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."
"You are missing the fact that the company can buy back its own shares. For simplicity, imagine the case that you own ALL of the shares of XYZ corporation.  XYZ is very profitable, and it makes $1M per year.  There are two ways to return $1M to you, the shareholder: 1)  The company could buy back some fraction of your shares for $1M, or  2)  The company could pay you a $1M dividend. After (1) you'd own ALL of the shares and have $1M. After (2) you'd own ALL of the shares and have $1M. After (1) the total number of shares would be fewer, but saying you owned less of XYZ would be like complaining that you are shorter when your height is measured in inches than in centimeters. So indeed, a buyback is an alternative to a dividend. Furthermore, buybacks have a number of tax advantages over dividends to taxable shareholders (see my answer in Can I get a dividend ""free lunch"" by buying a stock just before the ex-dividend date and selling it immediately after?).  That said, it is important to recognize the shareholders who are less savvy about knowing when to accept the buyback (by correctly valuing the company) can get burned at the profit of the savvy shareholders.  A strategy to avoid being burned if you aren't price savvy is simply to sell a fraction in order to get your pro rata share of the buyback, in many respects simulating a dividend but still reaping some (but not all) of the tax advantages of a buyback." A stock buy back reduces the number of stocks available on the open market.  Since stocks are literally a share in ownership a buy back of the stock then when the company repurchases it has the effect of increasing the percent of ownership of the company of each stock. Zynga has a Market Cap of ~1810M so a 200M buy back will increase the ownership value of each stock by ~12%.  This has had the effect of an immediate stock price bump of around 12% which is to be expected as the value becomes the expected post buyback value. However long term gains will require Zynga to turn around their business.  This bump will only be sustainable if they can.  If their business continues to decline then its stock price will continue to slide.  There are some who would rather see Zynga invest that 200m in getting a new product to market to bring revenues up rather than spending precious capital on a plan to temporarily bump a stock that is headed towards the floor.  If on the other hand the revenue is poised to recover and the company has the excess capitol buying back stock low is a great way to get the most back for your shareholders bucks. Can they repurchase at any price and any time? They can write a buy order for any price at any time in the future, though they have some restrictions from the SEC mostly involving disclosures.  But it is up to the sellers to choose to sell at that price.  If they execute the buy back at a rate comparable to market rate then they are more likely to get takers than if they attempt to buy it back at a significant reduction from market price.  So since today(10-25-2012) the it is selling for ~2.30  A buy order for 2.30 is going to get more action than one at 2.00.  Investors will often look at the companies buy back offer for a company in decline(like Zynga has been) as the true value of the company.  If so then a lowball buyback offer could add downward pressure on the stock price. "#####&amp;#009;  ######&amp;#009;  ####&amp;#009;  [**Share repurchase**](https://en.wikipedia.org/wiki/Share%20repurchase): [](#sfw)   ---  &gt;  &gt;__Share repurchase__ (or __stock buyback__) is the re-acquisition by a [company](https://en.wikipedia.org/wiki/Company) of its own stock.  In some countries, including the [US](https://en.wikipedia.org/wiki/United_States) and the [UK](https://en.wikipedia.org/wiki/United_Kingdom), a [corporation](https://en.wikipedia.org/wiki/Corporation) can repurchase its own [stock](https://en.wikipedia.org/wiki/Stock) by distributing [cash](https://en.wikipedia.org/wiki/Cash) to existing [shareholders](https://en.wikipedia.org/wiki/Shareholder) in exchange for a fraction of the company's outstanding [equity](https://en.wikipedia.org/wiki/Shareholders%27_equity); that is, cash is exchanged for a reduction in the number of [shares outstanding](https://en.wikipedia.org/wiki/Shares_outstanding).   The company either retires the repurchased shares or keeps them as [treasury stock](https://en.wikipedia.org/wiki/Treasury_stock), available for re-[issuance](https://en.wikipedia.org/wiki/Issued_capital).  &gt;Under US [corporate law](https://en.wikipedia.org/wiki/Corporations_law) there are five primary methods of stock repurchase: open market, private negotiations, repurchase '[put](https://en.wikipedia.org/wiki/Put_option)' rights and two variants of self-tender repurchase: a fixed price [tender offer](https://en.wikipedia.org/wiki/Tender_offer) and a [Dutch auction](https://en.wikipedia.org/wiki/Dutch_auction). In the late 20th and early 21st centuries, there was a sharp rise in the volume of share repurchases in the US: [US$](https://en.wikipedia.org/wiki/United_States_dollar)5 [billion](https://en.wikipedia.org/wiki/1000000000_(number\)) in 1980 rose to US$349 billion in 2005.   &gt;It is relatively easy for insiders to capture insider-trading like gains through the use of ""open market repurchases"". Such transactions are legal and generally encouraged by regulators through safe-harbours against [insider trading](https://en.wikipedia.org/wiki/Insider_trading) liability.    &gt;  ---  ^Interesting: [^Accelerated ^share ^repurchase](https://en.wikipedia.org/wiki/Accelerated_share_repurchase) ^| [^Dividend](https://en.wikipedia.org/wiki/Dividend) ^| [^Equity ^\(finance)](https://en.wikipedia.org/wiki/Equity_\(finance\)) ^| [^Treasury ^stock](https://en.wikipedia.org/wiki/Treasury_stock)   ^Parent ^commenter ^can [^toggle ^NSFW](http://www.np.reddit.com/message/compose?to=autowikibot&amp;subject=AutoWikibot NSFW toggle&amp;message=%2Btoggle-nsfw+cjwf4oy) ^or[](#or) [^delete](http://www.np.reddit.com/message/compose?to=autowikibot&amp;subject=AutoWikibot Deletion&amp;message=%2Bdelete+cjwf4oy)^. ^Will ^also ^delete ^on ^comment ^score ^of ^-1 ^or ^less. ^| [^(FAQs)](http://www.np.reddit.com/r/autowikibot/wiki/index) ^| [^Mods](http://www.np.reddit.com/r/autowikibot/comments/1x013o/for_moderators_switches_commands_and_css/) ^| [^Magic ^Words](http://www.np.reddit.com/r/autowikibot/comments/1ux484/ask_wikibot/)" Originally, stocks were ownership in a company just like any other business- you expected to make a profit from your investment, which is what we call dividends to stock holders. Since these dividends had real value, the stock price was based on what this return rate was, factoring in what it might be expected to be in the future, etc.  Nowdays many companies never issue any dividends, so you have to consider the full value of the company and what benefit could be gained by another company if it were to acquire it. the market will likely adjust the share price to factor in what the value of the company might be to an acquirer.  But otherwise, some companies today trading at an astronimical price, and which nevers pays a dividend- chalk it up to market stupidity. In this investor'd mind, there is no logical reason for these prices, except based on the idea that someone else might pay you more for it later... for what reason? I can't figure it out. Take it back to it's roots and imagine pitching a new business idea to you uncle to invest in- it will make almost nothing compared to it's share price, and even what it does make it won't pay anything to him for his investment. Why wouldn't he just laugh at you? The holders of the shares have to agree to sell them to management in a share repurchase.  Typically, share repurchases are done in the open market, causing market activity to increase the share price marginally.  This is how the company returns the value to shareholders.  The company could also negotiate a price with a mutual fund, or founder, for a large block.     If they get close to the point of purchasing all outstanding shares, this would be exactly the same as the management of the company taking the company private, buying out all existing shareholders.   To prevent a single holdout from keeping say the very last share for one million dollars or the like on the open market, they would generally propose to the board of directors the buyout terms with a price per share, and most corporate charters are written such that the directors' vote binds minority shareholders to buyout or merger decisions.  Michael Dell famously took Dell Computer private in 2013, raising external money to offer a fair price to the board, which accepted it, letting him take it back to private status. Shares are partial ownership of the company. A company can issue (not create) more of the shares it owns at any time, to anyone, at any price -- subject to antitrust and similar regulations. If they wanted to, for example, flat-out give 10% of their retained interest to charity, they could do so. It shouldn't substantially affect the stock's trading for others unless there's a completely irrational demand for shares. "Definitely not what I'm saying, I'm saying that instead of some of these companies spending 70% of their earnings on stock buybacks they should reinvest that money into their employees and pay out larger dividends to shareholders. I understand share repurchases are fine when not done in excess, but right now it's in excess to manipulate EPS and hit targets. You're missing the point, I'm not talking about the  ""NPV of a random project"".   Edit: this article I just found explains perfectly what I'm talking about: https://amp.businessinsider.com/whats-a-buyback-and-why-do-some-investors-hate-them-2016-6" Congratulations!  You own a (very small) slice of Apple. As a stockholder, you have a vote on important decisions that the company makes.  Each year Apple has a stockholder meeting in Cupertino that you are invited to.  If you are unable to attend and vote, you can vote by proxy, which simply means that you register your vote before the meeting.  You just missed this year's meeting, which was held on February 26, 2016.  They elected people to the board of directors, chose an accounting firm, and voted on some other proposals.  Votes are based on the number of shares you own; since you only own one share, your vote is very small compared to some of the other stockholders. Besides voting, you are entitled to receive profit from the company, if the company chooses to pay this out in the form of dividends.  Apple's dividend for the last several quarters has been $0.52 per share, which means that you will likely receive 4 small checks from Apple each year. The value of the share of stock that you have changes daily.  Today, it is worth about $100.  You can sell this stock whenever you like; however, since you have a paper certificate, in order to sell this stock on the stock market, you would need to give your certificate to a stock broker before they can sell it for you. The broker will charge a fee to sell it for you.  Apple has a website for stockholders at investor.apple.com with some more information about owning Apple stock.  One of the things you'll find here is information on how to update your contact information, which you will want to do if you move, so that Apple can continue to send you your proxy materials and dividend checks. I took a look at their cash flow and they spent 3 billion buying back shares and another 3 billion just last year in capex.  That is 6 billion right there.  I'm not sure what that capex was supposed to buy but it appears they aren't getting much of a payoff. I was thinking that the value of the stock is the value of the stock...the actual number of shares really doesn't matter, but I'm not sure. You're correct.  Share price is meaningless.   Google is $700 per share, Apple is $100 per share, that doesn't say anything about either company and/or whether or not one is a better investment over the other. You should not evaluate an investment decision on price of a share.  Look at the books decide if the company is worth owning, then decide if it's worth owning at it's current price. Their argument is mostly nonsense. Take someone like Tim Cook, CEO of Apple. He has a not very large salary, and makes a lot more money through stock bonuses. You would never, ever expect him to buy Apple shares. And assuming that he doesn't want to end up one day as the richest man in the cemetery, you would expect him to sell significant numbers of shares, independent on whether he expects Apple to go up or down. "If you own 1% of a company, you are technically entitled to 1% of the current value and future profits of that company. However, you cannot, as you seem to imply, just decide at some point to take your ball and go home. You cannot call up the company and ask for 1% of their assets to be liquidated and given to you in cash. What the 1% stake in the company actually entitles you to is: 1% of total shareholder voting rights. Your ""aye"" or ""nay"" carries the weight of 1% of the total shareholder voting block. Doesn't sound like much, but when the average little guy has on the order of ten-millionths of a percentage point ownership of any big corporation, your one vote carries more weight than those of millions of single-share investors. 1% of future dividend payments made to shareholders. For every dollar the corporation makes in profits, and doesn't retain for future growth, you get a penny. Again, doesn't sound like much, but consider that the Simon property group, ranked #497 on the Fortune 500 list of the world's biggest companies by revenue, made $1.4 billion in profits last year. 1% of that, if the company divvied it all up, is $14 million. If you bought your 1% stake in March of 2009, you would have paid a paltry $83 million, and be earning roughly 16% on your initial investment annually just in dividends (to say nothing of the roughly 450% increase in stock price since that time, making the value of your holdings roughly $460 million; that does reduce your actual dividend yield to about 3% of holdings value). If this doesn't sound appealing, and you want out, you would sell your 1% stake. The price you would get for this total stake may or may not be 1% of the company's book value. This is for many reasons: Now, to answer your hypothetical: If Apple's stock, tomorrow, went from $420b market cap to zero, that would mean that the market unanimously thought, when they woke up tomorrow morning, that the company was all of a sudden absolutely worthless. In order to have this unanimous consent, the market must be thoroughly convinced, by looking at SEC filings of assets, liabilities and profits, listening to executive statements, etc that an investor wouldn't see even one penny returned of any cash investment made in this company's stock. That's impossible; the price of a share is based on what someone will pay to have it (or accept to be rid of it). Nobody ever just gives stock away for free on the trading floor, so even if they're selling 10 shares for a penny, they're selling it, and so the stock has a value ($0.001/share).  We can say, however, that a fall to ""effectively zero"" is possible, because they've happened. Enron, for instance, lost half its share value in just one week in mid-October as the scope of the accounting scandal started becoming evident. That was just the steepest part of an 18-month fall from $90/share in August '00, to just $0.12/share as of its bankruptcy filing in Dec '01; a 99.87% loss of value. Now, this is an extreme example, but it illustrates what would be necessary to get a stock to go all the way to zero (if indeed it ever really could). Enron's stock wasn't delisted until a month and a half after Enron's bankruptcy filing, it was done based on NYSE listing rules (the stock had been trading at less than a dollar for 30 days), and was still traded ""over the counter"" on the Pink Sheets after that point. Enron didn't divest all its assets until 2006, and the company still exists (though its mission is now to sue other companies that had a hand in the fraud, get the money and turn it around to Enron creditors). I don't know when it stopped becoming a publicly-traded company (if indeed it ever did), but as I said, there is always someone willing to buy a bunch of really cheap shares to try and game the market (buying shares reduces the number available for sale, reducing supply, increasing price, making the investor a lot of money assuming he can offload them quickly enough)." "As I understand it, a company raises money by sharing parts of it (""ownership"") to people who buy stocks from it.  It's not ""ownership"" in quotes, it's ownership in a non-ironic way.  You own part of the company.  If the company has 100 million shares outstanding you own 1/100,000,000th of it per share, it's small but you're an owner.  In most cases you also get to vote on company issues as a shareholder. (though non-voting shares are becoming a thing).  After the initial share offer, you're not buying your shares from the company, you're buying your shares from an owner of the company.  The company doesn't control the price of the shares or the shares themselves. I get that some stocks pay dividends, and that as these change the price of the stock may change accordingly. The company pays a dividend, not the stock.  The company is distributing earnings to it's owners your proportion of the earnings are equal to your proportion of ownership.  If you own a single share in the company referenced above you would get $1 in the case of a $100,000,000 dividend (1/100,000,000th of the dividend for your 1/100,000,000th ownership stake). I don't get why the price otherwise goes up or down (why demand changes) with earnings, and speculation on earnings.  Companies are generally valued based on what they will be worth in the future.   What do the prospects look like for this industry?  A company that only makes typewriters probably became less valuable as computers became more prolific.  Was a new law just passed that would hurt our ability to operate?  Did a new competitor enter the industry to force us to change prices in order to stay competitive?  If we have to charge less for our product, it stands to reason our earnings in the future will be similarly reduced.   So what if the company's making more money now than it did when I bought the share? Presumably the company would then be more valuable. None of that is filtered my way as a ""part owner"".  Yes it is, as a dividend; or in the case of a company not paying a dividend you're rewarded by an appreciating value. Why should the value of the shares change? A multitude of reasons generally revolving around the company's ability to profit in the future." In common with many companies, Microsoft has been engaging in share buyback programmes, where it buys its own shares in the market and then cancels them. It's often a more tax-efficient way to distribute profits to the shareholders than paying a dividend. So there were more Microsoft shares in circulation in 1999 than there are now. See here for information. Companies used to be bought up for creation capability or acquiring talent. Nowadays, they are being bought just for their patents. A lot of software companies are hoarding patents in case of a patent war.   We need something like the DVD or Blu-ray patent group for smartphones.