't say the iPhone is immune, but I do feel it is a lot more resistant to disruption than people are giving it credit for, and this is because Apple has invested no small amount of resources in building a defensive moat around the iPhone which is all but impossible for the competition to replicate in its entirety.
Apple Pay. iTunes. Apple Music. CarPlay. HomeKit. HealthKit. iMessage. Apple Watch. Airpods. Superior customer service. Better selection of apps. Guaranteed long-term software support. All these provide very compelling reasons to stick with an iPhone, and even if I don't upgrade an iPhone every two years, services such as Apple Pay, iCloud storage and Apple Music continue to generate revenue for Apple.
As for the Surface entering the mobile market, much less disrupting it, well, let's just say that I will believe it when I see it.
What's the use of having so much money if you can't bring it home and use it? It's like putting your money in a bank which promises sky high interest rates with the caveat that you can never withdraw your money.
Eventually, the money has to come home. Apple is simply waiting for the most opportune moment to do so.
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I wish I'd bought when it was few bucks back in the '90s!
) But I was a poor starving university student at the time.
Good answer, I will remind you though that Carplay , HealthKit and iTunes are not that great. Apl Music is an also-ran and an add-on cost, Apl Watch still has no killer app and looks ugly and is an added cost, Airpods are pretty ugly and yet another added cost (Leo says they drop calls too)..so I question your "defensive moat" theory.
True apl service is nice as is the selection of apps and lets throw in imessage.... That is your defensive moat not the rest of that stuff you listed.... when you look at those items an Apl user is usually paying twice as much for those.... Currently most like almost 90% choose Android so the defensive moat is not that defensive. Once more high end competitors come that "do more" for "same or less" I think that moat has drained. I think Surface changes the game, like it has over and over..like you say, we will see.
Just like with tablets/2in1's at-risk Apl user will switch when their friends do, and their friends are switching so you see that happen...same for phones
The real stickiness is amount of dollars invested in "Apl everything"... that's a tough decision. Yet many will, when there is obvious better, do switch even 20-30 yo Mac users..things change.
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I own an Apple Watch and I agree that while it has no killer app, what I like is that it brings numerous small conveniences which really add up over time. Apple Pay, viewing and responding to notifications on the fly, fitness and health tracking, Siri, apps and it's just a nice-looking watch all round. I don't regret getting one.
I am enjoying my airpods. I don't think they look all that weird. They are extremely portable and comfortable to use and I don't think I can go back to a normal pair of headphones ever again.
Basically, all these products and services exist to incentivize the consumer to keep using an iPhone. You may not think much of those services, but that doesn't mean other people don't find value in them.
10% of a very larger pool of consumers still works out to a very large number of users in an absolute sense. More than enough to allow Apple to vacuum up the majority of the smartphone's profit.
Remember that Apple doesn't need all the customers. They just need the best customers, and they currently enjoy that in spades. Just ask Android OEMs how having 80+% market share is working out for them, profit-wise.
I honestly don't see that happening. 2-in-1 windows tablets seem to be cannibalising existing windows laptops rather than iPads.
And I personally feel that any surface phone concept is dead in the water. Microsoft keeps trying to force its desktop dominance into the mobile space and it's simply not working.
The full quote is "I have four words for you: I love this company. Yeeeeaarrrgh!!"
Does that help?
Why? Maybe because they make products that improve said person's life to the point of joy? That seems like a valid reason to love a company to me.
Sure, that kind of possibility is part of what I'm contemplating (and expecting that someone else would contemplate) when trying to assess the per-share value of a tax holiday.
But I think that kind of huge one-time dividend is very unlikely. We could possibly see a one-time dividend, but if we do I wouldn't expect it to be that large. If Apple had just been sitting on its cash pile, letting it grow at the incredible rate it would have been growing at, and waiting for a tax holiday then... yes, perhaps it might do something like that. But Apple hasn't been doing that. It has, in effect, been returning much of that capital to shareholders for 4 plus years. It's just used debt (in place of its unremitted foreign earnings) to facilitate part of that capital return.
Apple has returned to shareholders more or less all of its profits over the last 17 quarters. Because of that, its cash (and equivalents and marketable securities) net of debt hasn't grown in the way that it would have and total shareholder equity hasn't grown much at all. (To be clear, cash net of debt has grown some - by about $50 billion over those 17 quarters - even while Apple returned to shareholders an amount in excess of all of its profits; there are a number of reasons for that, e.g., accounting for share-based compensation and deferred income taxes.)
So I don't see Apple dramatically increasing the scale of its capital return program in response to the kind of tax holiday we're talking about - e.g., by declaring a one-time dividend of $100 billion. I do, of course, see Apple continuing to expand its capital return program each year as it has been doing. It would do that even without a tax holiday. It likely would just stop using debt (or use less debt) to finance its capital return activities. It might also change the form of some of that capital return, and as I suggested increase its total amount some (over what it would be without a tax holiday) - just not nearly as much as you are suggesting. Again, already returning capital to shareholders at more or less the same rate it is making money (i.e. in an amount as large as its net earnings), there isn't much room to increase that rate. I think it's going to want to keep a substantial cash pile (net of debt) to allow itself flexibility going forward, not draw that cash pile down by $100 billion plus - at least not quickly.
But even if it did do something like declare a one-time dividend totaling $100 billion, that wouldn't represent a $20 (or so) per-share value increase for shareholders. To the extent the market isn't fully valuing Apple's cash holdings, it would represent some added value. But the market surely isn't valuing Apple's cash holdings at zero. In other words, whatever the market thinks a share of AAPL is worth today, it wouldn't - with no other changes - think that a share of AAPL was worth that same amount tomorrow if those cash holdings (net of debt) completely disappeared. They are worth something, even if they are sitting on the books with no clear plan for their use over the next few years. And paying a $100 billion one-time dividend, while it would put $20 (or so) per share (pre-tax) in the pockets of Apple shareholders, would come at the cost of reducing Apple's cash holdings by $100 billion. The disparity between that amount and how the market is effectively valuing that $100 billion on Apple's books is how much value such a one-time dividend would represent for Apple shareholders.
I think that a tax holiday (with a rate of, say, 10%) would add meaningful value to Apple equity. But I don't think it would be worth $20 or more per share. As a starting point it would save Apple around $50 billion in potential U.S. tax liability. Apple hasn't remitted about $230 billion in foreign earnings and estimates that it would owe around $70 billion in taxes (part of which is already accounted for, part of which isn't) on those earnings if it remitted them. At 10% Apple would only owe about $23 billion (even if it remitted all of them). But that $50 billion bump would be a one time thing. That is, of course, unless the U.S. did away with extraterritorial taxation going forward. (Could we possibly be so luck as to get that one aspect of our tax policies right?).
Anyway... the TL;DR: Yes, if not (re)patriating foreign earnings were currently holding Apple back from returning large amounts of capital to shareholders, then there might be significant shareholder value (assuming the market generally undervalues Apple's retained capital) in Apple being able to (re)patriate those as-yet unremitted earnings at a significantly reduced rate. However, not being able to (re)patriate those earnings doesn't seem to be holding Apple back from returning large amounts of capital to shareholders. It's doing that already and I don't think it would want to do it on a substantially larger scale even if it could (re)patriate those foreign earnings at a more attractive tax rate. I think it's returning capital (and will continue to return capital) at more or less the rate it thinks is appropriate anyway.
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Yes, Apple will always need capital to use in other countries. And it might not return all of its as-yet unremitted foreign earnings if there were a tax holiday. But I think it would return much of those earnings.
It would still be able to use that money in foreign countries even if it were 'returned' to the U.S. as we are referring to it now. It's just that more options for the use of that money would be opened up by having thusly 'returned' those earnings. Returning that money isn't really about moving the money geographically. It's really about foreign subsidiaries that Apple owns remitting those profits to the parent company rather than retaining those profits for themselves. The money can be held wherever and in various forms. But as it is, in effect the foreign subsidiaries haven't (at Apple's direction) said to Apple - here, we've made all this money, and now we are going to give it to you so that you, the parent company, can be said to have made it. Doing that would make Apple liable to pay U.S. taxes on those earnings even though they were (rightfully) made outside of the United States. Not doing that limits what Apple can do with that money. It can still use it in some ways - e.g., to expand operations in foreign nations. So if the effective tax rate for remitting that money to the parent company were low enough, it would make sense for Apple (rather, for its foreign subsidiaries) to remit most of it so that Apple would have more flexibility in how it could use that money.
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I agree.
Didn't Microsoft try a phone with Windows on it and it was complete an utter failure? I seem to remember it, but it was so inconsequential, it is like it did not happen. The Surface is too big to put in a pocket and when you shrink it down to a pocketable device, it wouldn't be much different than Windows phone. Also, it isn't like the Surface is setting the world on fire. It currently comes no where close to iPad revenue, much less iPhone revenue.
By the way, I am not a Microsoft hater. Excel is my favorite application of all time. However, if Microsoft is hanging its future on a Surface phone, they may want to go back to the drawing board.
I want to mention hand-off, continuity, and Airplay as more reasons people stick with the Apple ecosystem. When Apple was refusing to make a large iPhone, I thought about switching to Android, but Airplay alone kept me in the ecosystem for another year, which was long enough for Apple to bring out the 6+.
Let's see, you like working there, you own stock, you love their products, you like where they are headed, etc etc. Why would you question why someone would love something?
Aha that makes sense ofc. Thanks for the clarification. Is that a usual way of doing it? Collecting funds in other countries then waiting for the government to give you a holiday discount? Somewhat like waiting for Black Friday...
You're welcome.
If an American company makes a lot of money outside of the U.S. and is able to have that money taxed (by foreign jurisdictions) at a low effective rate and they don't necessarily need that money right away, then yeah... it's not uncommon for them to hold it outside the U.S. (e.g., by not having it remitted to the American parent company). They might do that in hopes that they'll eventually be able to bring it to the U.S. at a lowered tax rate or because, if that opportunity doesn't arise, they might eventually be able to make use of it outside the United States. For various reasons, it just doesn't make sense to give a huge portion (perhaps a third) of those foreign earnings to the United States government.
Some companies use what some might consider accounting tricks to move U.S. earnings to foreign countries to avoid paying U.S. taxes on them, and then do much the same thing - continue to hold those earnings outside of the United States. But that's not really the case with Apple, for the most part it pays U.S. taxes on what could fairly be considered to be its U.S. earnings. It doesn't move those profits offshore, it just keeps a large portion of its (legitimately) off-shore profits off-shore (though it does move off-shore profits around in order to avoid higher foreign taxes).
This holding cash off-shore has to do with the U.S. having a fairly antiquated tax policy when it comes to money that its companies (and citizens) make outside of the United States. We still use extraterritorial taxation, which many advanced economies have moved away from. That means we tax the money that our companies (and citizens) make in other countries. We give them credit for the taxes they pay in other countries, but if other countries' rates aren't as high as our own, we make companies pay the difference if they want to bring those profits to the United States - to, e.g., return them to shareholders or invest in operations here. (I'm oversimplifying the situation somewhat, trying to explain how it works in broad conceptual terms.)
I think such extraterritorial taxation is not only arrogant and improper (e.g., it's presuming that the U.S. has the right to tax economic activity that legitimately takes place in other countries and to make the effective income tax rate on such economic activity be what we think it should be rather than what those other countries themselves choose), but on-net deleterious for our own economy. Among other reasons, it just doesn't make sense to force companies to keep large amounts of money outside of the U.S. in order to avoid paying what is in effect an entry tax on it.
I get not wanting to let companies pretend they make money outside of the U.S. which they really make in the U.S. in order to avoid paying what might be considered proper U.S. taxes on it; but an extraterritorial taxation policy does more than that. It presumes to tax economic activity that actually happens in Berlin and in small towns in the middle of China, while also requiring German and Chinese companies to pay taxes here for economic activity that actually happens here. It represents the U.S. presuming to establish a proper tax rate for economic activity (with regard to U.S. citizens and companies) regardless of where it happens and then effectively imposing that tax rate on such economic activity even if local jurisdictions have chosen something different, for whatever reasons they may have to do so. It seeks to negate the advantages that they see in, e.g., having a lower tax rate on certain kinds of economic activity. If they want to have lower tax rates (or other taxing policies that allow entities to avoid paying taxes), then they are entitled to gain the advantages thereof just as they suffer the consequences thereof (e.g., in the form of lowered tax revenue).
The point being... as I see it, the real problem here which causes a lot of foreign earnings to be held off-shore is our (i.e. the U.S.'s) extraterritorial taxation policy.
First off it won't be a Surface Phone.... it's be a redefinition of the Mobility landscape. Surface is all about new categories.
Cool story 2-in-1 , surface pro defined that entire new category.
IPads tank Samsung Tablets cease production
Apl copies Maxipad "pro", people are not fooled by "pro" it tanks.
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Surface Studio...redefines AIO
Mac sales ...Meh um lets add gimmicky emoji bar....people laugh
Mindshare switches to Microsoft...success
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Same will happen in mobile, iPhone will look lame soon enough. I wonder IF they will update 7 year old Springboard tiles? Surface team knows what they are doing, all about the hinge.
Things are about to get really interesting in mobile.
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You were smart and looked at lack of innovation? Failures on launching relevant new Devices? Now swayed by stock buybacks that raise price but lower profits? Apl today is making LESS than two years ago, significantly less. They really have no solid future plans other that hope Iphone does not tank like Ipad,Ipod and Mac.
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Reasonable points. The $100B figure was essentially pulled out of thin air. That's pretty much the only way we can approach this question, for the moment, anyway.
Not sure I can agree with you on the valuation of the cash, though. For investors, a company's cash assets (and all of their other assets, liquid or otherwise) are little more than balance sheet abstractions unless the cash is used to return equity either in the form of dividends or buybacks. Investors have no access to it any other way.
Cash adds to a company's market value (and debt subtracts from it) and can be used as leverage but only if it were to be bought out entirely by another company. Apple isn't a takeover target though and short of it becomings one (highly unlikely) that cash might as well be on Mars as far as investors are concerned. What it represents to investors is the tantalizing possibility of equity return that the company may or may not provide. How does the market value that? Not so readily.
What this really brings up is the value and purpose of a tax holiday. Moving retained earnings from overseas to the U.S. does nothing if it isn't used for some purpose here that it could not be used for if it was held outside the country. Ideally it is put to work on capital investment, but I think we all know Apple doesn't have the sorts of opportunities that would soak up tens of billions in capital. The only other use is equity return to stockholders, which serves mainly to comfort the already comfortable. I would not refuse the money obviously but I can also see that it's smoke-and-mirrors economics if it's sold as anything but yet another round of trickle-down. In practice this is a great strategy for further enriching the already rich and a terrible way to benefit anyone else.
I agree with almost all of that, but the only thing I should clarify was the $1000 price mark for a tech company, analysts never thought it was possible a few years back.
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None of your points made any coherent sense. Clearly you're an "Apple is doomed!! If I say it enough, if it happens, I'll be able to brag" blind shouter. Check facts on your post before claiming things.
Apple is not doomed, AOL still has customers and both BB and Nokia still exist
Facts: Sure..Ipad sales and Mac sales started to struggle when Surface entered those markets and created newer categories. Same thing will happen to iPhone.
Cool fact: Apl was strongest when they did the same. Now they follow and cannot pivot.
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I may have jumped the gun. I fully expect the new administration to dramatically lower the corporate tax rate alongside a tax holiday to repatriate the money.
I am hopeful Apple will give some of this money back to investors, most likely through dividends (although they could extend the buyback program somewhat).
What Apple will actually do with the money, I don't know. To the talk of using the money for a major M&A, I'd rather see them pay off the debt.
I don't hear anyone mention it, but the only M&A I would like Apple to consider is AMD for under 13B.