What to Expect From Apple’s ESPP
Apple is one of the largest companies in the world and operates much differently than other, flashier tech companies in Silicon Valley. Apple prides itself on frugality and even though it doesn’t provide super unique, off-the-wall benefits, Apple’s ESPP provides a steady opportunity for employees to save money and grow their wealth.
The purpose of this article is to review Apple’s ESPP structure, its past performance, and what you can expect from participating in it.
Since this article specifically focuses on Apple’s ESPP, it will not cover the details of what ESPPs are. So if you’re looking for a quick refresher on ESPP Basics, please read our previous articles “How Much You Should Contribute to Your ESPP” and “When Should You Sell ESPP Shares.”
Apple’s ESPP Purchase Period
A purchase period is the time in which employees participating in Apple’s ESPP set money aside from each paycheck from the beginning of that purchase period through its end. At the end of this purchase period, the money that has been set aside is used to purchase company stock at a discount.
The most common purchase period is 6 months, and in this regard Apple sticks to the norm. Apple currently offers a 6 month purchase period for those participating in its ESPP.
Apple’s ESPP Offering Period
An offering period is the period of time that the company allows its employees to purchase company stock. The offering period is usually the same length as the purchase period, but it can be longer if the company wants to provide a bigger benefit to its employees. For example, Salesforce offers a 12-month offering period and Adobe offers a 24-month offering period.
Apple’s offering period is 6 months, starting in February and August of any given year.
Here’s an illustration to help show what it looks like:
Apple’s ESPP Discount
The biggest reason to contribute to an ESPP is that there’s usually a discount given for employees purchasing stock. Typically discounts in ESPPs range from 5% up to 15%.
The majority of tech companies offer the maximum discount here, and Apple does too. Apple’s ESPP offers employees a 15% discount on Apple stock.
This may not seem like that great of a benefit, but the reality is that you can receive a value much greater than just that 15%. This will become clear later when we describe the performance of Apple’s ESPP.
Apple’s ESPP Lookback
An ESPP lookback happens when the company applies a 15% discount to either the price per share at the end of the purchase period or to the price per share at the beginning of the offering period - whichever is cheaper.
This is when the ESPP becomes really appealing as the discount can actually be much greater than that 15%. To illustrate: If Apple’s stock price goes up consistently over 6 months, ESPP participants are able to buy shares at the low point price from month 1 rather than month 6 and get shares at the 15% discount!
As you will see when we show you examples of the performance of Apple’s ESPP, this lookback feature is one of the major drivers of large returns.
Apple’s ESPP Contribution Limits
The IRS limits what you can contribute to an ESPP and that limit is $25k per year. With the 15% discount that Apple gives, the real limit is actually $21,250. If you want to learn more about the calculation, please read our ESPP Basics article.
Employers will also limit how much of your salary you can contribute to the ESPP. Apple allows its employees to contribute up to 10% of their salary. There are other companies that offer larger limits (ideally, you’d be able to put in up to 20% or 25% of your salary), but most companies offer around 10%.
Another limiting factor is that the maximum number of shares that can be purchased is based on the share value at the beginning of the offering period. For example, if Apple's share price is $150 at the beginning of an offering period, then the maximum amount of shares you’d be able to buy during the offering period is 166 shares of Apple (AAPL) stock.
Apple’s ESPP Fractional Share Purchasing
Fractional share purchasing enables ESPP participants to purchase pieces of shares rather than only whole shares. This is a benefit that more and more tech companies are starting to offer, but most companies haven’t adopted it yet.
Currently, Apple’s ESPP does not offer fractional share purchasing (which is certainly a bummer since Apple is currently trading at ~$190 a share).
This means that if you saved $370 to purchase shares through Apple’s ESPP, you’d only be able to purchase 1 share of AAPL. The money that doesn’t get used will either roll over to the next purchase period or be refunded to you.
The main reason a lot of companies do not offer fractional share purchasing is that it’s a bit of an administrative headache, but as company share prices increase, allowing fractional share purchasing becomes more and more attractive.
Managing Apple ESPP Equity
A unique challenge of holding a lot of Apple stock is that Apple is a large component of most large US investment funds.
For example, within your 401(k) through Apple, you’ll have options to invest in a variety of funds, and those funds often hold a lot of Apple stock.
FXAIX, an S&P 500 index fund, holds 6% of assets in Apple. If that’s your only holding within your 401(k) it’s easy to calculate how much Apple you have in that 401(k). But if you have Target Date funds, depending on which fund it is, it can be trickier to calculate.
For example, if you hold FDEEX a Fidelity 2055 Target Date fund, there are multiple funds within that Target Date group that hold Apple. It can take some work to determine the exact percentage of Apple you own. (If you need help with this, we’re happy to assist.)
You don’t necessarily have to know exactly how much Apple you’re holding in every single account, but your decision-making about how much Apple stock to keep may change if you’re already buying Apple stock in your 401(k) or other investments accounts.
We recommend reading our article “How Company Stock is Too Much” to help you get a better sense of how much Apple stock you should keep on the table.
Apple’s ESPP Performance Over the Last Year, 2 Years, and 5 Years
Now that we’ve covered Apple’s ESPP’s structure, it’s time to detail how much money you would have made by maxing out your Apple ESPP.
To illustrate, we’ll look back at Apple performance over the last year, 2 years, and 5 years. Since Apple doesn’t offer fractional share purchasing, for this illustration, we’ve decided to round down the number of shares purchased at the end of each purchase period to the nearest whole share. So if you had enough money to purchase 70.85 shares at the end of a period, we’ll assume that you purchased 70 shares.
Within every performance period, we’re assuming that no shares of Apple stock are sold.
Apple’s ESPP 1-Year Performance (8/1/2022 to 7/31/2023)
Apple has been one of the better-performing stocks over the last several years, and especially over the last year. As you could expect, Apple’s ESPP performed exceptionally well.
Apple employees who began contributing to the ESPP in August of 2022 saw fantastic 1-year gains.
Participants were able to use their $21,250 in contributions to purchase 172 shares of Apple stock. The total value of those 172 shares on 7/31/2023 was worth $33,789 and of that $33,789, $12,539 would be gains.
Even if participants didn’t manage to max out their ESPPs, the percentage gain would be the same. And a 59.01% gain is about as good as it gets over one year. (This data is just a summary. If you want to take a look at the full data set, we’ve provided a screenshot of the data here.)
Apple’s ESPP 2-Year Performance (8/2/2021 to 7/31/2023)
If you track stock values, you already know that Apple stock values have performed very well over the last two years, but here’s what it would look like for employees participating in Apple’s ESPP.
Given that Apple’s stock price has basically risen over the last two years, it makes sense that its 2-year performance looks even better than its 1-year performance.
Participants in Apple’s ESPP that maxed out their contributions over the 2-year period were able to purchase 335 shares of Apple stock would have ended the year with over $23k in gains. The percentage gain on those ESPP contributions would be almost 55%.
If you want to review the full data set, we’ve provided a screenshot here. You can also take a look at the image below:
Now that we’ve examined two years of data, let’s look at one of the main drivers of Apple’s ESPP performance and how it potentially might have even been better.
Apple’s ESPP Lookback and ESPP Discount
In the full details above you can see that there are four offering periods and four purchase periods. In every single offering period, ESPP participants were able to buy Apple shares at the lower price between the beginning and the end of the offering period. Here’s what that looked like.
Offering Period #4 applied the 15% discount to $145.01, or $123.26
Offering Period #3 applied the 15% discount to $143.87, or $122.29
Offering Period #2 applied the 15% discount to $161.55, or $137.32
Offering Period #1 applied the 15% discount to $143.83, or $122.26
Looking at all of these offering periods, you’ll see the last two years have been pretty steady (though it hasn’t felt that way!) The lookback really helps curb any volatility you might see in the short-term with Apple’s stock price.
One challenge of looking back at Apple performance is that it’s hard to predict what past performance will mean for the future of Apple’s share price going forward. It’s unlikely that you can continue to expect performance this spectacular. Still, it’s reassuring that as an Apple ESPP participant, you’ll be able to lock in your ESPP discount.
Apple’s ESPP 5-Year Performance (8/1/2018 to 7/31/2023)
Now let’s take a look at Apple’s ESPP performance over the last 5 years.
As we lengthen the time period, the returns get even bigger since Apple’s stock price has moved so dramatically.
Apple ESPP participants who contributed for the 5-year time period ended up purchasing 1,581 shares of Apple stock and finished with a gain of $204,337... a total percentage gain of 192.32%! This massive return on investment is pretty spectacular.
Here’s a link for the entire data set, and here’s an image of it:
We recognize that 10 different offering periods and 10 different purchase periods is a lot to review. So for each of the offering periods, pay particular attention to the “Price to be Discounted” and the “Discount Price” to see exactly at which price employees were able to purchase shares during each offering period.
What you’ll find is that typically Apple’s ESPP participants will see much greater returns than just the 15% discount.
The Biggest Limitation to Apple’s ESPP
Obviously, Apple’s ESPP is great and has experienced returns that are about as good as it gets. However, the one area that might limit your ability to fully take advantage of your Apple ESPP is the requirement limiting your purchase to 10% of your salary.
This means that in order to fully take advantage of Apple’s ESPP, an employee would need to be above the $200k salary threshold. Of course, we aren’t in a position to tell Apple how to manage their ESPP, but having worked with many Apple employees, we can confidently say that a higher threshold for ESPP contributions would be very much appreciated by Apple’s ESPP participants.
Final Thoughts on Apple’s ESPP
Participants in Apple’s ESPP over the last 5 years plus have been well-rewarded for their contributions. Although we can’t predict what Apple stock will do in the future, if you work at Apple or are planning to work there someday, we recommend that you max out your ESPP as soon as you’re able. Once you’ve started participating, we recommend making a plan for what you want to do with all the shares.
In this article, we discussed a few ideas to help you better manage your Apple equity, but as we’ve done in other articles, we also want to emphasize again that you should carefully consider how Apple’s ESPP increases your overall exposure to Apple performance (good and bad).
EquityFTW has now published articles analyzing the ESPPs at Apple, Salesforce, and Adobe. We’ll continue to examine ESPPs offered by other tech companies. Please note that if we haven’t yet specifically addressed the ESPPs of the company you work for, it’s still likely a good idea to max out your ESPP participation.
If you have any questions about the recommendations we’ve made in this article or want to ping us about something unrelated, you’re welcome to reach out to us at team@equityftw.com.