Apple’s Huge Buyback Will Need to Come With Blowout Earnings

(Bloomberg) — A massive buyback may not be enough for Apple Inc. investors amid the worst month for big tech since the global financial crisis. The market’s reaction to Alphabet Inc.’s report shows it will also need blowout earnings.

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Seen as a safe haven within the FAANG cohort, Apple is expected to announce a share buyback program of as much as $90 billion when it unveils its quarterly results after the close on Thursday.

But that alone may not be enough to buoy the stock. Shares in Google’s parent company fell in premarket trading on Wednesday, even after the company announced a $70 billion buyback of Class A and Class C shares. Investors focused instead on a quarterly earnings per share miss, slower ad sales in Europe and a lackluster performance for YouTube.

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For Apple, buybacks have become a central part of the investment case, and are especially important during turbulent times for technology stocks. Investors like repurchase programs as they reduce a company’s share count and thereby provide a lift to earnings.

“Apple’s free cash flow and buybacks have definitely supported the company to a larger degree than its peers,” said Bob Shea, chief investment officer at Trim Tabs Asset Management. “Everything is coming under pressure right now, and investors are looking for names with high-quality and sustainable free-cash-flow profitability. Apple is at the top of that list.”

But with expectations for a huge buyback potentially already baked in, Bernstein analyst Toni Sacconaghi says investors are likely to be most focused on the iPhone maker’s outlook. Apple faces several emerging headwinds, including lockdowns in China impacting its suppliers, the company’s withdrawal from Russia, dollar appreciation and a squeeze on consumers in Europe, he said.

“While Apple’s ongoing buyback has the potential to drive solid EPS growth, we believe that Apple’s multiple will be most shaped by its top line growth, which we think is likely to be low-to-mid single digits over time,” he wrote.

Still, a buyback topping the $90 billion announced last April could boost the stock. “There is plenty of firepower for capital returns to accelerate,” according to Evercore ISI analyst Amit Daryanani. “Capital returns remain central to the Apple bull thesis, so a better-than-expected authorization could contribute to some post-earnings upside.”

Tech investors could certainly use some good news. The Nasdaq 100 has tumbled 12% in April through Tuesday, the most in a month since 2008, amid disappointing results from Netflix Inc. and as investors sour on growth stocks in an environment of rising interest rates and geopolitical tensions. Apple itself is down 11% in April, on pace for their worst month since February 2020.

The next big datapoint comes from Meta Platforms Inc., which is reporting after the close today. The Facebook parent was among the most high-profile disappointments of the last earnings season, plunging 26% after results showed slowing user growth. After Alphabet’s comments about a pullback in ad spend in Europe since Russia’s invasion of Ukraine, investors will also be focused on Meta’s ad revenue in that region.

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Meta’s market value fell below $500 billion for the first time in about two years ahead of results. The post-results plunge in February erased about $251.3 billion in market value — the biggest one-day wipeout for any U.S. company ever — and the stock has not recovered since.