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Apple expects a 5% drop in revenue amid sluggish sales for Mac and iPad. The Street expects the Apple board to authorize $90 billion worth of buybacks and share repurchases.
Later today on Thursday, May 4, Apple Inc (NASDAQ: AAPL) will report its quarterly earnings with the Street expecting muted results from the tech giant. As per the company’s guidance, revenue could see a dip of 5% due to a drop in Mac and iPad sales. However, considering the fact that Apple has huge cash reserves, the Street expects Apple to put it to work in the form of stock buyback. It will be interesting to see how much the board authorizes spending on buybacks and dividends. This would be another way for Apple gaining investors’ confidence while telling the world how profitable the business is.
As per Wall Street expectations, Apple shall announce buyback and dividends of $90 billion, which is equal to last year’s authorization figure. Over the past decade, the iPhone manufacturer has been conducting regular buybacks.
From 2012 to the end of 2022, Apple has conducted over $575 billion of total share buybacks and repurchases, the most by any company so far. Also, since 2013, Apple has been announcing board authorization levels every time during the second-quarter earnings report.
Competing with Apple in the buyback process is another tech giant Alphabet, which has announced $178.5 billion in share repurchases over the past decade. Last week itself, Alphabet announced a total of $70 billion in share repurchases.
Analysts at Bank of America and Barclays Bank are expecting $90 billion in authorization from Apple. When asked how long can Apple maintain this pace, the Barclays analysts noted that they “expect AAPL to continue to work toward being net cash neutral sometime in the future”.
Explaining this, Apple’s finance chief Luca Maestri said that the company aims to be Net Cash neutral. This refers to a point wherein the company’s cash pile is equal to its debt.
Guidance for Apple
Since the beginning of the Covid pandemic in 2020, Apple hasn’t given any guidance citing uncertainty. However, the company has been consistently giving out data points to investors regarding their overall sales and individual product lines.
For the June quarter, some analysts are also expecting an annual drop in sales. In a note to investors this week, Bank of America’s Wamsi Mohan wrote:
“We expect F3Q guide to imply another [year-over-year] decline; but we expect that to be lower than the F2Q.”
For the third quarter, analysts are expecting Apple’s revenue to increase by 2% to $84.7 billion. JPMorgan analyst Samik Chatterjee said that even if the outlook is soft, Apple could be benefitting from “flight to safety” positioning. He added:
“The eventual outcome might be simply driven by F3Q guidance, where investors might be looking for assurance and visibility into limited downside despite a tough macro.”
Chatterjee added that despite Apple’s guidance of a 5% dip in revenue, the company’s fundamentals are still robust.