In its unprecedented move to invest 2017 tax overhaul in buybacks, Apple had to bite the dust as the company made a loss of staggering $9 billion during 2018. According to a report from the Wall Street Journal, Apple’s decision to buy back its own stock proved an “underperforming investment.”
Apart from Apple, companies like Wells Fargo, Citigroup, and Applied Material Inc. also repurchased their shares at higher prices and the share value dwindled sharply.
Apple’s Decision to Repurchase Own Stock Proved An Underperforming Investment
The report claims, “In effect, the market has told them they overpaid by billions of dollars. While Wednesday’s rebound mitigated the damage, the S&P 500 has fallen 15.2% from its September high through Wednesday’s close. The index is down 7.7% for all of 2018.”
On the other hand, Apple and other companies contended that “Buybacks are a good way to return excess capital to shareholders and that the paper losses can reverse themselves if their stocks rebound.”
However, industry insiders believe that Apple should not have invested their tax savings heavily in buybacks; instead, the company could have used the fund in its businesses, raise employees’ pay or pay higher dividends.
Nell Minow, vice chairwoman of ValueEdge Advisors, commented, “If they made an acquisition that decreased in value this much, people would be up in arms. They have one job, and that is to make good use of capital.” ValueEdge Advisors is a corporate-governance consulting firm.
In the first nine months of 2018, Apple spent nearly $62.9 billion on buybacks. The amount pushes Apple into the list of one of the biggest repurchasers in the market.
When the market closed on Wednesday, the value of Apple’s repurchased shares was about $53.8 billion. Thus, Apple overpaid $9.1 billion for its stock.
Notably, Luca Maestri, Apple’s chief financial officer, said in May, the company wanted to be “particularly thoughtful and flexible” in its buyback approach.
Apart from buybacks, Apple plans to invest $10 billion for new data centers in the next five years and aims to create 20,000 jobs in the United States.
Along with Apple, the decision to buy back shares backfired on two other banks: Wells Fargo and Citigroup. The former spent nearly $13.3 billion on buybacks in the first nine months; the current share price is $10.6 billion.
During the same period, Citigroup paid $9.9 billion on buybacks, and the share price now stands at around $7.1 billion. We can say that 2018 proved bad for big companies in repurchasing the stock.
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