Peak Corporate Earnings (?)

[woodburner]

One of the stories

It's what looks like a myopic view from an economist type. That companies get to a size then stabilise is not to be ridiculed. It would give the world circumstances in which it could operate for decades rather than relying on excessive expansion, often funded by acquisitions and asset stripping.

[johnhemming2]

There is some truth to some of this, but it is not as simple as a question as to where you store the data. The business logic remains key to "data processing". Some aspects are easier, some aspects are harder.

There remain stories about old cobol code needing the retired programmers to come in to change it. However, it is still really a question of business logic for many things although more and more is going to cloud storage.

However IBM do cloud as well.

Google, Facebook and DODGY TAX AVOIDERS have done a lot of work how how to store large amounts of data and the software is often available via an Apache style licence.

Hence the balance is somewhere in between the particular arguments.

[raspberry-blower]

Summing up why this thread was started in the first place

Wolf Richter: Despite Financial Engineering S & P 500 Earnings per Share Stagnant

Then there’s financial engineering. Companies borrowed heavily over the past few years and used those funds to purchase their own shares. This hollowed out equity and left companies with piles of debt. Over the past three years, companies blew $1.7 trillion on share buybacks. This money was not invested in productive activities that would have expanded the company and the economy, and generated cash flow to service this debt. All it did was reduce the number of shares outstanding. This has the effect of increasing earnings per share (EPS) though the company didn’t actually make more money.

Add this system of share buybacks to the system of “adjusting” earnings per share via reporting schemes, and the result should be a miracle of soaring “adjusted” EPS. But no.

All this accumulation of debt just to keep the Potemkin façade going - now the Fed has started raising rates this will eventually shatter this illusion

[raspberry-blower]

In another thread I said

Peak iPhone perhaps? Wink

Which brings me onto Apple and the latest Smartphone launch

Business Insider: Apple needs the next iPhone to solve a financial headache

The stakes for the next iPhone — and the expected iPhone 7s and iPhone 7s Plus upgrades — couldn't be higher. If Apple's new phones don't grow revenue, then the company as a whole doesn't grow. The task facing Apple is not trivial. As this chart from Deutsche Bank shows, the iPhone tends to grow more slowly than the smartphone market as a whole — and the smartphone market has flatlined. The next iPhone cycle needs to buck that trend:

So what happens if the latest iPhone doesn't buck that trend? A public that is maxed out on credit may not rush out for the latest smartphone in the same numbers as they did for earlier models.

[emordnilap]

It begs the question, why does it have to grow? The obvious answer is to feed the shareholders but Apple have been buying back shares big time.

So again, why does it have to grow? Possibly the most financially successfully company in the history of the world, it could afford to simply bob along with incremental 'improvements', stealing ideas from others.

In fact, it makes perfectly usable products which need not change significantly.

But apparently you're not allowed to not grow.

[Little John]

Debt based monetary systems preclude the possibility of steady state economic systems.

To not grow is to die.

[emordnilap]

Debt based monetary systems preclude the possibility of steady state economic systems.

To not grow is to die.

Is it that simple? I understand about the debt-based side of things and the fact that there is a mindset to overcome but, provided all things remain equivalent (inflation, price growth etc), is it possible to sell the same number of things per year and make the same amount of (inflation-adjusted) profit per year?

[kenneal - lagger]

Summing up why this thread was started in the first place

Wolf Richter: Despite Financial Engineering S & P 500 Earnings per Share Stagnant

Then there�s financial engineering. Companies borrowed heavily over the past few years and used those funds to purchase their own shares. This hollowed out equity and left companies with piles of debt. Over the past three years, companies blew $1.7 trillion on share buybacks. This money was not invested in productive activities that would have expanded the company and the economy, and generated cash flow to service this debt. All it did was reduce the number of shares outstanding. This has the effect of increasing earnings per share (EPS) though the company didn�t actually make more money.

Add this system of share buybacks to the system of �adjusting� earnings per share via reporting schemes, and the result should be a miracle of soaring �adjusted� EPS. But no.

All this accumulation of debt just to keep the Potemkin fa�ade going - now the Fed has started raising rates this will eventually shatter this illusion

Is it done to increase the earnings of the executives of the company, who all have share packages, rather than to boost the company overall? The executives can bale out and sell their shares in the short term while in the long term the company can go bust and they don't care!

[kenneal - lagger]

Debt based monetary systems preclude the possibility of steady state economic systems.

To not grow is to die.

Is it that simple? I understand about the debt-based side of things and the fact that there is a mindset to overcome but, provided all things remain equivalent (inflation, price growth etc), is it possible to sell the same number of things per year and make the same amount of (inflation-adjusted) profit per year?

Things are generally getting cheaper year on year so the company has to sell more to keep up its income.

[emordnilap]

Debt based monetary systems preclude the possibility of steady state economic systems.

To not grow is to die.

Is it that simple? I understand about the debt-based side of things and the fact that there is a mindset to overcome but, provided all things remain equivalent (inflation, price growth etc), is it possible to sell the same number of things per year and make the same amount of (inflation-adjusted) profit per year?

Things are generally getting cheaper year on year so the company has to sell more to keep up its income.

True.

[raspberry-blower]

It begs the question, why does it have to grow? The obvious answer is to feed the shareholders but Apple have been buying back shares big time.

Therein lies the answer to your question Emo. Spending large amounts on share buybacks rather than into R & D indicates that Apple thinks it has got as far it can get and that future developments are tweaking of its current systems.
What needs to be considered is what price was paid and did Apple overpay for it? At the height of the share buyback craze, Apple was estimated to have spent $56 billion in 2014

Fortune last year ran an article entitled: Apple wasted Billions on Buybacks

For the past nine quarters, from September 30, 2013 to year-end 2015 (its fiscal 2016 first quarter), Apple bought back 760 million shares, lowering the count from 6.3 billion to 5.54 billion, a reduction of 12.1%. The program cost a total of $87.2 billion. Over those two-plus years, Apple paid an average of $115 for each share it retired.

At today's share price that would seem a smart move however appearances can be highly deceptive. Disappointing sales of the iPhone 8 could see this price plummet rapidly.

Then there is the issue of how it raised funds for these buybacks - it has been borrowing at virtually 0% interest. With the Fed's Yellen gradually raising interest rates this is going to kick in somewhere along the line.

Which, all in all, is a rather convoluted way of what LJ stated.

[oobers]

It begs the question, why does it have to grow? The obvious answer is to feed the shareholders but Apple have been buying back shares big time.

So again, why does it have to grow? Possibly the most financially successfully company in the history of the world, it could afford to simply bob along with incremental 'improvements', stealing ideas from others.

In fact, it makes perfectly usable products which need not change significantly.

But apparently you're not allowed to not grow.

We were asking the same question in our shop today. One of our stocked products, Pukka teas are selling out to Unilever. Why do ethical brands sell out? Presumably, they seek investment to grow the business. But why don't more of them conclude the ethical thing to do is to maintain steady revenue to meet steady costs? Is it that customers get bored of brands that stay still, and so revenue drops off?

[kenneal - lagger]

We have found over the years that we have to constantly renew our customer base to keep sales standing still. If you're a local supplier some customers move away or their circumstances change and they are lost to you. There are a lot of "fad" buyers who try something because it's "cool" and then get bored and drift off to the next new thing.

When you get near retirement an offer you can't refuse from a large company is very tempting indeed!

[fuzzy]

Small business in the UK is permanently insecure. I guess if someone allows you to retire rich at 50, I would take it.

I think there should be very few business transfers allowed under UK law. A public retail business that is sold to a completely different source is basically legal fraud, requiring people not to notice differences until they have purchased. It is basically the same model as a multinational company - you can provide a poor product until 7 billion new customers have all tried it and moved elsewhere.

[emordnilap]

Is it that customers get bored of brands that stay still, and so revenue drops off?

Ordinary customers, possibly.

The number of products/brands that we personally have stopped purchasing because of buyouts by multinationals is as long as your arm. Add Pukka to that list now, of course, though they had little that interested us.

A multinational acquiring a previously ethical brand does not confer ethics automatically upon the parent company but most corporations - and apparently some consumers - seem to think so.