DIOTD: Apple Paying a Cash Dividend to Shareholders!? Here's a Better Plan for $70B

[ Tim Cook, after Macworld Expo 2009 keynote. Courtesy of Valery Marchive via creative commons license. ]

By Jason Calacanis

The award for “dumb idea of the day” goes to Morgan Stanley analyst Katy Huberty for lobbying Apple to pay a cash dividend to shareholders. 

With over $70B in cash on hand, and massive profits piling up at a rate of around $6B a quarter, it makes sense that short-term greedy analysts would want a quick pay day. 

However, there are three important things to keep in mind:

1. Despite its massive share of smart phone profits, at 51%, Apple is facing stiff competition from Google’s Android operating system, which has grown from a cold start in 2008 to 48% market share today. 

2. Windows-based computers are still outselling Apple computers nine to one. 

3. Microsoft started paying a dividend in January 2003 and its stock was priced at $24 a share eight years ago (post 2-for-1 split from $48 to $24) and is now trading at $27. Apple’s shares and market cap during the same, non-dividend-paying period, grew from $7 to $384 -- which includes a 2-for-1 split from $89 to $44 in February 2005 -- and $5.14B to $355B. 

If Apple is looking for something to do with its massive amount of cash, here are a couple of really compelling ideas other than giving it back:

a) Give an educational discount of 60% on the iPad. This would take the $499 iPad down to $200, which is about $100 less than Apple's cost. At that price it would sell like hotcakes. Let’s say Apple sells 100M iPads like this, it would cost them $10B (100M  iPads x  $100 loss = $10B). I’d LOVE to see Apple have 100M tablets in the market (they sold more than nine million in Q3 and there are now more than 28M). This would be a massive, bold move to lock up the most important space in computing today: tablets. Apple should lean into it this trend even more.   

b) Give App developers 100% share of app revenue in 2012 (instead of just 70%). Apple is expected to reach $2B in gross app sales in 2011, which means this would only cost Apple $600M a year. It would also “double moat” Apple from competitors like Google which charges developers 30%.

c) Pull a Gmail circa 2005 and offer a Dropbox-like service with 50 gigs for free to every single Apple computer user. Increase that space every day by 10MB to 100MB. More than 19M Apple computers have been sold in the past year--and 4.5M this quarter according to analysts! Let’s just say there are 100M active Apple computers out there connected to the Internet. If providing 50 gigs of storage costs Dropbox $60 a year (they charge $10 a month), and Apple gets 50% of its users to adopt the product, that would cost only $3B a year (50 million users x $60 a year). 

d) Buy Boingo Wireless, expand its footprint and make free Apple Boingo Hotspots around the world. Can you imagine if Apple had 325K free hotspots around the world, including airports like JFK, SFO and Heathrow? Well, if they bought Boingo for 2x its struggling stock price it would cost them a “whopping” $556M. If Apple tripled Boingo’s spending of about $82M a year it would cost them $246M a year. Screw it, go 10x+ Boingo’s spend and spend $1B a year offing free wifi everywhere to all Apple users (give low-speed 56k to non-Apple users just to eff with them). 

e) Dump $10B a year into making a search engine. Insane, I know, but if Google is going make a free mobile OS to f#$k with Apple, Apple should launch an advertising-free search engine to f@#$k with Google. Take a flier.


Apple is winning a lot of battles, but it has not won the war. Now isn’t the time for Apple to give every shareholder an iPhone charger or iPad case (in cash) for every share they own. Now is the time for Apple to build its market share to the point where no one can catch up.

Hey, suit@morganstanley.com, there is a reason you’re an analyst at Morgan Stanley and not running a technology company. Seriously, save the bad advice for baby boomers whose retirement you flushed over the past decade.  


best, Jason

* I feel like writing every day again. What happened?!?! :-p