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Be wary of the stock buyback

The parent company of Google (Alphabet) recently issued a huge stock repurchase announcement, and the news was met with great applause from the general financial community (https://www.cnbc.com/2023/04/25/google-authorizes-70-billion-buyback.html). Readers who have followed my previous blog entries will likely be able to anticipate my reaction to that tidbit of news; general shock. How can a company such as Alphabet, with a mountain of revenue and profits, not pay a dividend to its shareholders?

The answer is actually quite simple. History rarely fails to repeat itself, so long as the generations who lived it fail to learn from it and pass along that knowledge to future generations. This sort of behavior is not new to the financial markets, as it has fueled many speculative bubbles throughout the past century. Taking a deeper dive into the data reported in financial statements to the SEC can shed some light into these tactics, and should give the general public at least the tools to make informed decisions as it pertains to their investments towards tech companies.

Here is a breakdown of the math by the numbers for 2022 annual reporting (10-K):

Revenues reported: $217,681,619,048
Payment for repurchase of stocks: $59,296,000,000
Percent of total revenues: 27.2%

Average shares outstanding 2020-2021: 668.5 million
Total outstanding Dec. 2022: 12.8 billion
Percent increase: 1,814.73%

Alphabet is by any stretch of the imagination a profitable company. Yet, with all that money coming in and repeated years of posting positive net income or profit loss, the board avoids paying shareholders with dividends, instead using much of the firm’s revenues to buy back its own shares, and thus create a pseudo demand for its common stock. The figures on just how diluted Alphabet’s stock has become very recently should be concerning. 1,814.73% increase in the amount of common stock outstanding. This is likely due to stock splits, along with new issues.

What Alphabet’s behavior indicates to me, is one of market manipulation and using current financial regulatory loopholes to boost or increase speculation of their stock price. If anyone should ask who does this benefit the most? That question has a simple solution as well; Alphabet executives, and board members who own majority stakes in the firm, or those whose compensation is based on stock price. Alphabet is not alone. I am nearly 100 percent positive, should any one actually dig a little deeper into the figures for many of the most popular (and should I say overpriced) tech companies listed on U.S. stock exchanges, they will likely encounter the same results.

Our regulators know this is speculative and detrimental to the financial system, yet no one will do anything about it. They are likely still over satiated with all the easy money the Federal Reserve poured into the financial markets since the last big bubble burst in 2008. Ultimately it is simply not sustainable, and like every house of cards, will eventually spell doom for many unsuspecting people with managed funds who are unaware of where their money is actually being placed into.

Written by:

1. Ron Stephenson

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Description: Alphabet revenues

Description: Alphabet stock repurchases

Description: Alphabet shares outstanding