DOJ absurdly compares AAPL share buyback to R&D spending
DOJ absurdly compares AAPL share buyback to R&D spending

A new report highlights what may be the most absurd part of the DOJ’s antitrust case. Tab notes that last year Apple spent half as much on research and development (R&D) as it did on repurchasing AAPL stock, presenting this as “evidence” of the lack of competition the company faces.

He contrasts this with Google, whose R&D spending matches that of share buybacks, suggesting it means the search giant faces more competition…

AAPL Share Repurchase

A stock buyback is when a company spends excess cash to buy back its own stock. It then cancels those shares. Share buybacks have three advantages.

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

Second, with the value of the company divided into fewer shares, it increases the effective value of each share.

Third, since the number of shares is reduced while earnings are not affected, it increases earnings per share (EPS), which is seen as a key measure of a company’s financial performance. Essentially, this makes the stock look like a better buy, encouraging more stock purchases, which drives up the stock price.

Apple is a company with a lot of excess cash and has spent more than $650 billion on share buybacks over the past decade.

DOJ compares them to research and development costs

The DOJ case compares the two amounts:

In fiscal year 2023, Apple spent $30 billion on research and development. By comparison, Apple spent $77 billion on share buybacks that year […]

While Apple’s anti-competitive behavior has likely benefited its shareholders — to the tune of more than $77 billion in share buybacks in fiscal 2023 alone — it comes at a heavy cost to consumers. Some of these costs are immediate and obvious, and directly affect Apple’s own customers: Apple increases the price of buying and using an iPhone while preventing the development of features such as alternative app stores, innovative super apps, cloud-streamed games, and secure text messages.

Apple’s monopoly on smartphones means that it is not economically viable to invest in building some applications, such as digital wallets, because they cannot reach iPhone users. This means that innovation fueled by an interest in creating the best, most user-focused product that would exist in a more competitive market never gets off the ground. Moreover, Apple itself has less incentive to innovate because it has isolated itself from the competition.

The lawsuit quotes an unnamed Apple executive as saying that “everything new and especially expensive [feature] must be rigorously challenged before it is allowed into the consumer phone,” presenting this as evidence that the company has no competitive pressure to innovate.

The Financial Times highlights this and points out that share buybacks are common in the tech sector in general, and Apple has cut its own in line with falling revenue.

9to5Mac’s Take

This is a frankly ridiculous claim that does not help the DOJ’s case.

A share buyback is a sign of confidence in the future of the company. Although it is somewhat of an indirect investment, given that the shares are canceled, it still makes sense to buy your own shares only if you think it is a better buy than other forms of investment.

Apple’s R&D spending as a share of revenue has historically been lower than rival tech companies, it’s true. But that’s largely because the company is extremely focused in its new product development strategy. He is known to say no to a thousand things every time he says yes.

Compare that to Google, which invests in everything and then shuts down things that don’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 on and on ). Of course Google spends more than Apple on R&D!

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

Photo by Carles Rabada on Unsplash

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