Spring 2021, Apple Inc.
It’s time to announce their second quarter results. Wall Street was hoping for good news, even as the economy returned to near normal and reached new highs. In a press release, the company revealed what was really happening.
Revenue reached a record high of $ 89.6 billion. There was double-digit growth in all product categories. Sales were up 54% year-on-year. Revenue increased by 119%. Investor expectations have been completely shattered.
So what exactly was the problem?
Well, that sounds funny, but Apple had Too much money..
In the spring, the company held $ 160 billion worth of marketable securities (mainly US Treasuries). Besides, they were sitting at $ 38.5 billion in straight cash. So that’s a total of over $ 200 billion. Consider this to get an overview of the figure:
If you take Apple’s amount Did not use, By itself, using it to create an entirely new company, it will be the 56th most valuable company in the world.
We are talking about the best record ever. Apple was full of wealth, earning more than ever, printing new money faster than spending old money.
Sure, we call this a “problem” and enjoy it.Really except that teeth problem.
When the pandemic first occurred, having a lot of cash on hand was important, if not necessary, for the struggling business. We all know the story now: stores closed, people lost their jobs, and transactions were crawling slow. No one knew how long the virus would last, and thus how much the economy would fall. As a result, Apple, JP Morgan, and ordinary moms and pop shops have all strengthened their funding on rainy days. From 2019 to 2020, the amount of cash and cash equivalents held by American and European companies increased by about 3 according to Refinitiv data. Trillion Dollar. But by the end of the year, vaccines were approved, unemployment returned to new lows, and encouraging fiscal policy meant that businesses were borrowing at a healthy rate. Suddenly, companies like Apple and JP Morgan survived with little damage to the pandemic, but realized that they had a pile of cash and little risk of needing it. And that’s where the problem begins.
Under pressure from investors to spend these funds, Apple, Google
I’m talking about buying stock.
The enterprise itself has become the largest buyer on the market today, consuming nearly 2% of the total S & P 500. Experts have named it “buy-back jackpot”.
Last year, companies strengthened their cash reserves, delaying spending on unwanted things such as stock repurchases. Currently, the opposite is true. These rainy day funds have been converted into large repurchase orders.
In the technology sector, for example, Apple and Google are turning these $ 200 billion and $ 160 billion reserves into $ 90 billion and $ 50 billion buybacks.Microsoft
And nowhere is buyback growth more important than banks. To maintain liquidity and reduce the risk of worst-case scenarios during a pandemic, the Federal Reserve has conducted a series of “stress tests” on the largest banks in the country. For a year, in addition to other restrictions, banks were restricted from repurchasing their shares. It seems like a small price to pay for financial security, but keep in mind that buybacks usually make up 70% of the capital payments banks make to investors, according to CNBC.
Meanwhile, according to Autonomous Research, under federal regulation, the six largest US banks had to have $ 150 billion in surplus capital. That is, until June. Minutes after the Federal Reserve Board announced that the COVID era restrictions on banks would be lifted, JP Morgan announced plans to buy back $ 30 billion of JP moles. JPM soared 5% on that day alone.
Finally, if a company is confident in the future of its business, consider that it is likely that it will buy back (bet on) its stock. The Conference Board conducts a CEO survey to measure and graph CEO confidence. Their measurements have recently hit a record high.
So if you’re wondering who is buying stock because the market seems to be bubbling, it may be a self-permanent time when the bigger the profit increase, the more stock buys. In other words, when things are good, they are really good.