Apple’s numbers disappoint Wall Street. Could this be a good thing?

Apple announced quarterly earnings, and as expected they disappointed Wall Street (Jason Snell has one of the best looks at the results at Six Colors), and as I write this, Apple’s stock is down about 8%, or about $40Billion in market cap. Which as Gil Amelio once told Apple employees, was a lot of zeros (note 1). But to put that in perspective, Apple’s profit in this bad quarter is larger than Apple’s revenues were for the entire year in the Amelio era.

So Wall Street continues to punish Apple because the company’s numbers don’t have the hyperbolic growth that the iPhone had and because it’s new product launches aren’t as insanely successful as the iPhone’s was — even though the iPhone itself didn’t track the curve Wall Street wants for the first couple of years.

And in return, Apple’s continuing to operate the business the way it wants and isn’t making strategic changes to make Wall Street happy. Which is in part why Wall Street is happy to punish Apple’s stock.

But what if Apple sees this as a good thing?

Apple has all this money! It should buy…

Apple has about $200Billion in cash on hand. Every so often the financial types or the geeks decide that Apple Needs To Do Something With That Money — although in reality, it is, including adding a dividend to shareholders and putting significant chunks into buying back stock. I’ve done this, you’ve done this, everyone has a favorite company that Apple should buy for some reason or another. Apple, of course, ignores us and with the exception of Beats, has stuck to smaller acquihire or strategic purchases. There’s always this thread of Apple has all this money, and it should do something with it!

What if… It is and nobody’s noticed?

I have this cunning plan…

When I see a company shift into a mode of issuing dividends, I take that as an indication a company is recognizing it’s maturing and it’s signaling a shift from being a growth stock to a value stock. This seems to be part of what’s going on at Apple these days, and it’s rarely a painless process on the market because people and institutions who want to own growth stocks aren’t necessarily the same as those owning value stocks and the goals and expectations are different. It tends to hurt the stock until the shift stabilizes and investors get comfortable with the new phase of the company and its results.

I noted in the financial transcripts that Apple boosted its dividend this quarter by a nickel. Luca, I think, strongly signaled shift to a value stock in his comments:

We also know that a dividend is very important to many of our investors who value income and we’re raising it for the fourth time in less than four years.

But when looking at this I noticed something else, and here is where my speculation really begins…

Apple has all this money in the bank, but refuses to invest in acquisitions. Wall Street is unhappy with it and depressing the stock and keeps trying to force Apple into strategic changes Apple ignores, keeping to its long term plans. The relationship between Apple and Wall Street is at best not in sync and could well be defines as strained.

I think an argument could be made that Apple should be strategically investing it’s cash. We typically view that as aquiring other companies, whether it’s Sprint (which I once made an argument about) or Tesla or Intel or…

What if Apple had decided it’s best investment was in itself?

Safari001

(via ycharts)

Apple announced its dividend and stock buyback programs about 3 years ago. In that time, the number of shares outstanding for the company has dropped almost 15%. That’s a much bigger number than I expected to find.

And that got me thinking… What if Apple has decided to buy a company? But rather than go out and buy a company where integration with Apple’s technology and culture might create their own set of problems, what if Apple decided to buy itself back from Wall Street? What if Apple is planning to go private?

But because this is Apple, it has a better plan. But this is Apple. If it announced a plan to Wall Street to buy back all of the stock, Apple’s stock would spike and the financial wonks would likely demand a 20-30% premium over the stock price, because, well, they’re Wall Street and all money ought to flow to them (for reasons).

But what if you do what few other companies than Apple do and take a long-term view? What if, instead of trying to go private right now, you set up an internal ten year plan?

You announce your dividend. You start acting like a value stock, which will attract investors less demanding of short term results and more patient with a company’s performance than the growth stock nerds are. You announce stock buyback programs officially to help support the stock price, but in reality, your goal is to over time to bring back all of the stock.

Remember, every time Apple buys a billion dollars of stock and retires it, that’s an incremental reduction in the ability for Wall Street to influence Apple’s strategic direction. And get that number low enough, Apple can simply choose to ignore Wall Street completely.

And if you think about it, every time Wall Street ‘punishes’ Apple by dropping the stock price, it makes Apple’s investments in itself through stock buyback more effective, making Apple’s stock an even better value to buy for itself.

So maybe, just maybe, after this earnings call, Tim and Luca went back into Tim’s office, closed the door, and high-fived each other and said Our cunning polan is working perfectly. Because from the looks of it, if Apple keeps to it’s current activities, in about 7 or 8 years, Apple will own effectively 100% of Apple’s stock — at a discount from a rational market valuation, and it’ll still have at least $200Billion in cash in the bank to play with.

All because — if I’m right — it’s figured out how to turn Wall Street’s fetish for short term results against itself with a long term play in investing in itself; and even if Wall Street figures this out, the way things are structured, I’m not sure what it could do to sidetrack Apple here, because even if they did something like tank the stock massively, it’d only work in Apple’s favor because they have the cash on hand to accelerate their purchases — and if Wall Street reacts by pumping Apple’s stock price up, well, how could that be bad for Apple? they just slow down repurchases and declare their plan for supporting sock prices succeeded.

This is all speculation. But doesn’t it seem like such an Apple thing to do?

(Note 1: sly reference to a rather infamous all-hands after Apple was in the red for about a billion dollars, and he effectively blamed all of the employees for making him look bad with the results)