Apple is up more than 70% this year; Microsoft – 50%. Together they have contributed almost 40% to the more than 30% rise in the Nasdaq.
Facebook, Google and Amazon, the other heavy weights in the index, have together contributed about 19% to this year’s performance.
Just five companies have contributed almost 60% to this year’s Nasdaq returns!
Apple and Microsoft together have bought back almost $85Bn of their own shares this year. Amazon does not buy back its shares (yet). Google started in 2015 and has bought back $8Bn this year. Facebook started buying back its shares last year and has bought back about $13Bn this year.
Intel, Comcast, Nvidia, Costco, Charter Communications bring up the top 10 with a combined share buyback of around $20bn. Costco, Charter Communications and, to a certain extent, Nvidia, are actually, good examples of Yardeni’s claim that companies mostly buy back shares to avoid dilution. Sadly, that is not the case for the heavy hitters in the list, the ones doing most of the buybacks, and thus the ones with a disproportionate influence on index performance. For example, just among those five, Intel and Comcast have done 3/4 of the combined buybacks.
There is a big difference when it comes to Apple and Microsoft, however.
Since 2007 Apple has outperformed Microsoft in both Revenue growth (former’s increased 10x, latter’s – about 2.5x) and EPS growth (20x increase vs. 3.5x). In 2007 Apple’s revenue was about half of Microsoft’s. In 2010 they were the same. Today Apple’s revenue is more than 2.5x bigger than Microsoft’s, however it topped in Q3’2018, while Microsoft’s is still growing.
Apple only started paying dividend in 2010 and buying back its stock in 2011. Since then, both have spent about 25% of their top-line revenues, on average, on shareholders payouts. However, Microsoft spends considerably more on R&D as a % of revenue than Apple.
Apple managed to reduce its share count by almost 30% since 2012. Microsoft reduced its share count by a ‘mere’ 22% since 2007. And it shows. Apple’s share price has massively outperformed Microsoft’s since 2007. Of course, there are other factors in place (the IPhone came in 2007) and maybe it is just a coincidence that the out-performance started in 2010, when Apple began giving cash back to shareholders!
Bottom line: Make sure you have at least AAPL and MSFT share price on your screens all the time into year end.