This is the subject of my latest Bloomberg columnand here is the basic setting:
Apple unveiled a record share buyback plan last week, even though increased its dividend by 4%, to 25 cents per share. This made the market happy and the company’s shares are up about 10% since the announcement.
And that:
Since the market has approved of Apple sending more money outside the company, the market must think that Apple shareholders are better than Apple at allocating funds. Apple, to its credit, realized this. Of course, Apple still has abundant liquidity and very strong market positions, particularly for its iPhones. So it’s not really a market telling Apple management that they don’t know what they’re doing. Instead, the market is seeing that Apple is wise enough to rethink its most marginal projects. This is optimistic for Apple’s overall value.
There is another aspect to this story that suggests a relatively bright future for Apple. By buying back shares, Apple management is signaling that these shares are undervalued. This means the company is relatively optimistic about the projects it already has in the works, as it is willing to hold an additional concentration of equity in those projects. It’s not about pawning those profits off to unsuspecting third parties, as a dishonest company might do if the whole business was rotten. The market rewards this refreshing sign of honesty.
Thus, the reported skepticism towards new marginal projects for the most doubtful projects is combined with optimism towards existing, presumably promising, infra-marginal plans, to use economic terminology. No, Apple says, we can’t take over the world, but what we have in the works will turn out well. And the market believes it.
If you’re worried about Big Tech taking over the world but want your favorite products to keep getting better, this is all pretty positive news. It’s a sign that Big Tech’s influence has reached its peak, but its core products will remain popular and likely improve.
I remain happy with my iPad Pro, but I don’t know how much it will improve.
