Fancy owning Apple Inc, the entire company, for no money down? Well if the current share price level doesn’t go any higher, in less than 8 years time someone will be able to pick up the company effectively for free.
Let’s get the facts out of the way:
As I write this, Apple stock is trading at a stock price of approximately $97 per share.
It has a Market cap of approx $540 Billion, and a net cash balance of $153 Billion.
Using the Market Cap & Net cash figures, we come to an Enterprise Value (EV) for Apple Inc of approximately $387 Billion, that is the value of the company after its net cash balance has been subtracted from its Market Cap.
Over the past two financial years, Apple has returned capital to shareholders by way of share buybacks & dividends. The average amount spent on buybacks over these last two years is $40.5 Billion per year.
During this period Apple has also grown its net cash balance by an average of $5.5 Billion per year. In other words despite its massive spending on buybacks and dividends it still grows its cash pile each year.
What does all this have to do with getting Apple inc for free? Well let’s do some simple math.
If the share price doesn’t increase, and the Apple buyback & cash accumulation continues as it has, then this is what happens over the next 8 years:
2016: $344 Billion EV & $158.5 Billion Net Cash
2017: $298 Billion EV & $164 Billion Net Cash
2018: $252 Billion EV & $169.5 Billion Net Cash
2019: $206 Billion EV & $175 Billion Net Cash
2020: $160 Billion EV & $180.5 Billion Net Cash
2021: $114 Billion EV & $186 Billion Net Cash
2022: $68 Billion EV & $191.5 Billion Net Cash
2023: $22 Billion EV & $197 Billion Net Cash
Approximately halfway through 2023/24 the EV reaches zero, and the company market cap falls below its net cash figure. Technically at this point anyone wanting to own the entire company would be paying a price equivalent to its net cash balance – essentially getting the company for “free”.
2024: -$24 Billion EV & $202.5 Billion Net Cash
2025: -$70 Billion EV & $208 Billion Net Cashthe
2026: -$116 Billion EV & $213.5 Billion Net Cash
2027: -$162 Billion EV & $219 Billion Net Cash
2028: -$208 Billion EV & $224.5 Billion Net Cash
At some point in 2029 Apple Market cap falls to zero, or perhaps $97 – as whoever owns the last share technically takes full control of the company (a company with $230 Billion in net cash!).
The point of this post is not to suggest Apple will in reality reach a zero EV (or less). instead it is to point out that the likelihood of the Apple share price staying where it is (or dropping), is a very unlikely scenario given the current buyback activity. Sooner or later it is going to have to rise significantly.
Kirk Burgess 
> 2020: $160 Billion EV & $180.5 Billion Net Cash
At this point, couldn’t Apple just buy all outstanding shares and be finally free from shareholder demands? If everyone would sell their shares of course.
Yeah, in theory…but this assumes that Apple’s share price remains at $97…all the way up to 2020. That’s basically the point of Mr. Burgess’ piece…notwithstanding other factors (inflation, innovation, whatever)…”at some point” Apple’s cash value alone will make its share price meaningful. There is no way one $97 share buys $225 billiion in value. 🙂
That’s a management buy-out, and the “everyone would sell their shares” is the hard part. 2021-2022 is more likely to be able to cover the market reaction in raising the price.
I’ve been wondering about this as well. Anybody that can answer this?
good analysis
The buybacks and dividends seem to just delay this transition. AAPL has spent $153 B on buybacks and dividends so far, and (according to figures online) $226 B (including cash, inventory, accounts receivable, and property) . So if it hadn’t given any money back, it would have $379 B. Its net profit was over $53 B last year, and it’s worth $540 B. So without any return of capital, it would be worth its present market cap just in cash and assets in three years.
(I meant to say, AAPL *has* $226 B in assets right now! I wish I could edit the post.)
They can never “be free from shareholder demands” and they will always have a shareholder, because they will always be owned by somebody.
Right now, Carl Icahn has about 1% which seems to entitle him to lunch with Tim Cook once a year or so and even then, Tim doesn’t have to listen to him.
What could happen (if the shares go low enough) is the biggest shareholder(s) could buy up more than 50% of publicly available stock and have complete control.
Isn’t the current price based on the guess by shareholders the current rate of buyback will reduce due to the reduction of profit apple will accumulate as sales of the iPhone go down?
If so, why is it so unlikely the stock price will go down?
The point of the article is that, at the rate Apple is making money, even if they have no growth whatsoever, the share price is comically low.
What if they cease to stay selling phones at this rate? Why is that so unlikely?
EV will not fall under Net Cash. If it does, a rich investor will buy the whole company for EV and pick up the Net Cash and make profit…
This happened before, in the iCEO days, and rumors abounded that Sun might pick them up. I bought a few shares back then which eventually became the down payment on a nice home.
This is why I continue to buy stock — even more aggressively in the last few weeks. The thing that no one ever seems to talk about is that at its peak AAPL was trading at a P/E ratio of less than 20 (currently around 10). GOOG is currently somewhere around 35 and other comparable tech stocks are north of that (discounting the ridiculousness of Amazon’s ratio). Basically investors have never valued AAPL for its future earnings growth potential and have always (even at its highest share price) been skeptical that the company could grow.
In addition, they have had access to “cheap” money buy issuing debt at low rates. These rates represent a net gain when used for buybacks as the dividend yield is greater than the net cost of debt.
Since 2016 they have upped their dividend by 38%, yet only paid 20% more in actual $$
I hope this trend continues.
Apple needs to get ahead of this before a bidding war starts between venture capitalists. Once that happens then the Board will lose control and the whole company will be in peril.
The simplest solution is to increase the dividend. That will slow, or stop, the increase in the cash pile. More importantly, it will substantially increase the share price.