Why would a company like Apple be buying back its own shares?
A Breakdown of Stock Buy Backs has this bottom line on it: Are share buybacks good or bad? As is so often the case in finance, the question may not have a definitive answer. If a stock is undervalued and a buyback truly represents the best possible investment for a company, the buyback - and its effects - can be viewed as a positive sign for shareholders. Watch out, however, if a company is merely using buybacks to prop up ratios, provide short-term relief to an ailing stock price or to get out from under excessive dilution. Read more: http://www.investopedia.com/articles/02/041702.asp#ixzz3ZHdOf2dJ What is the reason that a company like AAPL is buying back its own   shares?  Offsetting dilution would be my main thought here as many employees may exercise options putting more stock out there that the company buys back stock to balance things. Does it have too much cash and it doesn't know what to do with it?  No as it could do dividends if it wanted to give it back to investors. So it is returning the cash back to investors? Not quite. While some investors may get cash from Apple, I'd suspect most shareholders aren't likely to see cash unless they are selling their shares so I wouldn't say yes to this without qualification. At the same time, the treasury shares Apple has can be used to give options to employees or be used in acquisitions for a couple of other purposes. "I think JB King's answer is interesting from the point of view of ""is this good for me"" but the OP's question boils down to ""why would a company do this?"" The company buys back shares when it thinks it will better position the company financially. A Simple Scenario: If Company A wants to open a new store, for example, they need to buy the land, build the store, stock it, etc, etc and this all costs money.  The company can get a loan, use accrued capital, or raise new capital by issuing new stock.  Each method has benefits and drawbacks. One of the drawbacks of issuing new stock is that it dilutes the existing stock's value.  Previously, total company profits were split between x shares.  Now the profits are shared between x+y shares, where y is the number of new shares issued to raise the capital. This normally drives the price of the stock down, since the expected future dividends per stock have decreased. Now the company has a problem: the next time they go to raise money by issuing stock, they will have to issue MORE shares to get the same value - leading to more dilution.  To break out of this cycle, the company can buy back shares periodically.  When the company feels the the stock is sufficiently undervalued, it buys some back.  Now the profits are shared with a smaller pool, and the stock price goes up, and the next time Company A needs to raise capital, it can issue stock. So it probably has little to do with rewarding shareholders, and more to do with lowering the ""cost of capital"" for the company in the future."
Well, it certainly has the first-mover advantage. I imagine Tesla has become pretty efficient in its production of electric cars and they are continuously driving down costs. As production expands, Tesla is gaining economies of scale, allowing it to produce electric vehicles for much cheaper than any other company might do with its patents. I think it would be difficult for new entrants to achieve the same quality and cost that Tesla does, even if they are using Tesla's patents.   Furthermore, Tesla and electric vehicles have become synonymous. If someone is going to buy an electric car, the first thing they are going to think of is Tesla. Owning a Tesla has become (and will likely continue to be) a bit of a status symbol, and because of that, I think they will probably always have the dominant position in the electric vehicle industry, and will likely be able to charge premium prices that competitors might not be able to justify. Similar to the way that despite the ubiquity of smartphones, Apple has a dominant position and an ability to charge premium prices. (Largely because Apple kind of drove the smartphone revolution)   Tesla wants the electric car market to grow as quickly as possible. The more money automobile manufacturers pour into electric cars, the less they will spend on cheaper, fossil-fuel vehicles. Secondly, as more companies start producing electric vehicles, more people will end up owning one, hence more infrastructure will be built to support those people, making owning an electric car a lot easier, hence increasing the value of a Tesla. Making electric cars accessible to the mainstream public is Tesla's ultimate goal, because they know they will likely always have the lion's share of that industry. "What you are describing is a very specific case of the more general principle of how dividend payments work. Broadly speaking, if you own common shares in a corporation, you are a part owner of that corporation; you have the right to a % of all of that corporation's assets. The value in having that right is ultimately because the corporation will pay you dividends while it operates, and perhaps a final dividend when it liquidates at the end of its life. This is why your shares have value - because they give you ownership of the business itself. Now, assume you own 1k shares in a company with 100M shares, worth a total of $5B. You own 0.001% of the company, and each of your shares is worth $50; the total value of all your shares is $50k. Assume further that the value of the company includes $1B in cash. If the company pays out a dividend of $1B, it will now be only worth $4B. Your shares have just gone down in value by 20%! But, you have a right to 0.001% of the dividend, which equals a $10k cash payment to you. Your personal holdings are now $40k worth of shares, plus $10k in cash. Except for taxes, financial theory states that whether a corporation pays a dividend or not should not impact the value to the individual shareholder.  The difference between a regular corporation and a mutual fund, is that the mutual fund is actually a pool of various investments, and it reports a breakdown of that pool to you in a different way. If you own shares directly in a corporation, the dividends you receive are called 'dividends', even if you bought them 1 minute before the ex-dividend date. But a payment from a mutual fund can be divided between, for example, a flow through of dividends, interest, or a return of capital. If you 'looked inside' your mutual fund you when you bought it, you would see that 40% of its value comes from stock A, 20% comes from stock B, etc etc., including maybe 1% of the value coming from a pile of cash the fund owns at the time you bought your units.  In theory the mutual fund could set aside the cash it holds for current owners only, but then it would need to track everyone's cash-ownership on an individual basis, and there would be thousands of different 'unit classes' based on timing. For simplicity, the mutual fund just says ""yes, when you bought $50k in units, we were 1/3 of the year towards paying out a $10k dividend. So of that $10k dividend, $3,333k of it is assumed to have been cash at the time you bought your shares. Instead of being an actual 'dividend', it is simply a return of capital.""  By doing this, the mutual fund is able to pay you your owed dividend [otherwise you would still have the same number of units but no cash, meaning you would lose overall value], without forcing you to be taxed on that payment. If the mutual fund didn't do this separate reporting, you would have paid $50k to buy $46,667k of shares and $3,333k of cash, and then you would have paid tax on that cash when it was returned to you. Note that this does not ""falsely exaggerate the investment return"", because a return of capital is not earnings; that's why it is reported separately.  Note that a 'close-ended fund' is not a mutual fund, it is actually a single corporation. You own units in a mutual fund, giving you the rights to a proportion of all the fund's various investments. You own shares in a close-ended fund, just as you would own shares in any other corporation. The mutual fund passes along the interest, dividends, etc. from its investments on to you; the close-ended fund may pay dividends directly to its shareholders, based on its own internal dividend policy." "I probably don't understand something. I think you are correct about that.  :) The main way money enters the stock market is through investors investing and taking money out. Money doesn't exactly ""enter"" the stock market.  Shares of stock are bought and sold by investors to investors.  The market is just a mechanism for a buyer and seller to find each other. For the purposes of this question, we will only consider non-dividend stocks. Okay. When you buy stock, it is claimed that you own a small portion of the company. This statement has no backing, as you cannot exchange your stock for the company's assets. For example, if I bought $10 of Apple Stock early on, but it later went up to $399, I can't go to Apple and say ""I own $399 of you, here you go it back, give me an iPhone."" The only way to redeem this is to sell the stock to another investor (like a Ponzi Scheme.) It is true that when you own stock, you own a small portion of the company.  No, you can't just destroy your portion of the company; that wouldn't be fair to the other investors.  But you can very easily sell your portion to another investor.  The stock market facilitates that sale, making it very easy to either sell your shares or buy more shares. It's not a Ponzi scheme.  The only reason your hypothetical share is said to be ""worth"" $399 is that there is a buyer that wants to buy it at $399.  But there is a real company behind the stock, and it is making real money. There are several existing questions that discuss what gives a stock value besides a dividend: The stock market goes up only when more people invest in it. Although the stock market keeps tabs on Businesses, the profits of Businesses do not actually flow into the Stock Market. In particular, if no one puts money in the stock market, it doesn't matter how good the businesses do. The value of a stock is simply what a buyer is willing to pay for it.  You are correct that there is not always a correlation between the price of a stock and how well the company is doing.  But let's look at another hypothetical scenario. Let's say that I started and run a publicly-held company that sells widgets.  The company is doing very well; I'm selling lots of widgets.  In fact, the company is making incredible amounts of money.  However, the stock price is not going up as fast as our revenues.  This could be due to a number of reasons: investors might not be aware of our success, or investors might not think our success is sustainable.  I, as the founder, own lots of shares myself, and if I want a return on my investment, I can do a couple of things with the large revenues of the company: I can either continue to reinvest revenue in the company, growing the company even more (in the hopes that investors will start to notice and the stock price will rise), or I can start paying a dividend.  Either way, all the current stock holders benefit from the success of the company." "The value of a stock ultimately is related to the valuation of a corporation.  As part of the valuation, you can estimate the cash flows (discounted to present time) of the expected cash flows from owning a share.  This stock value is the so-called ""fundamental"" value of a stock.  What you are really asking is, how is the stock's market price and the fundamental value related?  And by asking this, you have implicitly assumed they are not the same.   The reason that the fundamental value and market price can diverge is that simply, most shareholders will not continue holding the stock for the lifespan of a company (indeed some companies have been around for centuries).  This means that without dividends or buybacks or liquidations or mergers/acquisitions, a typical shareholder cannot reasonably expect to recoup their share of the company's equity. In this case, the chief price driver is the aggregate expectation of buyers and sellers in the marketplace, not fundamental evaluation of the company's balance sheet.   Now obviously some expectations are based on fundamentals and expert opinions can differ, but even when all the experts agree roughly on the numbers, it may be that the market price is quite a ways away from their estimates.  An interesting example is given in this survey of behavioral finance.  It concerns Palm, a wholly-owned subsidiary of 3Com.  When Palm went public, its shares went for such a high price, they were significantly higher than 3Com's shares.  This mispricing persisted for several weeks. Note that this facet of pricing is often given short shrift in standard explanations of the stock market.  It seems despite decades of academic research (and Nobel prizes being handed out to behavioral economists), the knowledge has been slow to trickle down to laymen, although any observant person will realize something is amiss with the standard explanations.   For example, before 2012, the last time Apple paid out dividends was 1995.  Are we really to believe that people were pumping up Apple's stock price from 1995 to 2012 because they were waiting for dividends, or hoping for a merger or liquidation?  It doesn't seem plausible to me, especially since after Apple announced dividends that year, Apple stock ended up taking a deep dive, despite Wall Street analysts stating the company was doing better than ever.  That the stock price reflects expectations of the future cash flows from the stock is a thinly-disguised form of the Efficient Market Hypothesis (EMH), and there's a lot of evidence contrary to the EMH (see references in the previously-linked survey).  If you believe what happened in Apple's case was just a rational re-evaluation of Apple stock, then I think you must be a hard-core EMH advocate. Basically (and this is elaborated at length in the survey above), fundamentals and market pricing can become decoupled.  This is because there are frictions in the marketplace making it difficult for people to take advantage of the mispricing.  In some cases, this can go on for extended periods of time, possibly even years.  Part of the friction is caused by strong beliefs by market participants which can often shift pressure to supply or demand.  Two  popular sayings on Wall Street are, ""It doesn't matter if you're right.  You have to be right at the right time.""  and ""It doesn't matter if you're right, if the market disagrees with you.""  They suggest that you can make the right decision with where to put your money, but being ""right"" isn't what drives prices.  The market does what it does, and it's subject to the whims of its participants." "The value of a stock ultimately is related to the valuation of a corporation.  As part of the valuation, you can estimate the cash flows (discounted to present time) of the expected cash flows from owning a share.  This stock value is the so-called ""fundamental"" value of a stock.  What you are really asking is, how is the stock's market price and the fundamental value related?  And by asking this, you have implicitly assumed they are not the same.   The reason that the fundamental value and market price can diverge is that simply, most shareholders will not continue holding the stock for the lifespan of a company (indeed some companies have been around for centuries).  This means that without dividends or buybacks or liquidations or mergers/acquisitions, a typical shareholder cannot reasonably expect to recoup their share of the company's equity. In this case, the chief price driver is the aggregate expectation of buyers and sellers in the marketplace, not fundamental evaluation of the company's balance sheet.   Now obviously some expectations are based on fundamentals and expert opinions can differ, but even when all the experts agree roughly on the numbers, it may be that the market price is quite a ways away from their estimates.  An interesting example is given in this survey of behavioral finance.  It concerns Palm, a wholly-owned subsidiary of 3Com.  When Palm went public, its shares went for such a high price, they were significantly higher than 3Com's shares.  This mispricing persisted for several weeks. Note that this facet of pricing is often given short shrift in standard explanations of the stock market.  It seems despite decades of academic research (and Nobel prizes being handed out to behavioral economists), the knowledge has been slow to trickle down to laymen, although any observant person will realize something is amiss with the standard explanations.   For example, before 2012, the last time Apple paid out dividends was 1995.  Are we really to believe that people were pumping up Apple's stock price from 1995 to 2012 because they were waiting for dividends, or hoping for a merger or liquidation?  It doesn't seem plausible to me, especially since after Apple announced dividends that year, Apple stock ended up taking a deep dive, despite Wall Street analysts stating the company was doing better than ever.  That the stock price reflects expectations of the future cash flows from the stock is a thinly-disguised form of the Efficient Market Hypothesis (EMH), and there's a lot of evidence contrary to the EMH (see references in the previously-linked survey).  If you believe what happened in Apple's case was just a rational re-evaluation of Apple stock, then I think you must be a hard-core EMH advocate. Basically (and this is elaborated at length in the survey above), fundamentals and market pricing can become decoupled.  This is because there are frictions in the marketplace making it difficult for people to take advantage of the mispricing.  In some cases, this can go on for extended periods of time, possibly even years.  Part of the friction is caused by strong beliefs by market participants which can often shift pressure to supply or demand.  Two  popular sayings on Wall Street are, ""It doesn't matter if you're right.  You have to be right at the right time.""  and ""It doesn't matter if you're right, if the market disagrees with you.""  They suggest that you can make the right decision with where to put your money, but being ""right"" isn't what drives prices.  The market does what it does, and it's subject to the whims of its participants." It's important to remember what a share is.  It's a tiny portion of ownership of a company. Let's pretend we're talking about shares in a manufacturing company.  The company has one million shares on its register.  You own one thousand of them.  That means that you own 1/1000th of the company. These shares are valued by the market at $10 per share.  The company has machinery and land worth $1M.  That means that for every dollar of the company you own, 10c of that value is backed by the physical assets of the company.  If the company closed shop tomorrow, you could, in theory at least, get $1 back per share.  The other $9 of the share value is value based on speculation about the future and current ability of the company to grow and earn income. The company is using its $1M in assets and land to produce goods which cost the company $1M in ongoing costs (wages, marketing, raw cost of goods etc...) to produce and make $2M per year in sales.  That means the company is making a profit of $1M per annum (let's assume for the sake of simplicity that this profit is after tax). Now what can the company do with its $1M profit?  It can hand it out to the owners of the company (which means you would get a $1 dividend each year for each share that you own) or it can re-invest that money into additional equipment, product lines or something which will grow the business.  The dividend would be nice, but if the owners bought $500k worth of new machinery and land and spent another $500k on ongoing costs and next year we would end up with a profit of $1.5M. So in ten years time, if the company paid out everything in dividends, you would have doubled your money, but they would have machines which are ten years older and would not have grown in value for that entire time.  However, if they reinvested their profits, the compounding growth will have resulted in a company many times larger than it started. Eventually in practice there is a limit to the growth of most companies and it is at this limit where dividends should be being paid out.  But in most cases you don't want a company to pay a dividend.  Remember that dividends are taxed, meaning that the government eats into your profits today instead of in the distant future where your money will have grown much higher. Dividends are bad for long term growth, despite the rather nice feeling they give when they hit your bank account (this is a simplification but is generally true). TL;DR - A company that holds and reinvests its profits can become larger and grow faster making more profit in the future to eventually pay out.  Do you want a $1 dividend every year for the next 10 years or do you want a $10 dividend in 5 years time instead? "The basic theoretical reason for a company to return money to shareholders is that the company doesn't need the money for its own purposes (e.g. investment or working capital). So instead of the company just keeping it in the bank, it hands it back so that shareholders can do what they think fit, e.g. investing it elsewhere. In some cases, particularly ""private equity"" deals, you see companies actively borrowing money to payout to shareholders, on the grounds that they can do so cheaply enough that it will improve overall shareholder returns. The trade-off with this kind of ""leveraging up"" is that it usually makes the business more risky and every so often you see it go wrong, e.g. after an economic downturn. It may still be a rational thing to do, but I'd look at that kind of proposal very carefully. In this case I think things are quite different: the company has sold a valuable asset and has spare cash. It's already going to use some of the money to reduce debt so it doesn't seem like the company is becoming more risky. Overall if the management is recommending it, I would support it. As you say, the share consolidation seems like just a technical measure and you might as well also support that. I think they want to make their share price seem stable over time to people who are looking at it casually and won't be aware of the payout - otherwise it'd suddenly drop by 60p and might give the impression the company had some bad news. The plan is to essentially cancel one share worth ~960p for every payout they make on 16 shares - since 16x60p = 960p payout this should leave the share price broadly unchanged." Are you really talking about share price, or share value? Because what about stock splits? Market Cap stays the same, but the price per share is lowered. This is so that the stock is more liquid and accessible to a greater number of investors. This encourages people to invest in the stock though. I can't really think of any reasons why a company would want to lower their share value or discourage people from investing unless they are trying to reacquire shares. Returning value to the shareholders is the #1 priority of any publicly traded company.