The Justice Department absurdly compares AAPL stock buybacks to R&D spending

A new report highlights what may be the most ridiculous extension of the Justice Department's antitrust lawsuit. One section notes that Apple last year spent half as much on research and development (R&D) as it did on AAPL stock buybacks, presenting this as “evidence” of the lack of competition the company faces.

It contrasts with Google, which has matched its R&D spending with its stock buybacks, suggesting this means the search giant faces greater competition…

AAPL stock buybacks

Stock buybacks occur when a company spends excess cash to purchase its own shares. Then he cancels those shares. Stock buybacks have three benefits.

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

Second, as the company's value is divided over fewer shares, it increases the actual value of each share.

Third, because 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. This makes the stock look like a better buy, and encourages more buying of the stock, causing the stock price to rise.

Apple has a lot of excess cash, and over the past decade it has spent more than $650 billion on stock buybacks.

The Department of Justice compares these expenditures to spending on research and development

The Justice Department's lawsuit compares the two whistleblowers:

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

While Apple's anticompetitive behavior has arguably benefited its shareholders — to the tune of more than $77 billion in stock buybacks in its 2023 fiscal year alone — it comes at a significant cost to consumers. Some of these costs are immediate and obvious, and directly affect Apple's customers: Apple inflates the purchase and use price of iPhones while preventing the development of features like alternative app stores, innovative super apps, cloud streaming games, and secure texting.

Apple's monopoly on smartphones means that it is not economically feasible to invest in building some applications, such as digital wallets, because they are unable to reach iPhone users. This means that innovations fueled by an interest in building the best, most user-focused products that can exist in a more competitive market will never take off. What's more, Apple itself has less incentive to innovate because it has isolated itself from the competition.

The lawsuit cites an unnamed Apple executive stating, “Anything new is particularly expensive [feature] “It should be rigorously challenged before it is allowed into a consumer phone,” he said, offering this as evidence that the company has no competitive pressure to innovate.

the Financial Times He highlights this, noting that stock buybacks are common in the technology sector as a whole, and Apple has reduced its stock buybacks in line with declining revenues.

Take 9to5Mac

This is a frankly ridiculous claim that does not advance the Justice Department's case.

Stock buybacks are a sign of this trust In the company's future. Although it is a somewhat indirect investment due to the demonetization of shares, it still makes sense to only buy your own shares if you think this is a better purchase than other forms of investment.

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

Compare this to Google, which invests in anything and everything Shuts down things that aren't working. 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 research and development!

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

Image from photography Carles Rabada on Unsplash