With Apple Raking In $3.6 Million In Cash Every Hour, Traders Ask When Will It Start Spending

Both AAPL and the broader Nasdaq index are trading at new all time high ahead of Apple's earnings on Tuesday, where in addition to the company's operating results and iPhone sales, investors will pay close attention to Apple's record cash hoard - expected to rise well above a quarter trillion dollars - and especially to hints Tim Cook may reveal about the company's cash usage plans. In addition to the traditional speculation about potential AAPL M&A, the WSJ points out that the money, more than 90% of which is stockpiled outside of the U.S., has drawn fresh attention as President Donald Trump has proposed slashing business taxes and granting a one-time tax holiday on corporate cash brought home. Those policies could ratchet up pressure on the tech giant to dole out more money to shareholders or make splashy acquisitions.

Here are some striking facts about Apple's cash cushion from the WSJ:

  • As of December, the company had $246.09 billion total cash, cash equivalents, and securities. Apple, like most multinational American companies, parks most of that cash offshore rather than paying U.S. taxes on its overseas profits.
  • Apple’s results will show the company doubled its cash in just over 4½ years. In the last three months of 2016, it racked up cash at a rate of about $3.6 million an hour.
  • With the exception of financial companies, Apple’s stash exceeds that of any other U.S. company in recent history, said Jennifer Blouin, an accounting professor at University of Pennsylvania’s Wharton School. “I have never seen a company in this kind of extreme position, barring a winding-down,” she said. “Apple’s a cash box right now.”
  • Apple cash and cash equivalents are spread across short- and long-term securities, including corporate securities, U.S. Treasury securities and money-market funds.

Apple's historical cash build up in one chart:

To be sure, much of that gross cash addition has been offset by a surge in debt: since 2012, Apple has gathered some $88 billion in debt to fund payouts to shareholders. But even subtracting that, Apple would be left with more cash than the total stockpile of Microsoft Corp., the next richest tech company, which has $126 billion in cash, not accounting for debt.

How has Apple approached its massive cash holdings: AAPL CEO Tim Cook has been "somewhat more accommodating of shareholder desires than his predecessor. He started a program of dividends and stock buybacks in 2012 that has since sent more than $200 billion to shareholders. And he has invested more in some areas, such as research and development."

But the CEO also stared down Carl Icahn in 2013 and 2014 when the activist investor bought a stake in Apple and demanded it increase buybacks. And Apple remains frugal in other realms, such as marketing. It spent less than $1.8 billion on advertising last year—not even half the amounts laid out by smaller rivals Alphabet Inc. and Amazon.com Inc., according to company filings.

Just as notably, Apple also avoids large acquisitions. It bought at a rate of 15 to 20 companies a year over the past four years, generally spending several hundred million dollars each on companies it can easily assimilate. Its biggest deal was the $3 billion it spent to buy Beats Electronics LLC in 2014.

It may be time for a change: as the WSJ adds, the swelling war chest has fueled hopes for bigger deals to vault Apple in new directions such as self-driving cars and entertainment. At Apple’s 2015 shareholder meeting, one investor asked Mr. Cook about buying Tesla Inc., which today is valued around $51 billion. The CEO didn’t directly respond.

Robert Nichols of Windward Capital Management Co., an Apple shareholder, says it should buy Netflix Inc., valued around $65 billion, to jump-start its video-streaming business and bolster its position against Amazon. “You can either build [content and distribution] or you can buy it,” and buying would help Apple gain ground where it is behind, he said.

The bottom line, with $250 billion, Apple could buy both Tesla and Netflix and still have plenty left over. It also might want to use some cash to pay down some of its debt or look to boost U.S. manufacturing after facing calls last year from then-President-elect Trump to build a plant in the U.S.

Even as such mega deals are unlikely to be announced any time soon, many argue that Apple’s cash hoard has far outstripped its needs. “If this a rainy-day fund, they’re saving for a millennial flood," said Lee Pinkowitz, a Georgetown University professor of finance. Or maybe, AAPL - like so many other value investors - is just waiting for the day the value of its potential acquisition targets tumbles. Until then, it will continue to generate nearly $4 million in cash every hour, making the eventual acquisition wave that much more spectacular.

And while the market is hoping Cook will provide some answers tomorrow, it is also eagerly lapping up the stock, which as of this moment had an all time high market cap of $770 billion, up 2% on the day, and rising.