Buyback season isn’t over for all big tech firms

Share repurchases by major companies have been cooling, but tech giants like Google and Facebook have good reason to keep buying.

  • By Dan Gallagher,
  • The Wall Street Journal
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While some big tech companies are cooling their buyback activity, others are just getting started.

The second quarter saw a prodigious drop in stock repurchases, according to data from S&P Dow Jones Indices. S&P 500 companies spent about $166 billion on buybacks in the period—down 20% from the first quarter and a 13% decline from the same period a year earlier. A drop in spending by tech giants Apple (AAPL), Oracle (ORCL) and Cisco (CSCO) played a major role. The three spent a combined $29.4 billion in their most recent fiscal quarters, down 26% from the previous period.

Those three had been particularly heavy buyers, spending well in excess of their free cash flow. So their slowdown comes as no surprise. But the tech industry has other deep-pocketed companies with both the means and motivation to keep spending.

Take Microsoft (MSFT), which spent $19.5 billion on share repurchases in its fiscal year ended in June, according to S&P Global Market Intelligence. That is the most the software giant has spent on buybacks in more than a decade, though it was also barely half of the company’s free cash flow for the year. It was also not terribly far from established pattern. Microsoft’s buybacks have averaged about 45% of free cash flow over the previous five years. And even the recently elevated pace of returns hasn’t hurt the company’s ability to drop record amounts on R&D and capital expenditures in the most recent fiscal year.

When it comes to internet giants Facebook (FB) and Alphabet (GOOG), the parent company of Google, are both relatively new to the buyback game. They both also face growing pressure from regulators and lawmakers that could ultimately result in long-term challenges to their business models. Those pressures have—at various times over the last 18 months—weighed heavily on both stocks.

Alphabet in particular has felt the heat, with its stock lagging behind other Big Techs as well as the broader market this year. Some of that is due to a slowdown earlier this year in Google’s core advertising business. However, the company’s most recent results reflected some improvement there, and Alphabet also took the occasion to add $25 billion to its buyback program. Google bought very little of its own stock before 2016, but the company sits on a mountain of more than $113 billion in cash and generates more than $27 billion in free cash flow annually.

Facebook is even newer at buybacks, having only started in 2017. Repurchases totaled about $12 billion for the 12 months through June, up 18% from the same period a year ago, according to data from S&P Global Market Intelligence. Facebook also has about $45 billion in cash on its books and generates more than $5 billion in free cash flow per quarter.

Buybacks alone won’t spare Google and Facebook from more political heat. But returning cash to investors is still a good call for companies that have sat on it for far too long.

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