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DOJ Compares AAPL Share Buybacks with R&D Spend as 'Evidence' of Lack of Competition

In a recent report, the Department of Justice (DOJ) has made a comparison between Apple's share buybacks and its research and development (R&D) spend, presenting this as 'evidence' of the lack of competition faced by the company. This comparison is part of the DOJ's ongoing antitrust lawsuit against Apple.


AAPL Share Buybacks


Share buybacks occur when a company uses its surplus cash to buy back its own shares, which are then cancelled. This practice has three main benefits:

  • With fewer shares in circulation, the company has to pay out less money in dividends.

  • The value of the company is split across fewer shares, increasing the effective value of each share.

  • The number of shares is reduced while earnings remain unaffected, increasing the earnings per share (EPS), a key measure of a company's financial performance.


Over the past decade, Apple, a company with a significant amount of surplus cash, has spent more than $650 billion on share buybacks.


The DOJ lawsuit compares Apple's R&D spend with its share buybacks:

In fiscal year 2023, Apple spent $30 billion on research and development. By comparison, Apple spent $77 billion on stock buybacks during the same year.

The lawsuit argues that while Apple's anticompetitive conduct has arguably benefited its shareholders, it comes at a great cost to consumers. It alleges that Apple inflates the price for buying and using iPhones while preventing the development of features like alternative app stores, innovative super apps, cloud-streaming games, and secure texting.


Furthermore, the lawsuit suggests that Apple's smartphone monopoly makes it economically unviable to invest in building some apps, like digital wallets, because they cannot reach iPhone users. This, it argues, stifles innovation and means that Apple itself has less incentive to innovate because it has insulated itself from competition.


A Ridiculous Claim?


This claim has been criticized as being somewhat absurd. Stock buybacks are a sign of confidence in the future of the company, and it only makes sense to buy your own stock if you believe this is a better investment than other forms of investment.


While it's true that Apple's R&D spend as a proportion of revenue has been historically lower than competing tech companies, this is largely because the company is extremely focused in its new product development strategy. It famously says no to a thousand things for every time it says yes.


In contrast, Google, which invests in a wide range of projects and then closes down those that don't work out, naturally spends more than Apple on R&D.


While Apple does have some serious antitrust questions to answer, the argument that it spends more on stock buybacks than on R&D is not one of them. The Financial Times highlights this, pointing out that stock buybacks are common in the tech sector as a whole, and that Apple has reduced its own in line with falling revenue.

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