Apple's Share Repurchases Have Benefited Shareholders: Follow-Up

Since my Apple's Share Repurchases Have Benefited Shareholders by $80 Billion article was mentioned on Business Insider Deputy Editor Jay Yarow's latest podcast with Eric Jackson and Ben Thompson, titled Tim Cook's $100 Billion Mistake (44:19 mark), I thought it was appropriate to publish my response. The part of the podcast specifically related to my article had to deal with whether Apple's buyback was a waste of time and resources, akin to IBM financial engineering, and if Tim Cook is just merely trying to please shareholders. 

My response: Apple's stock buyback is meant to benefit shareholders. Who else would the stock buyback be meant for? Apple is owned by its shareholders and with that ownership comes privileges such as voting in directors that are tasked with overseeing Tim Cook to make sure shareholders' interests are being considered. The stock buyback is a transfer of wealth meant to benefit shareholders (who aren't selling shares to Apple), especially when the stock being bought is considered undervalued by traditional financial valuation metrics, such as forward price/earnings and price/cash flow ratios.

It is a fact that the buyback has raised EPS per share and that each remaining share now has a higher ownership percentage (albeit very tiny) of Apple's earnings. Apple has bought back 10% of its shares, which means that for Apple to trade at the same market cap today than it did two years ago, would require 10% fewer shares needing to be bought. In terms of dividends, the remaining shareholders may now be in a better position to benefit if Apple raises its dividend purely because of fewer shares outstanding. Arguing that Tim Cook is "wasting" money by simply giving excess cash back to shareholders fails to grasp the actual debate of whether share buyback benefited shareholders. I laid out my argument for how shareholders have benefited by $80 billion, but the podcast didn't address that, instead just saying that buybacks don't benefit stocks and shareholders (with no evidence to support that claim) and that Tim Cook was trying to please shareholders, instead of taking the excess cash and buying companies, that by no means are guaranteed to fit seamlessly and effortlessly into Apple's unique structure. 

CEOs and CFOs are tasked with keeping shareholders' best interests in mind. For many public companies, CEOs spend a few weeks on the road each year meeting with investors and representing the company to Wall Street. CFOs are often tasked with talking to clients throughout the year, which may end up taking up significant portions of their schedules. This is part of proper corporate governance and should be applauded, not ridiculed, or positioned as a bad decision. Management teams ultimately work for shareholders, through the board of directors, so taking a dinner with a group of investors does not mean Tim Cook is engrossed in Wall Street to the point of not having time to manage Apple.  

The bigger issue with the Apple share repurchase debate comes down to unfalsifiable statements, or claims that can not be proven false, such as:

"Apple stock would be worth just as much as it is now if the buyback was not done."

One can not prove this statement false because it never happened. We don't know what Apple would look like if it hadn't bought back stock. I find the current debate to be quite funny as it essentially boils down to arguing whether Apple should alter it's strategy to spend excess cash, the same strategy responsible for giving them $150 billion of cash. Apple buys companies. Apple buys back its stock. Apple pays dividends. Despite doing all three of these things simultaneously, Apple still has $150 billion of cash that can be used to buy other companies, invest in itself, and return excess cash to shareholders. Classifying buyback as a waste with no proven benefit to shareholders, without any analysis or data to back up such a claim, takes things a bit too far.