I've read this entire thread once, then scanned it a second time for the word, "splits" - as of 124 comments, nobody has suggested a rational reason as to why Apple would split their stock. There were two implications of splitting the stock, one was that options plays (which normally trade in groups of 100, though some more expensive "minis" are also available) become more inexpensive, and some hand waving about "more people can afford the stock, therefore more demand, therefore greater impact on the price" - which I've heard for 20 years, and I believe has been fully debunked (the counter argument is that if the underlying stock has an actual value, and greater availability pushes stock above that value, then rational people can profit by shorting the stock/selling it until it reflects the actual value)
I'm always confused when an otherwise sane company starts playing with this type of financial engineering, the only people who really seem to profit will be the team who manages the split - and I often wonder whether a split is just some way of rewarding them with business, in return for some type of off books advantage.
Is there any other rational reason why a company might want to split? Does it give them some way of controlling their shares more effectively by splitting them -I.E. When the stock splits, do they get an enumeration of their shareholders that they might not otherwise have?
Anybody been involved in a stock split that can explain what the behind the scenes reasons totally not related to the "stock is cheaper so more people can buy it" excuse is?"
I'm anything but expert, but here's a set of thoughts:
Consider the opposite extreme, Berkshire-Hathaway, where the stock is deliberately not split in order to attract only those investors with, today, $191,000 to spend on a single share. The argument in favor of such a strategy is to attract only investors who are likely to take a long view of things. It may also discourage selling, as it can't be done piecemeal.
(Yes, Berkshire has a substantial number of Class B shares with diminished voting power that trade in the $100 range after splits, but the company was cajoled by circumstances into issuing them; people were beginning to develop Berkshire-tracking funds.)
If you want your company to be accessible to the little guy, and your company's doing well, you'll have to split sometime. Furthermore, if you're a shareholder and you're interested in shorter-term trading, you might cajole your company into splitting.
One other consideration is that, at its current price, Apple is not able to be considered for inclusion in the DJIA since that index is price-weighted and Apple would account for a huge portion of the index.
After the 7-1 split, Apple will be a likely candidate.
I can't speak for Mr. Cook, but I wished to myself "please split AAPL" just the other day.
I hold AAPL and I would like to let my dividends roll over via a DRIP managed by my broker. But at current prices, yield, and dividend frequency ($525, 2.3%, quarterly) I would need to hold $90k of AAPL for a dividend payment to buy a single share -- a bit rich for me. But after the split, that number goes down to $13k.
It's just about the psychology of price. People are influenced by the share price. A share price of under a dollar seems cheap and a share price of 500 dollars seems expensive regardless of the actual market cap.
I used to work for a pre-IPO startup that had experienced a pretty big run-up in their stock price. As a result, their new hires were getting options to buy 200 shares at $100 per share. (I made up those numbers, but you get the idea.) They did a big stock split partly to change the numbers in stock option offers. Apparently it was much more enticing to offer candidates options for 2000 shares at $10 per share. Even though the options would have the same total value, they believed candidates would respond much better to an offer of "more options."
According to Bloomberg [1], this removes an obstacle for Apple's inclusion in the Dow Jones Industrial Average. The index weights stocks solely by their share price. Splitting up AAPL 7:1 should produce a new share price of around $75, close to the DJI mean of $85.
Anyone have any more information than I do about the AAPL vs. GOOG question?
For quite a while, AAPL and GOOG traded blows in the mid-hundreds range and both generally rallied 2000-2008. As of right now, they're still quite competitive.
Would the stock split be an attempt by AAPL to avoid the comparison?
I have not been involved behind the scenes. I'll point out liquidity seems like a likely advantage of splitting shares. You can do smaller trades with a wider audience/more frequently. The added liquidity would also make the shares more valuable to certain classes of traders which may raise the price.
> Apple will hit up the debt markets for more dollars, it being cheaper to use other’s domestic cash than its foreign reserves
Can anyone explain why this is so? Because they are somehow getting a higher interest rate return on their reserves then they'd have to pay to borrow? (That would seem pretty impossible). Because they'd have to pay taxes if they use the foreign reserves? Something else?
> Because they'd have to pay taxes if they use the foreign reserves?
Yep.
Apple can borrow at somewhere near 2.3%[1] on the public debt markets. They have billions overseas, but if they bring it back to the US, they'd have to pay corporate income tax on it (35%).
They're just biding their time until the Chamber of Commerce lobbyists gain enough influence to get congress to pass an overseas tax holiday to repatriate the money at 15% or 20%. To this end, expect a huge PR onslaught near election time about how much economic stimulus would be provided if we changed the rules about taxes just this once (note: happens every ~10 years).
You got a lot of replies talking about the global taxation of US companies' profits. That is a problem; no other developed nation tries to tax foreign profits already taxed once again at home because it leads to just this kind of problem.
But the really big problem is that the US has the developed world's highest corporate tax rates. At 35% federal and 0-14% state, US rates exceed all other first world jurisdictions. Few big corporations pay that much because the USA has a lot of special credits and deductions that lobbyists for big companies have slipped into the code for themselves, like executive entertainment expenses and "research" or "domestic" manufacturing and oilfield operations and banking interest and such. Foreign profits don't enjoy such deductions at the margin, so the full rate would have to be paid.
President Obama and congressional Republicans have suggested that the rate be lowered and some of the deductions be eliminated. Congressional Democrats and special interests that each want to keep their own favorite deduction have been preventing a deal for years.
It's more likely that we'll just get a overseas tax holiday at 20% or so sometime in the next decade while the system at home remains a mess. Apple can wait it out and see.
> Because they'd have to pay taxes if they use the foreign reserves?
This is the main reason.
> Because they are somehow getting a higher interest rate return on their reserves then they'd have to pay to borrow? (That would seem pretty impossible).
This is also a possibility. Apple has extraordinarily good credit. They can consequently borrow at near-zero interest rates. They can then invest that amount of money in some (perhaps only slightly) higher risk security than their own bonds and turn a profit -- and if the money was originally held by a foreign subsidiary then so is the profit from the investment.
I believe it to be the taxes. If they repatriate those dollars they'll pay a significant tax. I believe there are also bills in congress that may someday make it through to address this, but it probably won't be soon. Getting to not pay tax on foreign profits is just bad policy, imho.
It's mainly a tax thing: to bring the offshore cash to the US, which it would have to do, it would have to pay income tax on it. The combination of deferring this tax and the reduced dividend payout which come from buying back their stock more than pays for the interest on the debt.
Taxes and delays make it easier and faster to get debt than to move a couple billion from, say, France or China, to the US. It's complex, but there's a lot of stuff explaining this in other comments around here. I'm sure someone will do the break down again.
I wonder if there's a lagging indicator of tech bellwether decline in innovation/disruption when they introduce a dividend.
For example, Apple had a dividend in 1995. Then in 1996, Jobs came back and nixed it. Microsoft issued its first dividend in 2003. Cisco in 2011. Oracle in 2009.
As a former ibanker, I should be all for financial engineering. But when companies can do "actual" engineering, I'd prefer to spend money on growth if possible. If not... then, I guess the dividend makes sense, hence my earlier assumption.
When Jobs came back to Apple, Apple was not in solid financial health. That's not a good time to have a dividend.
If they needed to deploy all of their cash for growth, I'm sure they would. The trouble is that they have so much cash that it's likely not clear how to deploy it in a way that is true to Apple (ie they could buy some big companies or add 100 products to their portfolio, but that's not the way they roll)
I'm sure they had a target price in mind (something that would be low enough to attract investment but high enough to not seem cheap) and just split the appropriate amount to get that number.
When I heard the number in my head it was obvious because I remember the price being 700 (thus 700/7 = 100)
now I checked, and it is currently 500something, but I think their peak was near 700, what I can guess from the real information, and from my "remembered" information (that is kinda important anyway, prices changes tend to be a lot about psychology) I guess that they are aiming for a 100 USD share price in some medium term.
Nothing changes except the number of shares you own. The total amount of money you have in AAPL will remain the same. Your dividend check will remain the same (assuming an equal percentage the next time a dividend is announced). You'll own more shares, but each individual share will be worth less (but again, the total worth of your AAPL stake will remain the same).
Will it go up or down? (EDIT: apparently "up" if afterhours is any indication.) Used to be, back in the dotBomb days, a split announcement drove the price up. Now remember from above that nothing has really changed. AAPL's market cap is still the same, there's just more shares out there. One thing that has changed is that Joe Sixpack doesn't need to drop $50K to buy a lot of 100 shares. But Joe doesn't drive the market, institutional investors do. And when Fidelity's mutual fund is buying $10,000,000 worth of AAPL, they don't care if the share price is $1 or $1000. So there isn't much rational reason for the price to go one way or another.
A split could be taken as "management thinks...". I don't know, could have some weight to it, could not. At the end of the day, as someone who has traded stocks for over 15 years and traded AAPL since about 2003 (yea, me! Mostly...), I'm not making any decisions one way or the other on this news. I'll keep an eye on AAPL for sure, though, just in case the market disagrees with me.
Would now be a good time to buy? No, yesterday was a good time to buy (that's okay, I didn't either) because it's up 8% in afterhours. Earnings are tomorrow, and never ever never buy AAPL the day before earnings (it almost always go down the next day). WWDC is coming up, so it could be "AAPL announcement means they'll soon own the $WHATEVER market. Buy!" or it could be "AAPL announcement shows that a post-Jobs Apple is doomed. Doomed!"
No offense, but if you have to have a stock split explained to you then you're probably not suited to trying to time the market on AAPL. Hell, I've been trading AAPL for over ten years, and I'm not suited to trying to time it (I've done it, and mostly come out ahead, but I attribute it to getting lucky and not to my 133t trading skillz). Just hang on to it, see how it shakes out, and if it hits a good price for you at some point, sell it. Or if it takes a dip (say, after earnings maybe?), buy some more. If it opens up 8% tomorrow morning, you might even consider selling what you've got. Then if it dips after earnings, buy some more then.
But I am in no way, shape, or form a financial adviser. My advice isn't even worth what you paid for it. For entertainment purposes only, do not under any circumstances make trades based on what some anonymous dumbass on the internet says, because we're a dime a dozen, and if I were so smart I'd be hiking the Cascades today and not working a day job.
A split has absolutely zero impact on the worth of your shares. The primary reason companies do it is to attract investors who are more comfortable paying lower prices for the shares, thus increasing demand and driving a higher price.
The only reason I can think of is to be listed in the Dow. Being too expensive is the reason it isn't in it yet. $75 is slightly below the current average Dow stock prices of $77, but should it double in price in the future, it still won't be too expensive for the Dow.
As stated elsewhere, it allows small investors to buy in -- and the stock advance of their AppleTV release it could mean that they are expecting a ton of attention from the lay investor.
The dates are significant: The split happens the evening of WWDC launch.
Without weighing in on why AAPL decided to split or whether it was a good idea, I'll say that I'm happy they did it. I make charitable gifts by donating appreciated stock (more tax-efficient than cash), and this split will allow me to make more granular donations than before. I don't always want to make donations in increments of $500.
Rather than pay a dividend, wouldn't it be better to take less margin on a low-end iPhone, iPad, or Mac to increase market share? The iPhone, for example, will always have a small global market share because they only sell high-end phones.
A phone that's $50 cheaper would translate in tens of millions of phones sold.
I agree that they can do better than they have in this area, but they are also fundamentally not the type of company that has any ambition to be everything to everyone. In the computer world, they aren't comparable to Toyota or Honda, they're more like BMW or Audi. In mobile, the same holds true to a lesser degree. As a company, there are things they're good at, and things they're not good at. There are things they like to do, and things they don't like to do. If they put too much emphasis on market share, they may get stuck doing things they're bad at so they can accomplish things they don't want to do, at the expense of doing things they want to do, and doing them well.
I don't think I've ever heard anyone make an impassioned argument that BMW absolutely positively must start selling millions of zero-margin $10k subcompact hatchbacks to better compete with Toyota/Honda/etc., or else they're going to die. BMW might do something like this, but it would be because it's a segment of the market they want to get into for whatever reason, not because they feel like they have to. Yet, people make these arguments about tech companies and market share all the time.
Apple doesn't want to sell the most amount of phones, the leave that to Android. What Apple wants is to make the most amount of money off of phone sales. I'm sure they've looked at different price levels and determined that a 10% lower price would not increase units sold by more than 10% ( or more accurately 11.11%.)
Do they save money on dividends if they have more shares because of rounding?
eg: let's say they have 100M shares and will pay US$ 2.15 per share. That's US$ 215M dollars paid.
Now they do a split and those 100M shares become 700M, dividend prices also are divided by 7 and become US$ 0.3071428571 per share, then they decide to round down to 30 cents per share.
It means they paid the same dividend as before but the total spent was US$ 210M
In other words they paid the same amount as before but rounding it down they saved 5M dollars or 2.3% of the money they could have spent otherwise.
If so this could also explain why 7. Since it's a prime number there are more chances that the division won't be round.
Isn't the goal of Apple's huge piles of cash to finance & consolidate their manufacturing as well as distribution? Could we interpret this as a signal that there aren't any new products coming down the line that would require such expenditures?
By new products I mean the release of a totally new line (e.g. iPhone 1) rather then an iteration upon a current line (e.g. iPad mini).
The stock is up 36 points or 7% in after-hours. I would be short. These moves from management reek of desperation and don't give me much confidence. They missed big on ipad sales
I'm close to piling on the anti-Tim Cook bandwagon. Everything he does seems to have no relation to product (buybacks, splits, dividends, environment, supply chain cleansing, repatriation taxes, etc.).
That's more of a combination of what the press is writing about, plus the fact that he's much more open and forthcoming about that stuff than his predecessor, than it is an actual observation about what he's spending his time on.
[+] [-] ghshephard|12 years ago|reply
I'm always confused when an otherwise sane company starts playing with this type of financial engineering, the only people who really seem to profit will be the team who manages the split - and I often wonder whether a split is just some way of rewarding them with business, in return for some type of off books advantage.
Is there any other rational reason why a company might want to split? Does it give them some way of controlling their shares more effectively by splitting them -I.E. When the stock splits, do they get an enumeration of their shareholders that they might not otherwise have?
Anybody been involved in a stock split that can explain what the behind the scenes reasons totally not related to the "stock is cheaper so more people can buy it" excuse is?"
[+] [-] ISL|12 years ago|reply
Consider the opposite extreme, Berkshire-Hathaway, where the stock is deliberately not split in order to attract only those investors with, today, $191,000 to spend on a single share. The argument in favor of such a strategy is to attract only investors who are likely to take a long view of things. It may also discourage selling, as it can't be done piecemeal.
(Yes, Berkshire has a substantial number of Class B shares with diminished voting power that trade in the $100 range after splits, but the company was cajoled by circumstances into issuing them; people were beginning to develop Berkshire-tracking funds.)
If you want your company to be accessible to the little guy, and your company's doing well, you'll have to split sometime. Furthermore, if you're a shareholder and you're interested in shorter-term trading, you might cajole your company into splitting.
[+] [-] yeldarb|12 years ago|reply
After the 7-1 split, Apple will be a likely candidate.
http://www.fool.com/investing/general/2014/04/23/apple-just-...
[+] [-] simpleton22|12 years ago|reply
I hold AAPL and I would like to let my dividends roll over via a DRIP managed by my broker. But at current prices, yield, and dividend frequency ($525, 2.3%, quarterly) I would need to hold $90k of AAPL for a dividend payment to buy a single share -- a bit rich for me. But after the split, that number goes down to $13k.
[+] [-] YZF|12 years ago|reply
[+] [-] RyanGWU82|12 years ago|reply
[+] [-] phlo|12 years ago|reply
[1] http://www.businessweek.com/news/2014-04-23/apple-stock-spli...
[+] [-] sounds|12 years ago|reply
For quite a while, AAPL and GOOG traded blows in the mid-hundreds range and both generally rallied 2000-2008. As of right now, they're still quite competitive.
Would the stock split be an attempt by AAPL to avoid the comparison?
[+] [-] arg01|12 years ago|reply
[+] [-] jrochkind1|12 years ago|reply
Can anyone explain why this is so? Because they are somehow getting a higher interest rate return on their reserves then they'd have to pay to borrow? (That would seem pretty impossible). Because they'd have to pay taxes if they use the foreign reserves? Something else?
[+] [-] mikeyouse|12 years ago|reply
Yep.
Apple can borrow at somewhere near 2.3%[1] on the public debt markets. They have billions overseas, but if they bring it back to the US, they'd have to pay corporate income tax on it (35%).
They're just biding their time until the Chamber of Commerce lobbyists gain enough influence to get congress to pass an overseas tax holiday to repatriate the money at 15% or 20%. To this end, expect a huge PR onslaught near election time about how much economic stimulus would be provided if we changed the rules about taxes just this once (note: happens every ~10 years).
[1] - http://quicktake.morningstar.com/StockNet/Bondsquote.aspx?ci...
[+] [-] WildUtah|12 years ago|reply
But the really big problem is that the US has the developed world's highest corporate tax rates. At 35% federal and 0-14% state, US rates exceed all other first world jurisdictions. Few big corporations pay that much because the USA has a lot of special credits and deductions that lobbyists for big companies have slipped into the code for themselves, like executive entertainment expenses and "research" or "domestic" manufacturing and oilfield operations and banking interest and such. Foreign profits don't enjoy such deductions at the margin, so the full rate would have to be paid.
President Obama and congressional Republicans have suggested that the rate be lowered and some of the deductions be eliminated. Congressional Democrats and special interests that each want to keep their own favorite deduction have been preventing a deal for years.
It's more likely that we'll just get a overseas tax holiday at 20% or so sometime in the next decade while the system at home remains a mess. Apple can wait it out and see.
[+] [-] AnthonyMouse|12 years ago|reply
This is the main reason.
> Because they are somehow getting a higher interest rate return on their reserves then they'd have to pay to borrow? (That would seem pretty impossible).
This is also a possibility. Apple has extraordinarily good credit. They can consequently borrow at near-zero interest rates. They can then invest that amount of money in some (perhaps only slightly) higher risk security than their own bonds and turn a profit -- and if the money was originally held by a foreign subsidiary then so is the profit from the investment.
[+] [-] guyzero|12 years ago|reply
Google floated $1B in bonds earlier this year: http://www.bloomberg.com/news/2014-02-20/google-said-to-plan...
Probably for the same reason.
[+] [-] qdog|12 years ago|reply
[+] [-] MaysonL|12 years ago|reply
[+] [-] pbreit|12 years ago|reply
http://www.wired.co.uk/news/archive/2013-05/2/apple-borrowin...
[+] [-] zrail|12 years ago|reply
[+] [-] lordgilman|12 years ago|reply
[+] [-] dchuk|12 years ago|reply
[+] [-] VonGuard|12 years ago|reply
[+] [-] dpcheng2003|12 years ago|reply
For example, Apple had a dividend in 1995. Then in 1996, Jobs came back and nixed it. Microsoft issued its first dividend in 2003. Cisco in 2011. Oracle in 2009.
As a former ibanker, I should be all for financial engineering. But when companies can do "actual" engineering, I'd prefer to spend money on growth if possible. If not... then, I guess the dividend makes sense, hence my earlier assumption.
[+] [-] dangoor|12 years ago|reply
If they needed to deploy all of their cash for growth, I'm sure they would. The trouble is that they have so much cash that it's likely not clear how to deploy it in a way that is true to Apple (ie they could buy some big companies or add 100 products to their portfolio, but that's not the way they roll)
[+] [-] Osmium|12 years ago|reply
[+] [-] ninkendo|12 years ago|reply
[+] [-] speeder|12 years ago|reply
now I checked, and it is currently 500something, but I think their peak was near 700, what I can guess from the real information, and from my "remembered" information (that is kinda important anyway, prices changes tend to be a lot about psychology) I guess that they are aiming for a 100 USD share price in some medium term.
[+] [-] grecy|12 years ago|reply
If I currently have 10 Apple shares, what will happen after the split?
Is the value of each share expected to go up or down as a result of this?
Would now be a good time to buy? ( or, at least, better than last week before this was announced?)
[+] [-] mikestew|12 years ago|reply
Will it go up or down? (EDIT: apparently "up" if afterhours is any indication.) Used to be, back in the dotBomb days, a split announcement drove the price up. Now remember from above that nothing has really changed. AAPL's market cap is still the same, there's just more shares out there. One thing that has changed is that Joe Sixpack doesn't need to drop $50K to buy a lot of 100 shares. But Joe doesn't drive the market, institutional investors do. And when Fidelity's mutual fund is buying $10,000,000 worth of AAPL, they don't care if the share price is $1 or $1000. So there isn't much rational reason for the price to go one way or another.
A split could be taken as "management thinks...". I don't know, could have some weight to it, could not. At the end of the day, as someone who has traded stocks for over 15 years and traded AAPL since about 2003 (yea, me! Mostly...), I'm not making any decisions one way or the other on this news. I'll keep an eye on AAPL for sure, though, just in case the market disagrees with me.
Would now be a good time to buy? No, yesterday was a good time to buy (that's okay, I didn't either) because it's up 8% in afterhours. Earnings are tomorrow, and never ever never buy AAPL the day before earnings (it almost always go down the next day). WWDC is coming up, so it could be "AAPL announcement means they'll soon own the $WHATEVER market. Buy!" or it could be "AAPL announcement shows that a post-Jobs Apple is doomed. Doomed!"
No offense, but if you have to have a stock split explained to you then you're probably not suited to trying to time the market on AAPL. Hell, I've been trading AAPL for over ten years, and I'm not suited to trying to time it (I've done it, and mostly come out ahead, but I attribute it to getting lucky and not to my 133t trading skillz). Just hang on to it, see how it shakes out, and if it hits a good price for you at some point, sell it. Or if it takes a dip (say, after earnings maybe?), buy some more. If it opens up 8% tomorrow morning, you might even consider selling what you've got. Then if it dips after earnings, buy some more then.
But I am in no way, shape, or form a financial adviser. My advice isn't even worth what you paid for it. For entertainment purposes only, do not under any circumstances make trades based on what some anonymous dumbass on the internet says, because we're a dime a dozen, and if I were so smart I'd be hiking the Cascades today and not working a day job.
[+] [-] calcsam|12 years ago|reply
Price is expected to decrease to 1/7 of previous level.
[+] [-] pitnips|12 years ago|reply
[+] [-] unknown|12 years ago|reply
[deleted]
[+] [-] fuzzythinker|12 years ago|reply
[+] [-] philmcc|12 years ago|reply
The dates are significant: The split happens the evening of WWDC launch.
[+] [-] philmcc|12 years ago|reply
The split for existing shareholders is June 2nd. The stock starts trading with split values June 9th.
What happens to trading from June 2nd-June 9th, during WWDC+ and after they announce their TV?
[+] [-] gnicholas|12 years ago|reply
[+] [-] camillomiller|12 years ago|reply
[+] [-] melling|12 years ago|reply
A phone that's $50 cheaper would translate in tens of millions of phones sold.
[+] [-] mwfunk|12 years ago|reply
I don't think I've ever heard anyone make an impassioned argument that BMW absolutely positively must start selling millions of zero-margin $10k subcompact hatchbacks to better compete with Toyota/Honda/etc., or else they're going to die. BMW might do something like this, but it would be because it's a segment of the market they want to get into for whatever reason, not because they feel like they have to. Yet, people make these arguments about tech companies and market share all the time.
[+] [-] seizethecheese|12 years ago|reply
[+] [-] camillomiller|12 years ago|reply
[+] [-] unknown|12 years ago|reply
[deleted]
[+] [-] sscalia|12 years ago|reply
Wearable + Television product.
Get in now. It's quite literally the surest bet in the market.
[+] [-] dudus|12 years ago|reply
eg: let's say they have 100M shares and will pay US$ 2.15 per share. That's US$ 215M dollars paid.
Now they do a split and those 100M shares become 700M, dividend prices also are divided by 7 and become US$ 0.3071428571 per share, then they decide to round down to 30 cents per share.
It means they paid the same dividend as before but the total spent was US$ 210M
In other words they paid the same amount as before but rounding it down they saved 5M dollars or 2.3% of the money they could have spent otherwise.
If so this could also explain why 7. Since it's a prime number there are more chances that the division won't be round.
[+] [-] cecilpl|12 years ago|reply
[+] [-] Oculus|12 years ago|reply
By new products I mean the release of a totally new line (e.g. iPhone 1) rather then an iteration upon a current line (e.g. iPad mini).
[+] [-] cmpqu|12 years ago|reply
[+] [-] pbreit|12 years ago|reply
[+] [-] mwfunk|12 years ago|reply
[+] [-] IBM|12 years ago|reply
[+] [-] snowwrestler|12 years ago|reply