But as enforcement loosened, notably under the Reagan administration, buybacks began to increase. Now, they are omnipresent. A Roosevelt Institute study released on Tuesday found that corporations spent 60 percent of their net profits on stock buybacks between 2015-2017. Buybacks have continued to boom in the wake of the $1.5 trillion tax cut passed in December. J.P. Morgan estimates that $800 billion will be spent on buybacks in 2018, obliterating the previous record of $587 billion in 2007—a spree that ended when the economy collapsed.
The goal of buybacks is straightforward: They prop up share prices and reward shareholders by increasing the value of the piece of the company that they own. There is no conclusive evidence that buybacks boost share prices in the long term, but as The Motley Fool explains, “In the near term, the stock price may rise because shareholders know that a buyback will immediately boost earnings per share.” But buybacks may not be a particularly efficient way to prop up a share price. Earlier this month, The Wall Street Journal found that “57% of the more than 350 companies in the S&P 500 that bought back shares so far this year are trailing the index’s 3.2% increase.” (Apple’s stock, however was an exception—its shares had jumped 11 percent at the time of the report.) Nevertheless, given the amount of pressure that CEOs are under, and the fact that buybacks are applauded by the shareholders that profit from them, it’s no wonder that public companies in the U.S. have spent the majority of the windfall they received from last year’s tax cut buying back their own stock.
Because companies are spending so much on buybacks, they’re neglecting to invest in their workers or their products. “Stock buybacks undermine the productive capabilities of companies and their ability to generate new products that compete on the market, and this is going to, at some point, show up in stock price,” University of Massachusetts professor William Lazonick, who studies buybacks, told me. Buybacks, as the Roosevelt Institute study found, also keep wages low by giving money to shareholders rather than investing it in workers.
All of this is direct result of the short-term focus of the economy. “I attribute it a lot of it to the financialization of the economy,” Lazonick said. “Once you’re willing to spend two or three or four billion or more a year on buybacks for a large company, you start becoming much more willing to lay off 5,000 people even in a prosperous period to pump your stock price up.”
Tim Cook, Apple’s CEO, has argued that stock buybacks are ultimately good for the economy, because investors have to pay capital gains tax when they sell stock. This is something of a novel argument—it was made in a MarketWatch article published a few days earlier—but it’s not a particularly convincing one because most of the money would go directly to shareholders and executives, rather than the government or workers. Cook’s argument is also at odds with history. “Usually the conventional wisdom is the opposite,” John Cochrane, a senior fellow at the Hoover Institute, told Business Insider. “Stock buybacks started in the 1990s as a way of helping people to avoid taxes.”
Photo by Sal Veder/AP/REX/Shutterstock (5953805a)Steve Jobs, Steve Wozniak, John Sculley Steve Jobs, left, chairman of Apple Computers, John Sculley, center, president and CEO, and Steve Wozniak, co-founder of Apple, unveil the new Apple IIc computer in San Francisco, CalifApple Wozniak Jobs, San Francisco, USA.
Apple was formed in 1976 by Steve Jobs and Steve Wozniak.
By 1980 its first shares went public.
On Aug. 2, 2018, the company was the first American publicly traded company to hit a value of $1 trillion.
As a company, Apple’s had its share of firsts. On Aug. 2, 2018, the Cupertino, Calif.-based tech company cemented itself as the first U.S. company in history to be worth $1 trillion. It’s hard to remember a time when Apple wasn’t on top and leading the competition.
Before words like FaceTime, App Store and Apple Watch were ingrained in public vernacular, Apple was a nascent computer startup venture between two friends in Northern California. Take a look at Apple history in this timeline to see how the company crossed this historic milestone.
Click to see 10 stocks that could be the next Apple or Amazon.
A Timeline of Apple and AAPL Stock Success
1971: Steve Jobs and Steve Wozniak meet. The two formed a friendship over their shared love of electronics.
1976: Jobs and Wozniak form Apple. The origin of the company’s name is hotly disputed; Wozniak said the name came to Jobs as the two were driving and neither could think of a better name. The same year, the Apple I computer debuts. Now a collectors’ item, the original Apple I — of which only 200 were built — sold for $666.66.
1980: Apple goes public. Shares of Apple began trading on Dec. 12, 1980, opening at $22 a share. On that day, Apple boasted a market cap of $1.2 billion.
1985: Jobs and Wozniak leave Apple. After surviving a plane crash in 1981, Wozniak took a leave of absence, briefly returned, and then walked away in 1985. As for Jobs, he was ousted by the board of directors in an apparent coup. The company’s leadership instability resulted in the stock falling to below $2 per share.
Quiz: See Which of These CEOs Gets Paid More
1997: Steve Jobs returns. Jobs was brought back as interim chief.
1998: The first iMac is unveiled. Jobs introduced the colorful and translucent desktop less than a year after he returned to the company.
2000: Power Mac G4 Cube is released. The computer, which was less than a quarter of the size of most PCs as the time, packed performance into an 8-inch cube, according to a press release.
2000: Mac OS X operating system is unveiled. Over 100 developers had pledged their support for OS X, including Adobe and Microsoft, according to a press release.
2001: iPod debuts. Commuting, running and errands all changed when the digital music player entered the market. Apple didn’t invent the first portable MP3 or music player; it created the first wildly successful one.
See: The Cost of the Most Noteworthy Apple Products Through the Years
2007: The iPhone debuts. The mobile device signaled the beginning of the mobile revolution. The iPhone was the best-selling tech product in 2017, ten years after its launch, USA Today reported.
2011: Tim Cook becomes CEO after Jobs resigns. The same year, Jobs died of pancreatic cancer. During the change in leadership, annual revenue had reached $110 billion, the stock was at roughly $380 per share and Apple’s market capitalization had reached $360 billion.
2014: Apple stock splits. AAPL share prices dropped from a prohibitive $645.57 to about $92.44.
2015: Apple unveils Apple Music. The subscription service for listeners to stream Apple’s catalog of music and a live radio station, and interact in its social network.
2016: Apple catches the attention of Warren Buffett. Buffett is notorious for shying away from technology investments. Still, Berkshire Hathaway, Buffett’s investment company, bought more than 9.8 million shares during the first quarter of 2016, CNN Money reported.
2018: Apple hits $1 trillion.
The company’s fuel injection of cash, praise and achievement proves that the monolith shows no signs of slowing down anytime soon.
Click to read more about what it means to invest in a stock like Apple.
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Susan Kim contributed to the reporting for this article.
This article originally appeared on GOBankingRates.com: Apple Stock History Timeline: The Path to $1 Trillion
A lot of ink has been spilled about the market cap "race to $1 trillion."
Apple claimed the title yesterday, becoming the first U.S. publicly traded company to hit the 12-zero mark.
However, you might be surprised to find that Apple is not the first company to achieve this distinction. Even more surprising: You've probably never heard of the company that beat it, PetroChina (NYSE:PTR).
Petro-who?
PetroChina is a state-controlled company in China, and when it went public, it was the country's top oil and gas producer. The company debuted on the Shanghai Stock Exchange on Nov. 5, 2007, and became the first company to top $1 trillion in valuation on its very first day of trading. This lofty achievement was fueled in part by the fact that the price of the stock nearly tripled on its inaugural day on the market.
At the end of its first day of trading on the Shanghai exchange, PetroChina was valued at 54 times its estimated earnings per share, about triple the average valuation of 18 times among its oil company peers.
The good times for PetroChina didn't last, however. A look today reveals a company that's a shadow of its former self, with a market cap of roughly $200 billion. What led to the spectacular rise and fall of this stock -- and are there any parallels that Apple investors should worry about?
Macroeconomic factors were at play
A number of issues contributed to the company's unprecedented ascent. PetroChina's shares were already traded in Hong Kong and New York, but had been unavailable to small investors in mainland China. It's telling that on the day shares gained as much as 191% on the Shanghai exchange, they fell about 6.6% on the Hong Kong exchange. So what led to the disparity?
At the time, China was experiencing its fifth consecutive year of double-digit economic growth. During 2007, the country's economy expanded at 11.4%, on top of the 11.1% growth produced the year before. Additionally, between 2005 and 2008, China's middle class grew by 22%, adding 14.5 million net new members. At the same time, disposable income was rising, having skyrocketed 50% over the previous half-decade.
Consumers in China had to contend with the low interest rates paid by state-owned banks as the sole outlet for their newfound wealth. China's stock market had soared since late 2006, drawing in many unseasoned investors. It's also important to remember that at the time of PetroChina's Shanghai debut, crude oil was nearing $100 per barrel. This combination of factors led to a surge in speculative investing that fed off the growing euphoria, leading to a classic bubble -- and PetroChina was in the right place at the right time.
PetroChina's rise to dizzying heights was short-lived, as the company was soon hit with a double whammy: the stock market bubble that led to 500% market gains over two years was on the verge of an epic collapse that would wipe out 45% of its value in a matter of months, and the price of oil began its precipitous fall to below $34 per barrel.
No parallels here
It should be apparent by now that Apple's path to $1 trillion has been very different. While the U.S. equity market has been hot over the past decade, Apple doesn't trade anywhere near the frothy valuation PetroChina commanded at its peaks. Even after its historic rise, the tech company's shares can be scooped up at just 18 times trailing earnings and 17 times forward estimates.
And the underlying businesses couldn't be more different. For 2007, PetroChina's revenue grew 21% year over year, but its profits grew by only 3.9%.
Apple just reported results for its third quarter, which were impressive for a company of its size. Revenue grew 17% year over year to $53 billion, producing net income of $11.5 billion, up 32% compared to the prior-year quarter.
While sales of iPhones were essentially flat compared to the year-ago quarter, Apple's pricing power shined through. The average selling price of the devices rose 19% year over year to $724, as consumers opted for the iPhone 8 and iPhone X, the company's higher-priced models. The company's services segment accounted for 18% of Apple's revenue in the third quarter, as the company moves to become less reliant on its flagship device. Apple doesn't operate in commodities -- it has a cash cow consumer hardware business and strong ecosystem that keeps customers coming back.
Put simply, Apple is in far better shape than its trillion-dollar predecessor.
