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Should companies be penalized for returning money to shareholders? The Justice Department seems to think so.
In the midst of its landmark lawsuit against Apple, the antitrust watchdog noted its disapproval of the company's $77 billion buyback plan in 2023: not because it was a lazy deployment of capital but as indicative of what the Justice Department called “anticompetitive and anti-exclusivity.” behavior.
The sprawling antitrust lawsuit is the product of a five-year investigation that will take years to resolve. But scrutiny can mean change before either party enters the courtroom. Apple's massive buyback program may be one of the casualties.
In the last fiscal year, Apple spent twice as much on buybacks of its own stock as it did on research and development. Over the past 10 years, its buyback scheme has outspent its R&D and buyback schemes from peers, to a total of $658 billion, according to data from Standard & Poor's Global.
Alphabet, the second largest, was less than half that amount, at $240 billion. Alphabet's buybacks were also not much larger than its R&D spending during this period.
Buybacks reduce the number of shares and increase earnings per share. They are more popular in the technology sector than solid dividends. Markets can reward offering and extending it as a sign of trust. When Uber announced its first buyback program last month, the stock price rose 15 percent.
Of course, the Justice Department's case is aimed elsewhere. This refers to the high prices of smartphones, Apple's control over app distribution, and the lack of access it provides to the iPhone operating system. It seeks to demonstrate the lack of competition in markets where Apple faces serious competitors and where users are able to switch to different products and services. Apple, which says the lawsuit is wrong on both the facts and the law, has always maintained that control is integral to quality and necessary to maintain user privacy and security.
By comparing the size of Apple's buyback program with its spending on research and development, the Justice Department highlights what it believes is Apple's isolation from competition and lack of incentive to innovate — something it says hurts consumers. However, the ministry did not mention the popularity of large-scale buyback programs across the innovative technology sector.
Apple stock buybacks slowed last year and declined as revenue declined. This is consistent with a broader trend in which S&P 500 spending on buybacks fell 14 percent from the previous year. But while the rest of the sector is expected to raise buybacks in 2024, Apple has reason to pause.
elaine.moore@ft.com
