Aramco beats Apple with $1.7 trillion valuation

Saudi Aramco pricing of its long-awaited IPO raising $25.6 billion gives the energy giant a valuation of $1.7 trillion.

When its shares start trading next week, Aramco will become the world’s largest listed firm by market capitalization.

It will easily beat Apple whose market cap was some US$1.18 trillion on Friday.

It is the world’s biggest stock sale at 32 riyals ($8.53) per share, surpassing the $25 billion by Chinese retail giant Alibaba when it debuted on Wall Street in 2014.

But the oversubscribed sale of 1.5 per cent by 4.65 times is a scaled-down version.

Aramco had announced a blockbuster IPO which did not happen amid fears and uncertainties.

Crown Prince Mohammed bin Salman planned to raise almost $100 billion from the sale of up to five per cent of the company in 2016.

The idea was to overhaul the country’s economy and invest the proceeds in non-energy industries. Aramco is the main income provider for the Saudis.


In a statement on Friday, the Saudi Stock Exchange, Tadawul said Saudi Aramco’s shares will be listed and start trading on the main market of the Saudi oil exchange on Wednesday, December 11, the Saudi Stock Exchange, Tadawul, said in a statement on Friday.

The valuation is still US$300 billion short of the coveted US$2-trillion valuation that Mohammed bin Salman has sought for years. = window.adsbygoogle || []).push({});

Banks play catch-up after Apple Card launch

The Apple Card changes the game in the digital finance sphere

Banks are playing catch-up after Apple Card launch with the adoption of Ondot systems which unlocks similar digital experiences.

That is because Apple Card redefines the card user experience around simplicity, transparency and privacy.

Ondot Systems unlocks these capabilities for banks and credit unions of all sizes,” says the company in a media release.

Apple is an established leader in simplifying user experiences. With its card, it put a stake in the ground for what a card experience should look like.

However, the Apple Card experience is heavily integrated into the Apple Pay app. With it, they are able to make using and managing a card faster, easier and more transparent.

But Ondot Systems, another Silicon Valley player, just 8 miles up the road from Apple, is making Apple Card style user experiences available to banks and credit unions of all sizes.

Over 4,000 financial institutions use Ondot’s mobile card controls and alerts.

Furthermore, the company announced a suite of products to offer simplicity, transparency and control to all cardholders.

Whether they’re on iPhone or Android, Debit or Credit, Visa or Mastercard, it’s simple to use.


On top of that, it has quick-to-market cloud implementation and white label apps. Leveraging Ondot’s existing real-time payment rails, financial institutions can be up and running in a matter of weeks.

<<It’s no surprise Apple focused on that feature so heavily during the Apple Card launch event,” says Vaduvur Bharghavan, Ondot’s CEO>>

“In our research, that feature is wildly popular with cardholders. For banks, it’s really an opportunity to take a moment of frustration for customers. As a matter of fact, they can turn it into a moment of confidence.

“Even better, banks can save money because customers can contact the merchant directly. They do not have to call customer service and file a dispute.”

Apple record share buy back indicates belief of investors undervaluation by investors

That fact that Apple is still buying back shares–at a pace even faster than before–indicates that it still thinks it is dramatically undervalued by investors.

Apple spent an astounding $23.5 billion on stock repurchase, more than twice its recent pace.

Since 2012, Apple has spent a total of $199.6 billion in share buybacks. Over the past two and a half years, it has paid between $6 and $11 billion per quarter on both open market and Accelerated Share Repurchase programs to buy its back stock.

In the most recent quarter, however, Apple spent an astounding $23.5 billion on stock repurchase, more than twice its recent pace, said Apple Insider.

Apple’s $23.5 billion stock repurchase–in a single quarter–is nearly 8 times the size of its largest-ever acquisition (Beats) and more than twice the size of Google’s acquisition of Motorola Mobility.

It’s close to the IPO valuation of Spotify or Microsoft’s massive acquisition of LinkedIn–albeit was quietly performed without any lengthy regulatory approvals or the layoffs of redundant talent. And unlike Beats, Motorola, Spotify or LinkedIn, Apple’s acquisition target is actually profitable.

Apple’s buybacks are not only reducing its outstanding share count but are also erasing the doubters among its shareholders, effectively reducing the volatility in its share price.

Despite massive buybacks, Apple still has a huge pile of cash for global investment

Due to tax laws, Apple has been using much of its domestic U.S. cash flow to finance stock buybacks and dividend payments. To tap into its foreign earnings, it also began issuing bonds at extremely low interest rates around the world. It no longer needs to do this. 

The company currently holds $267 billion in cash reserves overseas and $122 billion in total debt. Subtracted from cash holdings, this means Apple has $145 billion in liquid assets apart from the more than $10 billion in free cash flow it generates every quarter.

US$750 billion is coming to Apple shareholders

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A whopping US$750 billion is set to be part of Apple’s capital return program to its shareholders.

With so much cash, Apple shareholders can have their cake and eat it too, said Gary Morton.

A proposal for a 50% increase in dividend (2018) and 15% annual increases over the planning horizon went viral.

It was seen as the most controversial among the proposals made by the analyst in Seeking Alpha.

In short, this will be the largest return of capital in history is coming to Apple shareholders, says Morton.
Many believe Apple’s dividends should only rise slowly with most of the funds going into share repurchases.

Others recommend massive dividends or even special dividends. But a balanced approach actually maximizes the benefits for the buyback advocates and for dividend enthusiasts.

The question asked by the writer is: How should Apple return US$750 billion?

Among the proposals on how would Apple do that are buybacks vs dividends. Buyback enthusiast’s advocates for the funneling of the vast majority of the cash into buybacks.

The writer propsed a balanced approach in his model (large buyback and substantial dividend increases) which he said meets every shareholder’s needs better than a low dividend, spruced up buyback approach.

Balance is Best

Abias toward greater buybacks is usually not more beneficial for generating long term shareholder value. Paying dividends allows shareholders to decide on the use of their cash.

“Those who want long term appreciation can reinvest and, in most situations, gain a slightly greater return than if the company repurchased shares.

“This is true even after paying taxes on the dividends. Other arguments for over-emphasizing buybacks over dividends generally fail against the dividend reinvestment option. There are also legal and practical limits to consider with large share repurchases,” wrote Morton.

However, says Morton, the benefit of dividends over buybacks has limits as well.
Inconsistent or declining dividends blow up the valuation models and similarly turn the tables on buyback vs dividend analyses.
There is a sweet spot for dividends to maximize shareholder flexibility and return. With Apple’s new-found access to all the cash on its balance sheet and future cash flows, the company is currently below that sweet spot.
“A balanced approach (50% increase in 2018 and 15% annual increases for future years) proposed in my previous article would get the dividends into the sweet zone.
“This approach also includes the most massive share buyback program in history. You can have your cake and eat it too,” said Morton.

Samsung’s leadership vacuum may change the game or not!

WITH the flurry of accusations that weighed on Samsung Electronics and the sensational jailing of the boss of one of the world’s biggest conglomerate’s, things are about to heat up on the mobile horizon.

This may give Apple an edge but the Cupertino-based tech giant is surely hoping that it could bank on the leadership vacuum at Samsung to run over the South Korean giant.

The battle between the two global entities took shape with Samsung’s challenge to Apple’s domination in the smartphone segment.

But it took a nasty turn when Samsung had to retrieve and totally eliminate its flagship Note 7 from its sales force, leaving a dent in its competition against the iPhone range of products.

While Apple was missing out on the cheaper range of phones — it failed to push the iPhone 5s against the cheaper Samsung models — the South Korean company had its limitations too.

Samsung was largely missing out what could be the most important aspects of the mobile business: that is apps and online services.

It will take some time for the mobile maker to reach the level of Apple, but in the mobile industry, a quarter can be too long although Apple is still making strides in this aspect of the business.

But the jailing of Samsung Electronics vice chairman Lee Jae-yong could be a game changer in the mobile industry’s constant battle to better the each other.

Despite the South Koreans playing down the importance of the jailing, and some leniency is expected in the appeal process, this event may impact on the company’s mobile entity.

At some point, Samsung’s boss decided to rush the Note 7 ahead of the iPhone 7, but when it backfired — literally exploding — and sparking viral memes on social media, sketchy reports of the timeline to get Note 7 to the market before Apple showed how things went bad.

It was a question of leadership failure right at the top of the organisation with reports on how the mobile division was pushed to the brink, and how quality control was rushed in order to beat Apple to the game.

The orders, it is said, came from the big boss and if it is true, it would show the limitations of Samsung’s leadership structure, where a powerful owner can brush aside the rest of the board members to impose his will.

This came at a time when Samsung was losing ground to cheaper brands like Huawei and others.

The disaster was amplified with the Note 7 recall that was replaced by another version that again, backfired when they caught fire too.

In this long-running battles of the tech giant’s between Apple and Samsung, it has always been about the showing-off which technology and which end-products are better.

This could see an ugly ending for Samsung in its tech-price-configuration war against Apple, but analysts are cautious on Apple’s chances.

What has happened to Lee Jae-yong is a terrible adventure, one that would not be wished on any young and dynamic corporate leader, but there is a price to pay for every wrong move made.

And in South Korea, the case became a matter of national pride and justice, in which the right punishment had to be meted against the accused.

Samsung remains one of Asia’s largest conglomerate and it was running with a “business-as-usual” tag in the backdrop while the case against its de-facto leader was ongoing.

The latter was jailed since February and was on trial for charges ranging from embezzlement to perjury, in a scandal that gripped the country for months.

The ouster of former president Park Geun-hye is tied to the case in many ways, as it is the bribing of Park that triggered the downfall of Samsung’s de-facto boss.

But the Samsung boss — before the judgment — fought back tears and denied wrongdoing.

While analysts and economists are certain the case will spark reforms in the country’s giant conglomerates, forcing them to loosen their grip on the economy, the push will keep Samsung busy.

The company will probably be forced to deal with any transformation plans that will be rolled out by the authorities — plans that will be devised to curtail the conglomerate’s financial influence over the political system.

This will mean putting more resources in non-profit driven enterprises that may set the company back in the competitive marketplace.

Will Apple press forward on the double embarrassment the South Korean company has suffered or will it falter with product choices that initially gave Samsung an edge in capturing more market share?

The September release of the new Apple products with the latest software upgrades could indeed spark a rally for the American mobile maker or it could simply be business as usual for world’s most expensive conglomerate?

Kazi Mahmood is Malay Mail business news editor. This article first appeared in Malay Mail Money print version!