Over the past decade, the “Magnificent Seven” company has invested nearly $700 billion in stock buybacks.
Stock buybacks, or share repurchases, occur when companies purchase their own shares on the market and then retire them, reducing the total number of shares outstanding. This is a common strategy for companies to use their profits to create value for shareholders by decreasing the share count, which increases the per-share revenue and earnings, potentially driving the stock price higher.
Research from The Motley Fool identified several “Magnificent Seven” companies that led in stock buyback expenditures in 2024. At the forefront is Apple, which has spent over $695 billion on buybacks in the last ten years, significantly surpassing other companies.
Apple’s buyback strategy has had a substantial impact on its investors. Over the past decade, Apple’s performance has exceeded that of the S&P 500, largely due to its significant stock buybacks. At the end of its fiscal year 2015, the company had a diluted share count of 5.8 billion. Following a 4-for-1 stock split in 2020, this equates to approximately 23.2 billion shares today. By the end of its fiscal year 2024, Apple had approximately 15.4 billion shares, marking a reduction in its diluted share count by 33.5% over the decade.
In 2024, Apple reported a net income of $93.7 billion, resulting in diluted earnings per share (EPS) of $6.08. Without those buybacks, the EPS for 2024 would have been $4.04, indicating that the absence of buybacks would have led to a significantly lower stock price today. The blend of growth and share repurchases has rendered Apple a profitable investment, with buybacks capable of boosting EPS even without net income growth.
Apple’s ability to afford extensive buybacks is not universal among companies, owed to its exceptional business model. The company benefits from a vast global supply chain that facilitates low-cost manufacturing of its iPhones and other products, which are then sold at high margins due to its strong brand power. Additionally, Apple generates high-margin revenue across its ecosystem through subscription services and App Store fees.
Apple converts about a quarter of each revenue dollar into free cash flow and achieves a return of over 56% on the capital it invests. This is extraordinary, especially when considering Apple’s near $400 billion annual revenue.
It’s no surprise that renowned investor Warren Buffett, the CEO of the holding company Berkshire Hathaway, holds Apple in high regard. Apple represents the largest holding in Berkshire Hathaway’s portfolio, and Buffett has described it as the best business the company owns.
However, dependence on buybacks could be risky for Apple if it becomes too reliant on this strategy. While buybacks have been advantageous, they are not the sole reason for investing. Apple has faced some criticism for slowed organic growth in recent years and for being delayed in adopting artificial intelligence features in its devices. Questions arise about whether Apple should have invested more heavily in research and development.
While Apple can potentially regain its momentum, this underlines the necessity for even a leading company like Apple to continuously innovate and execute effectively to maintain its competitive edge.
