Apple Inc, going for free within 8 years

Fancy owning Apple Inc, the entire company, for no money down? Well if the current share price level doesn’t go any higher, in less than 8 years time someone will be able to pick up the company effectively for free.

Let’s get the facts out of the way:

As I write this, Apple stock is trading at a stock price of approximately $97 per share.

It has a Market cap of approx $540 Billion, and a net cash balance of $153 Billion.

Using the Market Cap & Net cash figures, we come to an Enterprise Value (EV) for Apple Inc of approximately $387 Billion, that is the value of the company after its net cash balance has been subtracted from its Market Cap.

Over the past two financial years, Apple has returned capital to shareholders by way of share buybacks & dividends. The average amount spent on buybacks over these last two years is $40.5 Billion per year.

During this period Apple has also grown its net cash balance by an average of $5.5 Billion per year. In other words despite its massive spending on buybacks and dividends it still grows its cash pile each year.

What does all this have to do with getting Apple inc for free? Well let’s do some simple math.

If the share price doesn’t increase, and the Apple buyback & cash accumulation continues as it has, then this is what happens over the next 8 years:

2016: $344 Billion EV & $158.5 Billion Net Cash

2017: $298 Billion EV & $164 Billion Net Cash

2018: $252 Billion EV & $169.5 Billion Net Cash

2019: $206 Billion EV & $175 Billion Net Cash

2020: $160 Billion EV & $180.5 Billion Net Cash

2021: $114 Billion EV & $186 Billion Net Cash

2022: $68 Billion EV & $191.5 Billion Net Cash

2023: $22 Billion EV & $197 Billion Net Cash

Approximately halfway through 2023/24 the EV reaches zero, and the company market cap falls below its net cash figure. Technically at this point anyone wanting to own the entire company would be paying a price equivalent to its net cash balance – essentially getting the company for “free”.

2024: -$24 Billion EV & $202.5 Billion Net Cash

2025: -$70 Billion EV & $208 Billion Net Cashthe 

2026: -$116 Billion EV & $213.5 Billion Net Cash

2027: -$162 Billion EV & $219 Billion Net Cash

2028: -$208 Billion EV & $224.5 Billion Net Cash

At some point in 2029 Apple Market cap falls to zero, or perhaps $97 – as whoever owns the last share technically takes full control of the company (a company with $230 Billion in net cash!).

The point of this post is not to suggest Apple will in reality reach a zero EV (or less). instead it is to point out that the likelihood of the Apple share price staying where it is (or dropping), is a very unlikely scenario given the current buyback activity. Sooner or later it is going to have to rise significantly.

 

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