[[{“value”:”That is the topic of my latest Bloomberg column, and here is the basic setting: Apple unveiled a record stock buyback plan last week even as it increased its dividend by 4%, to 25 cents per share. That made the market happy, and shares in the company are up about 10% since the announcement. And this: Given that the
The post The economics of Apple share repurchase appeared first on Marginal REVOLUTION.”}]]
That is the topic of my latest Bloomberg column, and here is the basic setting:
Apple unveiled a record stock buyback plan last week even as it increased its dividend by 4%, to 25 cents per share. That made the market happy, and shares in the company are up about 10% since the announcement.
And this:
Given that the market approved of Apple sending more money outside the company, the market must think Apple shareholders are better at allocating funds than Apple is. Apple, to its credit, has realized this. Of course Apple still has plenty of cash on hand and some very strong market positions, most of all for its iPhones. So it’s not quite a case of the market telling Apple management it doesn’t know what it’s doing. Instead, the market is seeing that Apple is wise enough to rethink its most marginal plans. That is bullish for the overall value of Apple.
There is another aspect to this story that suggests a relatively bright future for Apple. By buying back shares, Apple management is signaling that those shares are underpriced. That means the company is relatively optimistic about the plans it already has underway, as it is willing to hold an extra concentration of equity in those plans. It is not trying to pawn off those returns on unsuspecting others, as a dishonest company might do if the whole enterprise were rotten. The market is rewarding this refreshing sign of honesty.
So the signaled skepticism about new, marginal plans for the most doubtful projects is combined with optimism about existing, presumably promising infra-marginal plans, to use economic terminology. No, Apple is saying, we cannot take over the world, but what we have in the works will go well. And the market believes it.
If you are worried about Big Tech taking over the world but want your favorite products to keep improving, all this is pretty positive news. It is a sign that Big Tech’s influence has peaked — but that its core products will remain popular and likely will get better.
I remain happy with my iPad Pro, but I am not sure how much better it is going to get.
The post The economics of Apple share repurchase appeared first on Marginal REVOLUTION.
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