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After cutting thousands of jobs and reducing some operating costs, Alphabet (GOOGL) generated nearly $29 billion of cash in the second quarter. That left the company with cash and short-term marketable securities of about $118 billion, more than any other company in the Nasdaq 100 Stock Index ($IUXX) (QQQ) aside from Apple’s (AAPL) total of about $167 billion. Investors are awaiting any detailed plans the company has for its massive cash influx.
Investors expect companies sitting on large amounts of cash to invest the funds for better returns or give the cash back to shareholders. While Apple gives back most of its excess cash to shareholders via stock buybacks and dividends, Alphabet has a less clearly defined strategy, leaving investors wondering about its reinvestment plans. Synovus Trust said, “Investors haven’t really had to address this issue with Alphabet in the past because they haven’t been as prolific with generating this kind of cash.”
According to data from Bloomberg, the top three cash generators in the Nasdaq 100 Stock Index, Alphabet, Apple, and Microsoft (MSFT), have generated a combined $84 billion in Q2, the biggest increase for any such non-holiday period in history. In April, Alphabet boosted its stock buybacks and expanded its repurchase authorization to $70 billion. However, last quarter, the company spent $15 billion on its shares, barely half the cash it brought in.
Alphabet doesn’t pay a dividend like Apple and Microsoft. Also, Alphabet has shied away from making acquisitions, like Microsoft, which agreed to pay $69 billion for Activision Blizzard last year. Last month, Alphabet said Ruth Porat, who has served as chief financial officer since 2015, will assume a newly created role of president and chief investment officer. She has yet to announce the company's new reinvestment plans for its excess cash.
Stock buybacks are the most popular tool being implemented to return cash to shareholders at big technology companies that bring in tens of billions in earnings every quarter. Some analysts believe that Alphabet should stick to its approach of boosting the company’s share price by increasing its share buybacks. CFRA Research said, “Although Alphabet could always consider initiating a small dividend, we think it’s more likely to stick to the buyback approach. A dividend could send a perception that growth opportunities may not be as strong.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
