A brand new report highlights what most likely quantities essentially the most most absurd stretch within the DOJ’s antitrust lawsuit. A piece notes that Apple final yr spent half as a lot on analysis and improvement (R&D) because it did on AAPL share buybacks, presenting this as ‘proof’ of the dearth of competitors confronted by the corporate.
It contrasts this with Google, whose R&D spend matched that of its share buybacks, suggesting this implies the search big faces larger competitors …
AAPL share buybacks
Share buybacks are when an organization spends surplus money to purchase its personal shares. It then cancels these shares. Inventory buybacks have three advantages.
First, with fewer shares in circulation, the corporate has to pay out much less cash in dividends.
Second, with the worth of the corporate cut up throughout fewer shares, it will increase the efficient worth of every share.
Third, as a result of the variety of shares is lowered whereas earnings are unaffected, it will increase the earnings per share (EPS), which is considered as a key measure of an organization’s monetary efficiency. Primarily this makes the inventory appear like a greater purchase, encourages extra share purchases, which drives up the worth of the shares.
Apple is an organization with quite a lot of surplus money, and over the previous decade has spent greater than $650B in share buybacks.
DOJ compares these to R&D spend
The DOJ lawsuit compares the 2 sums:
In fiscal yr 2023, Apple spent $30 billion on analysis and improvement. By comparability, Apple spent $77 billion on inventory buybacks throughout the identical yr […]
Whereas Apple’s anticompetitive conduct arguably has benefited its shareholders— to the tune of over $77 billion in inventory buybacks in its 2023 fiscal yr alone—it comes at a terrific price to customers. A few of these prices are fast and apparent, and so they instantly have an effect on Apple’s personal clients: Apple inflates the worth for getting and utilizing iPhones whereas stopping the event of options like different app shops, revolutionary tremendous apps, cloud-streaming video games, and safe texting.
Apple’s smartphone monopoly implies that it isn’t economically viable to spend money on constructing some apps, like digital wallets, as a result of they can not attain iPhone customers. Which means improvements fueled by an curiosity in constructing the most effective, most user-focused product that may exist in a extra aggressive market by no means get off the bottom. What’s extra, Apple itself has much less incentive to innovate as a result of it has insulated itself from competitors.
The lawsuit cites an unnamed Apple exec stating that “any new and particularly costly [feature] must be rigorously challenged earlier than it’s allowed into the patron cellphone,” presenting this as proof that the corporate has no aggressive strain to innovate.
The Monetary Occasions highlights this, and factors out that inventory buybacks are frequent within the tech sector as a complete, and Apple has lowered its personal according to falling income.
9to5Mac’s Take
It is a frankly ridiculous declare which does no favors to the DOJ’s case.
Inventory buybacks are an indication of confidence in the way forward for the corporate. Whereas it’s a considerably oblique funding on condition that the shares are cancelled, it nonetheless solely is sensible to purchase your personal inventory in case you imagine this can be a higher purchase than different types of funding.
Apple’s R&D spend as a proportion of income has been traditionally decrease than competing tech corporations, it’s true. However that’s largely as a result of the corporate is extraordinarily centered in its new product improvement technique. It famously says no to a thousand issues for each time it says sure.
Distinction this to Google, which invests in something and the whole lot after which closes down the stuff that doesn’t work out. Google Cardboard, Goggles, Clips, Domains, Podcasts, Optimize, Stadia, Hangouts, Discuss, Wave, Duo, Plus, Areas, Now, Buzz, Currents, Surveys, Latitude, Labs, Solutions … I may go on (and on, and on). After all Google spends greater than Apple on R&D!
Apple does have some severe antitrust inquiries to reply, however why it spends extra on inventory buybacks than on R&D completely isn’t one among them.
Photograph by Carles Rabada on Unsplash
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