Apple’s massive share buyback will have to be accompanied by huge gains

Apple's massive share buyback will have to be accompanied by huge gains

But that alone may not be enough to buoy the stock. Shares in Google’s parent company fell in premarket trading on Wednesday, even after the company announced a $70 billion buyback of Class A and Class C shares. Investors focused instead on a quarterly earnings per share miss, slower ad sales in Europe and a lackluster performance for YouTube.

In the worst month for big tech since the global financial crisis, a large repurchase may not be enough for Apple Inc. investors. The market’s reaction to Alphabet Inc.’s earnings release indicates that it will also require massive profits. Apple, which is seen as a safe haven among the FAANG group, is anticipated to announce a $90 billion share buyback programme when it releases its quarterly results after the closing on Thursday.

Highlights

  • “Apple’s free cash flow and buybacks have definitely supported the company to a larger degree than its peers,” said Bob Shea, chief investment officer at Trim Tabs Asset Management. “Everything is coming under pressure right now, and investors are looking for names with high-quality and sustainable free-cash-flow profitability. Apple is at the top of that list.”

  • For Apple, buybacks have become a central part of the investment case, and are especially important during turbulent times for technology stocks. Investors like repurchase programs as they reduce a company’s share count and thereby provide a lift to earnings.

But with expectations for a huge buyback potentially already baked in, Bernstein analyst Toni Sacconaghi says investors are likely to be most focused on the iPhone maker’s outlook. Apple faces several emerging headwinds, including lockdowns in China impacting its suppliers, the company’s withdrawal from Russia, dollar appreciation and a squeeze on consumers in Europe, he said.