Apple: In Dire Need Of Cash?

Apple has been aggressively raising cash through debt. Could this be signs of financial distress? The Apple Maven explains why this does not seem to be the case at all.
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Apple has just issued $14 billion in bonds. This figure represents about 12.5% of the company’s total debt as of fiscal first quarter 2021.

According to Seeking Alpha, “the longest part is a 40-year fixed security worth $1.75 billion with initial price talk at 115-120 basis points over Treasuries”.

The publications adds:

“Until 2020, Apple hadn't sold bonds more than once a year since 2017. The tech giant has now tapped the bond market for the third time in about eight months.”

This may seem odd to some investors. Don’t companies (and people, for that matter) need loans when they are in financial trouble? And wouldn’t it be odd to find out that Apple, the most valuable company in the world, might be facing hardship?

When cash is so cheap

Hardship is not at all what has been happening here. Rather, Apple seems to be taking advantage of historically low interest rates (see graph below on the 10-year treasury yield) to replenish its coffers with “cheap money”.

Historical 30-year treasury rates

Historical 30-year treasury rates

Still concerned about Apple’s recent debt appetite? Check out below the company’s cash position at the end of the most recent fiscal year.

In absolute values, nearly $200 billion in cash and equivalents, including marketable securities, is mind-boggling. Net of debt, the $79 billion is still quite impressive.

Apple's gross and net cash position, in $ millions

Apple's gross and net cash position, in $ millions

Source: data from Stock Rover, Apple's gross and net cash position, in $ millions

With so much cash on hand, why does Apple need to aggressively raise debt, even at low rates? Why bother increase interest expenses and chip away at net income, when the Cupertino company is cash awash?

Sure, financing operations is one possibility. For example, launching the Apple Car within the next few years or another brand-new product category would likely require lots of dry powder.

However, at least until now, Apple has been able to finance its operations with cash raised by selling products and services alone.

One of the most likely uses of Apple’s new cash will be to buy back shares. Since 2013, the company’s share count has decreased from about 26 million to only 17 million now – a drop of 35%. The fewer shares outstanding there are, the higher earnings per share tend to be.

Apple's diluted share count since 2008

Apple's diluted share count since 2008

Also keep in mind that Apple generates cash from operations all around the world. Bringing them back to the US can be operationally challenging and expensive, if taxes need to be paid to repatriate the assets.

Therefore, raising debt domestically may be the simplest, potentially cheapest way for Apple to raise liquidity – especially at historically low interest rates.

Twitter speaks

How about you, what do you think is the best use of Apple’s pile of cash? Use the Twitter poll below to share your opinion.

The Apple Maven on Twitter:

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Most of the data used in this report was provided by Stock Rover. I have been impressed with the breadth and depth of information on markets, stocks and ETFs that this platform provides. Stock Rover also helps to set up detailed filters, track custom portfolios and measure their performance relative to a number of benchmarks.

To learn more, check out stockrover.com and get started for as low as $7.99 a month. The premium plus plan that I have will give you access to all the information that went into my analysis and much more.

(Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)