After Apple’s Rise, a Bruising Fall

Nathaniel Popper and Nick Wingfield relay some Toni Sacconaghi wisdom through The New York Times:

Toni Sacconaghi, an analyst at Bernstein Research, said that if Apple developed a clear plan to use some of its cash to pay dividends to shareholders it would help the company’s shares, perhaps lifting them 10 percent or more. But that will not return Apple shares to their glory days. He said the bigger problem bearish investors saw with Apple’s shares was more straightforward: growth is stalling.

There are two problems with this analysis. For one thing, dividend payments do not at all correlate with — yet alone directly cause — an increase in share price. As I wrote nearly two years ago:

As Horace Dediu pointed out, when technology companies institute stock buybacks, they don’t create a lot of shareholder value, if any at all. Microsoft has spent a little more than $97 billion on buybacks since 2004 and its share price has gone up less than 10 percent. Over the last 10 years, it has spent over $170 billion on both buybacks and dividends while MSFT has gone down 19.92 percent. At the same time, networking giant Cisco has returned $50.7 billion to shareholders since the beginning of 2004 while its share price has dropped 35.58 percent. Additionally, RIM’s stock price has plummeted 21.16 percent since it announced a share buyback program less than 30 days ago, on June 16th. Though other factors certainly could have played a part in the depreciation of the share prices of the aforementioned companies, using cash for stock buybacks and dividends clearly isn’t the best way to increase shareholder value.

The other problem with Sacconaghi’s analysis is that, contrary to what he asserted, Apple’s growth is not “stalling”. In the last year, Apple’s bottom line — it’s profit — has grown at 0 percent, 24 percent, 21 percent, and 93 percent compared to their corresponding previous-year quarters. And the no growth quarter doesn’t count, because, as Apple itself stressed, its first quarter of fiscal 2013 was 13 weeks long whereas its first quarter of fiscal 2012 was 14 weeks long. You can’t properly compare the two.

Revenue growth is the same story: 18 percent, 27 percent, 22 percent, and 59 percent.

I seem to remember that the rate at which Apple was growing was itself growing at a few points in time. That may no longer be the case, but just because the rate at which the company is growing is itself not growing anymore does not mean that Apple’s growth is “stalling”.

Some quick back-of-the-envelope math reveals that the company is still growing.

After Apple’s Rise, A Bruising Fall