You can feel Carl Icahn’s presence in Tim Cook’s recent announcement to the Wall Street Journal — Apple just repurchased the equivalent of $14 billion in Apple shares as part of its massive share buyback program. At today’s market capitalization, it represents just over 3 percent of the company.
As a reminder, activist investor Carl Icahn recently lobbied on Twitter, saying that Apple wasn’t going far enough when it comes to its share buyback program.
We feel $APPL board is doing great disservice to shareholders by not having markedly increased its buyback. In-depth letter to follow soon.—
Carl Icahn (@Carl_C_Icahn) January 22, 2014
Despite an all-time high in sales with more than 50 million iPhones sold, Apple reported mixed results for Q1 2014. Revenue was below the street’s expectations, while profit was above. But with $13.1 billion in profit, the company still manages to generate a lot of cash.
In fact, the company’s cash on hand increased to $158.8 billion. It remains a great strategic asset for Apple, but shareholders expect to get some of it back.
Apple started looking at handing out dividends a few years ago. And because shares were trading below the company’s expectations, it started repurchasing shares.
When it comes to share buyback programs, it is a great vote of confidence for a company’s stock. On the one hand, it means that Apple doesn’t think that it should invest its cash on hand any other way. In other words, Tim Cook thinks that Apple shares are the best financial investment for Apple’s own money. On the other hand, it reduces the number of outstanding shares. Existing investors will own a bigger chunk of Apple.
Over the past 12 months, the company has repurchased the equivalent of $40 billion in shares, out of its current $60 billion buyback program. For now, there is no word on another potential buyback program to keep buying shares at the same pace.
But a bigger question remains. In January, Google acquired Nest for $3.2 billion. What if Apple had used some of its money to buy Nest instead?
Many former Apple engineers worked for the smart thermostat company, including Nest founder and CEO Tony Fadell who was a founding member of the iPhone development team. Letting his team go and work for Google isn’t a smart decision: TechCrunch has learned that Nest will become Google’s core hardware group.
Over the past 15 months, Apple has bought 21 companies for less than $1 billion each. Tim Cook’s announcement regarding the share buyback program will reassure current and future shareholders. But the next important step for the company will be to prove everyone that it can pull the trigger when it comes to large acquisitions that make sense.