DOJ absurdly compares AAPL share buybacks to R&D spending

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A new report sheds light on what is possibly the most absurd case in the DOJ’s antitrust lawsuit. One section notes that Apple spent half as much on research and development (R&D) last year as it did on AAPL share buybacks, presenting this as ‘evidence’ of the lack of competition faced by the company.

This compares to Google, whose R&D spending matches its share buybacks, meaning the search giant faces more competition…

AAPL Share Buyback

A share buyback is when a company spends additional cash to buy back its shares. After this it cancels those shares. There are three advantages of stock buyback.

First, with fewer shares in circulation, the company has to pay out less money in dividends.

Second, dividing the company’s value into fewer shares increases the effective value of each share.

Third, because the number of shares is reduced while earnings remain unaffected, it increases earnings per share (EPS), which is viewed as the key measure of a company’s financial performance. Essentially this makes the stock look like a better buy, encouraging more share purchases, causing the share price to rise.

Apple is a company with a lot of cash, and has spent more than $650B in share buybacks over the past decade.

DOJ compares these to R&D spending

The DOJ lawsuit compares the two amounts:

In fiscal year 2023, Apple will spend $30 billion on research and development. By comparison, Apple spent $77 billion on stock buybacks the same year […]

While Apple’s anti-competitive conduct has arguably benefited its shareholders — more than $77 billion in stock buybacks in the 2023 fiscal year alone — it comes at a huge cost to consumers. Some of those costs are immediate and obvious, and they directly affect Apple’s own customers: Apple prohibits people from buying and using iPhones while preventing the development of features like alternative app stores, innovative super apps, cloud-streaming games, and secure texting. Increases the price.

Apple’s smartphone monopoly means that investing in creating certain apps, such as digital wallets, is not economically viable, as they cannot reach iPhone users. This means that innovations driven by an interest in creating the best, most user-centric products that will exist in a more competitive market will never get off the ground. Furthermore, Apple has less incentive to innovate because it has isolated itself from the competition.

The lawsuit cites an unnamed Apple executive as saying that “Any new and especially expensive [feature] This needs to be vigorously challenged before it is allowed in consumer phones,” which has been presented as evidence that the company is under no competitive pressure to innovate.

financial Times This highlights, and points out, that stock buybacks are common in the tech sector overall, and Apple has reduced its own in line with falling revenues.

9to5Mac’s take

This is a patently ridiculous claim that provides no support for the DOJ’s case.

Stock buyback is a sign of Self-confidence In the future of the company. Although this is a somewhat indirect investment, given that the shares are cancelled, it is still worth buying your stock only if you feel it is a better buy than other forms of investment.

It’s true that Apple’s R&D spending as a proportion of revenue has historically been lower than competing tech companies. But this is largely because the company is highly focused on its new product development strategy. It is famous that every time you say yes you say ‘no’ to a thousand things.

Contrast this with Google, which invests in just about anything and then shuts down anything that doesn’t work. Google Cardboard, Goggles, Clips, Domains, Podcasts, Optimize, Stadia, Hangouts, Talk, Wave, Duo, Plus, Spaces, Now, Buzz, Currents, Surveys, Latitude, Labs, Answers… I could go on (and Further, and) on). Of course Google spends more on R&D than Apple!

Apple has some serious antitrust questions to answer, but why it spends more on stock buybacks than R&D isn’t one of them.

Photo by Carles Rabada on Unsplash

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