Apple's $700 Billion Buyback Gamble: Boosting Shares but Stalling Growth
1min read Over the past decade, Apple Inc. has executed a staggering $700 billion worth of stock buybacks. While this strategy has benefited shareholders, it has not addressed Apple's core issue: stagnating growth. The company's position as a leading brand and its dominance in the market have not been sufficient to drive significant growth.
Apple's stock buybacks have been a boon for shareholders, attracting investors like Warren Buffett. With Apple topping the "Most Valuable Global Brands" list by Kantar, its strong brand recognition and product premium have fueled investor interest. Despite this, the buybacks have not revitalized its growth engine.
Since 2013, Apple has repurchased about 42.24% of its outstanding shares, positively impacting its EPS. However, if no buybacks had taken place, the EPS would stand significantly lower. This financial maneuver has masked other weaknesses, but ultimately has not driven substantial growth.
Apple's main challenge is evident in its product sales. Despite record-breaking service revenue for the third fiscal quarter, Apple’s physical product lines are struggling. iPhone sales, which account for 52.3% of net sales, have seen a slight decline. The lack of innovative features has kept consumers from upgrading, eagerly waiting for the integration of AI in future products.
Mac sales grew marginally, but the demand for PC/ laptops has been weak since the pandemic. iPad sales also saw a near 10% drop over the last nine months of the fiscal year, while wearables and accessories sales decreased by over 8%.
Although services now represent 24% of net sales, Apple's overall revenue growth remains tepid at just 1%. The expected higher operating profit margin from services alone is insufficient to spur notable net profit growth.
Apple’s net profits have remained almost flat over the past two years, increasing only by 6.6% over three years. Rapid stock buybacks have concealed these operational weak points. Even with a strong brand, Apple's profit growth has stalled, amidst historically high inflation.
This stagnation presents a significant problem, given the high forward P/E ratio Apple commands compared to its historical average. Despite extensive buybacks, Apple's current valuation appears expensive without delivering improved performance.