Starting in July, Apple pays a quarterly dividend of $2.65 a share. At Apple's high-water-price of $600, the annual rate of this dividend ($10.60) amounts to just over 1.75%. At the $590 price printing around the time of this post, it's about 1.8%.
Commencing at the end of September, Apple will also repurchase shares from the open market under a buyback program with a $10B budget over 3 years. The primary goal of the repurchase program is to neutralize dilution caused by employee incentive programs that involve printing shares. $10B is about 1.8% of Apple's current market cap of $555B.
Apple's thinking on its use of cash has been interesting. According to Tim Cook on the conference call, Apple first concentrated on U.S. cash holdings, because of the negative tax impact of importing foreign-earned funds. Apple then took stock of its expected capital needs, and added some buffer for opportunistic acquisition, and worked out what it expected to be able to return to shareholders. This sort of thinking is interesting because it makes no grandiose assumptions about the relative capability of Apple and its shareholders to make productive use of otherwise idle cash. It also identifies the cash Apple isn't employing for its business purposes so that shareholders aren't paid funds Apple really can employ for business. This satisfies the concerns raised by Warren Buffett in his letter to shareholders in Berkshire Hathaway's 2011 Annual Report (e.g., at p.99-100).
After determining how much money Apple would return to shareholders, it did a strange thing: instead of making a decision about the value of Apple shares vs. the value of cash, Apple decided to pay a dividend because – as explained by Tim Cook – this is what shareholders wanted. Personally, I'd have preferred the tax-efficiency of share buybacks, and the impact over time of share buybacks in the face of continued business growth. But it's hard to fault management for doing something because its owners ask. The fact Apple has $10B dedicated to what amounts to a dilution-prevention program is sort of concerning: can't they get loyalty for less than $10B? They should call Buffett back to get notes from his shareholder's letters.
Monday, March 19, 2012
Sunday, March 18, 2012
Apple's Tablet Market Moat
A new article at Seeking Alpha attempts to describe why Apple has safety in the tablet market with comparison to commodity vendors like Dell. After that article was submitted, the press revealed more reasons for developers to prefer Apple's ecosystem. Apple will be hard to catch in mobile.
Since Google makes its Android money on advertisement to mobile users, rather than on sales of devices or software, its incentive to make life good for Android developers is rather different than at Apple, which needs people to buy devices and can't retain its market unless its entire ecosystem offers perceived value to users and the developers who serve them. Google hasn't managed to use Apple-like control over users' software experience, instead allowing carriers to continue to dictate upgrade cycles. For example: only just this month, Samsung announced Android 4.0 would come to the Galaxy S II. Seriously? Just now announced availability of an OS released last fall?
Among the factors discussed in connection with the tablet market is the as-yet unreleased Microsoft Windows 8 tablet operating system. As an ARM platform, it won't be able to run desktop applications coded for x86 machines. Presumably Microsoft's business model will be akin to its business model on the desktop: it will sell operating system licenses to tablet manufacturers, and it will sell developer tools to developers. Based on Apple's success in acting as a transaction intermediary at the App Store, Microsoft should be expected to sell to developers its Product Activation feature – repackaged as the exclusive way to run applications on Win8/tablet. Microsoft will almost certainly try to secure subscription fees from users of tablets as it does from users of its console products. I have some theories about how this market will succeed at delivering value to customers, but they're a topic for another day.
Apple's position in the home entertainment market – which seems to include iPads now – has taken a step forward as AV receivers now support AirPlay from iOS devices and iTunes. Those without built-in support can do what the rest of us do, and plug into the AV receiver's HDMI port a $99 AppleTV, now upgraded to 1080p. This support will definitely be a trend to watch. If we start seeing this in cars' in-dash systems, we'll be able to dispense with some of the awful map controls in manufacturer-supplied GPS systems. Even without AirPlay, some manufacturers are targeting iPhone for in-car infotainment. The fact that iPhone is in specific demand from car manufacturers is an interesting development for a company that fifteen years ago was about to go under because its desktop business hadn't caught on in business.
The article at Seeking Alpha lays out the basic argument; these little additions were just a bit late to make the press.
Since Google makes its Android money on advertisement to mobile users, rather than on sales of devices or software, its incentive to make life good for Android developers is rather different than at Apple, which needs people to buy devices and can't retain its market unless its entire ecosystem offers perceived value to users and the developers who serve them. Google hasn't managed to use Apple-like control over users' software experience, instead allowing carriers to continue to dictate upgrade cycles. For example: only just this month, Samsung announced Android 4.0 would come to the Galaxy S II. Seriously? Just now announced availability of an OS released last fall?
Among the factors discussed in connection with the tablet market is the as-yet unreleased Microsoft Windows 8 tablet operating system. As an ARM platform, it won't be able to run desktop applications coded for x86 machines. Presumably Microsoft's business model will be akin to its business model on the desktop: it will sell operating system licenses to tablet manufacturers, and it will sell developer tools to developers. Based on Apple's success in acting as a transaction intermediary at the App Store, Microsoft should be expected to sell to developers its Product Activation feature – repackaged as the exclusive way to run applications on Win8/tablet. Microsoft will almost certainly try to secure subscription fees from users of tablets as it does from users of its console products. I have some theories about how this market will succeed at delivering value to customers, but they're a topic for another day.
Apple's position in the home entertainment market – which seems to include iPads now – has taken a step forward as AV receivers now support AirPlay from iOS devices and iTunes. Those without built-in support can do what the rest of us do, and plug into the AV receiver's HDMI port a $99 AppleTV, now upgraded to 1080p. This support will definitely be a trend to watch. If we start seeing this in cars' in-dash systems, we'll be able to dispense with some of the awful map controls in manufacturer-supplied GPS systems. Even without AirPlay, some manufacturers are targeting iPhone for in-car infotainment. The fact that iPhone is in specific demand from car manufacturers is an interesting development for a company that fifteen years ago was about to go under because its desktop business hadn't caught on in business.
The article at Seeking Alpha lays out the basic argument; these little additions were just a bit late to make the press.
Wednesday, March 14, 2012
Compliance Among App Store Advantages?
The RetroDreamer blog offers some insight into why the App Store is so much more attractive to developers than Google's Android counterpart.
Apple handles all the transactions with end-users, and cuts developers a check for 30% of the take. For the 30%, Apple handles the credit card transaction fees and the local compliance obligations with tax authorities and anything else the App Store – as the retailer – is obliged to handle by way of legal compliance. The developer in effect sells to Apple here in the U.S. on consignment and gets paid when Apple gets paid. Simple enough, right?
Google structures the transactions as deals between the developer and each end-user directly, and rakes 30% from the table in each deal. What's the difference? Let me count the ways.
In the U.S. Apple adds sales taxes. In foreign jurisdictions, Apple prices apps in local currency – presumably based not only on currency exchange but also on its obligation as a vendor to comply with VAT. By contrast, for developers 30% Google expects them to go bare. Google doesn't want to run a store, it wants to run a transaction processor. Google wants developers to manage their own store in Google's marketplace.
There are places in which this could be a very big difference. Some jurisdictions are heavy on VAT and unforgiving of nonpayment. I expect to see something about this on the news within a few years, as some successful U.S. developer gets whacked with a tax deficiency notice in Europe and discovers his legal costs exceed the value derived from the foreign business enabled by the Google marketplace.
Apple handles all the transactions with end-users, and cuts developers a check for 30% of the take. For the 30%, Apple handles the credit card transaction fees and the local compliance obligations with tax authorities and anything else the App Store – as the retailer – is obliged to handle by way of legal compliance. The developer in effect sells to Apple here in the U.S. on consignment and gets paid when Apple gets paid. Simple enough, right?
Google structures the transactions as deals between the developer and each end-user directly, and rakes 30% from the table in each deal. What's the difference? Let me count the ways.
- Developers using Google's store deal directly with end users with regard to chargebacks, mis-purchases, purchases by children, etc.
- With each end-user's click at Google's store, a developer makes a contract for sale with an end user and becomes responsible under local law for compliance with (or violation of) local laws.
- Developers using Google's store are responsible for complying with sales tax and VAT obligations, including tax filing obligations, in every jurisdiction where any end-user clicks "buy". This means developers – to comply with applicable law – must learn about their obligations in every jurisdiction in which they "do business" by selling directly. More likely, the developers ignore the law because they have no idea what laws they are violating, and go free only to the extent they are too small to chase. However, success could be expensive. Taking a company public after some success could be hard with this kind of overhanging liability to scores of foreign governments and their punitive tax codes.
In the U.S. Apple adds sales taxes. In foreign jurisdictions, Apple prices apps in local currency – presumably based not only on currency exchange but also on its obligation as a vendor to comply with VAT. By contrast, for developers 30% Google expects them to go bare. Google doesn't want to run a store, it wants to run a transaction processor. Google wants developers to manage their own store in Google's marketplace.
There are places in which this could be a very big difference. Some jurisdictions are heavy on VAT and unforgiving of nonpayment. I expect to see something about this on the news within a few years, as some successful U.S. developer gets whacked with a tax deficiency notice in Europe and discovers his legal costs exceed the value derived from the foreign business enabled by the Google marketplace.
Apple Pops on Misleading Headline
When I looked for an explanation this morning why Apple should be up $9 so early in the day, the only relevant news I saw said: Apple's cash stash leads U.S. record $1.24 trillion. Apple's been accused of hoarding cash, but this number is larger than it's whole market cap (for now). Now maybe the pop is based on yesterday's news that Apple's new iPad will govern NAND Flash pricing through 2015, or the rumor about my pending new Apple article at Seeking Alpha. Sure, that's it.
But back to the crazy Apple $1.24 trillion cash headline.
The original story from Moody's was US Corporate Cash Pile At $1.24 Trillion, Over Half Located Overseas. That's right: the entire worldwide cash supply of all U.S. companies stands just under a trillion and a quarter bucks. At least, at the equivalent thereof; more than half is outside the US and much of that is in local currencies. Meanwhile, Congress has outspent its means so much for so long that the United States now owes over ten times that amount – in fact, about twelve and a half times that amount – in a national debt exceeding $15.5 trillion dollars.
Okay, so about $4.75 trillion is owed to other government agencies like the one that holds Medicare trust funds or the one that safeguards Social Security retirement funds. But so what? If we expect a fund to be maintained for members of the public entitled to benefits, we should account for them like any other debt and add it in. Even without the $4.75 trillion owed to other governmental bodies, Congress has run up a 14-digit national debt.
If the best that can be saved for use is thirteen figures across the entire panoply of American businesses' global operations, how is it that we can permit Congress to spend fourteen digits?
It's not like we're making an investment in a war that will secure productive oil fields on other continents or ensure we don't run out of cheap foreign labor. We had the oil fields and labor as easily as by opening our checkbooks and always have. What are we allowing Congress to do in our names?
There's a good question to ask regarding the future value of U.S. currency and how that value compares to that of our largest trading partner. There's another article needed on that, of course, but the contrast between the most we can save and what we permit Congress to spend is simply shocking.
But back to the crazy Apple $1.24 trillion cash headline.
The original story from Moody's was US Corporate Cash Pile At $1.24 Trillion, Over Half Located Overseas. That's right: the entire worldwide cash supply of all U.S. companies stands just under a trillion and a quarter bucks. At least, at the equivalent thereof; more than half is outside the US and much of that is in local currencies. Meanwhile, Congress has outspent its means so much for so long that the United States now owes over ten times that amount – in fact, about twelve and a half times that amount – in a national debt exceeding $15.5 trillion dollars.
Okay, so about $4.75 trillion is owed to other government agencies like the one that holds Medicare trust funds or the one that safeguards Social Security retirement funds. But so what? If we expect a fund to be maintained for members of the public entitled to benefits, we should account for them like any other debt and add it in. Even without the $4.75 trillion owed to other governmental bodies, Congress has run up a 14-digit national debt.
If the best that can be saved for use is thirteen figures across the entire panoply of American businesses' global operations, how is it that we can permit Congress to spend fourteen digits?
It's not like we're making an investment in a war that will secure productive oil fields on other continents or ensure we don't run out of cheap foreign labor. We had the oil fields and labor as easily as by opening our checkbooks and always have. What are we allowing Congress to do in our names?
There's a good question to ask regarding the future value of U.S. currency and how that value compares to that of our largest trading partner. There's another article needed on that, of course, but the contrast between the most we can save and what we permit Congress to spend is simply shocking.
Tuesday, March 13, 2012
MTGE Announces Offering Up To 11.5m Shares
In an offering that could more than double MTGE's shares outstanding at a post-ex-date price that is nearly a dollar north of then-likely NAV, American Capital Mortgage Agency has announced its intention to sell shares under its registration mentioned by the Jaded Consumer at Seeking Alpha. The updated proposed price of the latest 1.5m share registration is $21.86, though the price is "[e]stimated solely for purposes of calculating the registration fee" rather than posing a hard limit. The recent registrations and amended registrations combine to over 11.5m shares.
MTGE's wild price range – recently past $24 – makes an ultimate issuance price hard to pin down. However, MTGE's last-published NAV was less than $21 and its last-quarter NAV increase was nearly a dollar per share – increasing shareholders' value per share 91¢ after paying an 80¢ dividend. With a 90¢ dividend about to go ex-, MTGE's NAV would be near $22.68 near quarter-end if its results were (other than the dividend increase) exactly the same this quarter as last quarter. Of course, MTGE's performance would have to decline to return the exact same result as last quarter, as it began the quarter with more invested capital this quarter than it did last quarter.
Today's close of $22.47 doesn't leave much room for above-NAV issuance if buyers are to receive a discount to market. When is this issuance, exactly?
MTGE's wild price range – recently past $24 – makes an ultimate issuance price hard to pin down. However, MTGE's last-published NAV was less than $21 and its last-quarter NAV increase was nearly a dollar per share – increasing shareholders' value per share 91¢ after paying an 80¢ dividend. With a 90¢ dividend about to go ex-, MTGE's NAV would be near $22.68 near quarter-end if its results were (other than the dividend increase) exactly the same this quarter as last quarter. Of course, MTGE's performance would have to decline to return the exact same result as last quarter, as it began the quarter with more invested capital this quarter than it did last quarter.
Today's close of $22.47 doesn't leave much room for above-NAV issuance if buyers are to receive a discount to market. When is this issuance, exactly?
Thursday, March 8, 2012
MTGE past 24
MTGE's meteoric rise – from trading at a NAV discount to trading both above its last-published NAV but also above the intended offering price filed with the SEC on February 23 (but thankfully subject to amendment) – has been stunning. The stock, which took a couple quarters of demonstrated performance to claw its way back to the IPO price of $20, just passed $24. It's been barely over half a year.
At the recently-announced dividend of 90¢ per quarter, the current price presents an annual dividend yield of about 15%, but 18% of the IPO price. Since the investment underlying each share has been growing quarterly, ACAS' ability to get MTGE to produce future income seems solid.
At the recently-announced dividend of 90¢ per quarter, the current price presents an annual dividend yield of about 15%, but 18% of the IPO price. Since the investment underlying each share has been growing quarterly, ACAS' ability to get MTGE to produce future income seems solid.
'Chrome' Exploit Windows-Only? Another Flash bug?
The headlining Pwn2Own crack suggests Chrome was cracked within a few hours of the contest's open. But was Chrome cracked at all? Just as purported Safari cracks historically included what amounted to cracks of Adobe Flash, it seems this new crack is a Windows 7 exploit, functional on 32-bit and 64-bit Windows 7 with Flash installed, but not otherwise accessible.
The real culprit may be the incomplete sandboxing of Flash under current versions of Chrome.
The real culprit may be the incomplete sandboxing of Flash under current versions of Chrome.
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