Most of the graphs on Six Colors have 2019-Q4 missing and some of the numbers are wrong. For example compare total revenue change for 2019-Q2 with the actual numbers in the second chart above.
Apple’s fiscal year begins in October and ends the following September. The just released results were for the fourth quarter of the 2019 fiscal year, 2019-Q4.
Love the solid continued growth in services, now accounting for 20% of the quarters revenue. Will be interesting to see how Apple TV+ continues to affect growth.
What exactly is the advantage of reaching a cash neutral position? If you are a company that can reliably do that does that mean you no longer have to grow — since your investors are primarily attracted to a reliably stable ability to generate dividends?
The history is that apple had a crazy cash position partly because of the need to keep cash overseas to avoid tax on repatriation. What they did was borrow against that overseas cash to get US based on dollars.
Cash neutral doesn't relate to growth, if you grew you'd need to increase cash to cover working capital needs generally (ie, Apple first has to pay for parts, inventory, factories, staff for them etc before it gets revenue from sales).
Excess cash above this - it can be argued is not useful for apple to hold. Ie, investors can earn as much on cash as apple AND might want to invest it in things that theoretically could earn more - especially now with low interest rates. They can get to cash neutral a couple of ways. Because gross net income is going down, share buybacks one option - they've already been doing lots of that. Dividends is another. Pushing a bit on R&D might be another. No rush on that change.
What is impressive in some ways is their spending discipline with this mountain of cash. Many business have tried to buy their way to growth with horrible results in my view.
Well, they should have repatriated it. The only reason they're not is because they're hoping to get a one-time tax cut from a Republican administration, and with the amount of money involved it was worth it to wait out Obama, who wouldn't have any of it.
The way they handled it was to borrow funds using the cash as collateral.
They could put $1B in Bank X, then would borrow $1B from Bank X, using their cash in Bank X as security. If you squint it might almost look like they were borrowing their own money :).
I'm not that onto the details here so this might be totally wrong - but I didn't wonder why Apple had so much debt one time and this is what I think I was looking at.
One risk if they didn't repay and the bank took collateral would be that they would then have had to pay the taxes (it would have counted as a repatriation). They must have thought the risk was reasonably low.
As the owner of a company (a shareholder) it is desirable because if your company isn't in the business of capital allocation then excess cash accumulation is reducing their ROE and your ROI.
And yes, the company still has to grow. But as a company executive you are viewing existing and new business opportunities through their net present value. If you don't have business opportunities that meet the thresholds you have in place for a project, then extra cash serves no purpose.
This ignores a whole bunch of complicated other stuff (stress testing capital requirements and what sort of balance sheet has great enough margins of safey, long term capital allocation given market dislocations, etc). But that's why being net neutral on cash is in general a good thing.
At a least keep up with inflation in order to have future value?
I'm almost didn't write this because I didn't want to deal with the "why do we have to grow" responses.
If you are a single proprietorship then go nuts. Do what you want. If you take investor money you are an investment, and you are legally obligated (at top levels, via fiduciary obligations) to operate things to generate return. That's also why you have other corporate structures like B/public interest corps, mutuals, credit unions out there that don't obligate growth.
Apple has to grow because it's public Delaware C corp. Or they have to return cash so owners can invest it elsewhere. Or the owners will fire the executives, or shareholder groups might vote for takeovers that offer greater returns. I'm not defending it, but explaining it.
> Or the owners will fire the executives, or shareholder groups might vote for takeovers that offer greater returns.
It's worth emphasizing this point because it's a common misconception. Companies don't have a legal obligation to grow - they have a legal obligation to do what their investors want. But being publicly traded virtually gaurentees that your company is owned by people who want it grow or will be owned by people who want it to grow.
strictly speaking, a company doesn't have to grow (no, there's no law nor even fiduciary duty to grow), but it's certainly incentivized as such, because valuations are most sensitive to growth rate.
They have to provide a risk-weighted return similar to the current average stock, otherwise they should be revalued to the point at which they would provide that.
This is the real reason why CEOs are on a never-ending quest to grow even if it's detrimental. They are measured and compensated on share price. And share price is mostly driven by growth prospects. This is the real reason why Apple needs things like 3 camera lenses (just like Gillette needs 3 blades) and thin isn't thin enough. If you're a private company, you can do things like Hacker News and Craigslist where you don't change for the sake of change.
EDIT: to show the impact of growth prospects: Right now, Apple's P/E ratio is 20x with share price of $243. But in 2016, P/E was 11x with share price of $100. That is a 143% increase. If you look at revenues, 2019:$259B compared to 2016:$216B - which is only a 20% increase. Look at the article[0] from 2016, it says stuff like:
Apple shares are tanking this week because of a report in Japan's Nikkei newspaper that Apple plans to slash its output of iPhone 6S and iPhone 6S Plus by 30%.
That comes on the heels of an Accenture report warning that demand for smartphones is waning. People don't believe the newer models are all that much better than what they currently have, so they don't want to pay for an upgrade.
The advantage has been explained well by the sibling comments. They are not promising such a big dividend that they can’t invest cash into increased operations and R&D.
A company that is primarily valued for its dividend is one that has promised such a big dividend that it risks cutting the dividend when it has to grow or fix problems (like GE.) Maestri is not going to let that happen, which is why they are approaching net cash zero carefully over time and majorly using buybacks, which do not set the same expectation for investors as dividends.
They have cash that they don’t use neither for operations nor for investments. It is inefficient. Reaching net cash neutral position would mean that all assets are used in the most productive way.
Apple Card is likely one of those services which will have little impact on revenue and earning, but outsized impact on stickiness of the iPhone as a platform. If you prefer Apple Card and the way you interact with it, it's going to be that much tougher to move to Android.
It may be an issue of Apple simply not disclosing specific Apple Card numbers. Right now in their earnings release to the SEC [1], Apple only lists net sales by category for iPhone, Mac, iPad, 'Wearables, Home and Accessories' and Services
For context: the Q4 revenue/EPS results came in ABOVE sell-side consensus per Factset and Q1 guidance is also ABOVE Factset consensus on both revenues and gross margins.
Also this BS about stock buybacks and dividends to become cash neutral is stupid. They should be betting on moonshot things that will be the next iPhone instead of all of this financial engineering.
If finding "the next iPhone" just required spending large enough sums of money, then Microsoft would have beat them to the punch before the iPhone came out.
In all of history there have only been a few iPhone class disruptors. They are rare, and they come based more on timing and the presence of enabling technologies than any particular company simply investing billions in R&D.
yeah, these tech giants are constantly hiring tons of people and snapping up every interesting startup that rolls along in a desperate bid to turn money into more profitable products
Although I do wish Apple would buy some AAA game studios and make some AAA-quality games for their platforms..
The game market is extremely small compared to other markets.
Sony just announced their quarterly numbers. The PS4 just crossed the 100 million unit threshold over its entire lifetime. Apple sells that many phones in two quarters.
Giving the companies profits to the people who own the company is not "financial engineering". Apple has decided it cannot effectively use that money for R&D, so it isn't
Stock buybacks may be a way to give profits to the people who own the company, but they are also 100% financial engineering considering it has a direct impact on stock price and earnings per share.
Stock buybacks were illegal until 1982, being considered a form of stock manipulation. Even though it's legal now, it's still one of the best forms of stock manipulation.
A company buying its own stock at market price is a wash. The reduction in the value of the company and the increase in the value of each remaining share balance out.
Even in 2007 when the iPhone was introduced, Jobs said he wanted Apple to have 1% of the phone market and sell $10 million. That means the phone market was already at 1 billion per year. Now it’s at 4+ billion per year. Getting in the phone market was obvious even back then.
Almost by definition, there won’t be a larger market than one that already has 80%* market penetration among adults worldwide.
just last year I thought how much more can they grow now that they're over a trillion dollar market cap? Now I see people lining up for disposable $250 earbuds and now I know. (the same people that were happy with their terrible $15 ones btw)
https://www.macstories.net/news/apple-q4-2019-results-64-bil...
https://sixcolors.com/post/2019/10/apple-results-64b-in-reve...