What Apple Can't Buy -- Heard on the Street

By Dan GallagherFeaturesDow Jones Newswires

In the case of Apple Inc.'s growing cash hoard, there is actually less than meets the eye.

It is a point worth keeping in mind, as Apple's fiscal second-quarter results from late Tuesday once again leave investors awe-struck at its ability to pad its coffers. The company's total cash balance, including cash equivalents and long-term securities, rose to $256.8 billion by the end of the fiscal second quarter. That is a gain of $10.8 billion in just three months.

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However, the company's debt load rose by $11 billion in the same period. Debt is how Apple finances its share buybacks and dividend, essentially borrowing against its huge overseas bank account to finance cash return to shareholders at home. That has transformed the company's balance sheet significantly. In four years, Apple has gone from zero to nearly $100 billion in total debt. And it will keep rising; Apple increased its total cash-return program by 20% on Tuesday.

That still leaves a lot to play around with. Net of debt, Apple now sits on $158.3 billion. That would be enough to buy Netflix or Tesla with suitable takeout premiums, to address some of the more recent fantasy matchups. Disney, alas, is currently valued at $181 billion. It is worth reminding that Apple has never done a deal for more than $3 billion, and that was for a nascent music service that also sold overpriced headphones.

Of course, because 93% of Apple's cash remains offshore, any such speculation is just that until President Trump and Congress actually pass some version of tax reform that includes a break on repatriating foreign funds. Investors who are betting that Apple will use its cash to do something dramatic are essentially betting on progress in Washington. Their cash may be stranded just like Apple's.

Write to Dan Gallagher at dan.gallagher@wsj.com

(END) Dow Jones Newswires

May 03, 2017 09:46 ET (13:46 GMT)