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Google's 118 billion dollar problem!
Alphabet (Google’s parent company) has a major first world problem - It’s got 118 billion dollars worth of cash reserves, and it doesn’t know what to do with it.
You heard me.
Alphabet generated cash worth $29 billion in the last quarter, and this made its overall cash and short-term securities pile up to $118 billion!
“Ankur, how is this a problem” you may ask.
Well, here’s the thing - Investors hate companies that sit on piles of cash. The assumption is that any excess cash generated by companies is generally distributed as dividend to investors, or reinvested in other projects that can help the company grow. And Alphabet isn’t doing either.
So what is the tech giant planning to do?
Let’s get to that in a minute. First, let’s look at 2 other behemoths and how they utilise cash..
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Case in point #1: Apple
Apple generally has great cash flows. And typically, it either distributes the cash as dividend to the shareholders, or buys back shares from them at a premium - giving them a good ROI in either case. Check out the chart below to see how many shares Apple is constantly buying back from investors. The numbers are kinda crazy!
Apple bought back more than $80 billion in shares over the last 12 months — the most by any US company, according to Bloomberg.
And that’s how Apple manages cash.
Like I said - Crazy!
Now let’s look at another one..
Case in point #2: Microsoft
Similar to Apple, Microsoft also typically declares dividends or buys back shares. But last year, they used their cash to make a strategic investment - Microsoft bought a gaming company called Activision Blizzard Inc for $69 billion.
So what happens with Alphabet?
Well, Alphabet is not known to give dividends, and according to Bloomberg, an acquisition right now will have a lot of regulatory scrutiny (Microsoft’s gaming acquisition too hasn’t been very smooth sailing).
So both of these seem to be out of the picture.
Alphabet therefore, is most likely going to go for option 3 - Buying back shares from shareholders.
While some people feel that Alphabet should look at more strategic investments, right now, the easiest option is to buy back shares (and keep investors happy)
Who would have thought that having excess cash could also be a problem? Well, you can’t have your cake and eat it too, I guess?
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