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>On July 24, 2019, the Board of Directors of Alphabet authorized the company to repurchase up to an additional $25.0 billion of its Class C capital stock The r

>On July 24, 2019, the Board of Directors of Alphabet authorized the company to repurchase up to an additional $25.0 billion of its Class C capital stock The reason the stock is up so much. They're going to stop blowing money on stuff they aren't good at.

deleted 7y ago
[deleted]
snarf21 7y ago
EDIT: Apologies, I was incorrect in this assumption We need to solve this by requiring all repurchases to be with post tax money.
- samfisher83 7y ago
  Repurchases are done with post tax money. The reason why companies do that instead of dividends is because dividends are taxed for the investor again.
  - dgellow 7y ago
    Could someone explains this like I’m five?
    - dlp211 7y ago
      No because it's wrong. The correct way to say this is that by doing a buyback it allows stockholders to realize their taxes at a later point in time since capital gains are only realized at the time of sale. Dividends are immediately taxed at the capital gains rate which is the same as the LTCG rate.
      - georgeecollins 7y ago
        You are right about the buyback allowing shareholders to delay the taxable event. But you are wrong that dividends are taxed at capital gains rate. They are taxed as income. Capital gains are taxed at capital gains rate (almost always lower) and they gain can be offset by losses. This is the main advantage of stock buyback.
        jonas21 7y ago
        I'm not an accountant, but I believe if the dividend comes from an American company, and you've held the stock for over 60 days, it's a qualified dividend and gets taxed at the long term capital gains rate.
    - deleted 7y ago
      [deleted]
    - cshimmin 7y ago
      Not an expert but I'll give it a shot: Company has extra money and wants stakeholders to get a cut. They can either give all the stakeholders some money based on how much stock they have (this is called paying dividends), or they can buy back stock, raising the stock price (reducing the amount of stock means a given stock now corresponds to owning a larger stake in the company). Dividends would be taxed as income for investors. The increased stock value would only be taxed if/when it was sold for a profit (capital gains tax). Edit: dlp211 points out the income from dividends is (generally) taxed at the same rate as long term capital gains.
    - deleted 7y ago
      [deleted]
    - rfrey 7y ago
      If there are 100 shares of a company worth $1000 each - the company has a value of $1000/share * 100 shares = $100,000. The company has $10000 in after-tax profit that it would like to distribute, and you own 1 share. Since the money will be gone, the company will be worth $100,000 - $10,000 = $90,000 after the distribution. - The company could pay a $100 per share dividend. You would get a $100 dividend but have to pay (say) 15% tax, so you now have $85 cash plus 1/100 of the company ($900), so $985. - OR the company could buy back 10 shares. Now each share is worth $90,000 / 90 shares, or $1000. You don't pay any tax, your share is worth the same, but now you have 1/90 of the company instead of 1/100, so a greater share of future earnings. In real life, the value of future earnings dominates the price (well, hope and greed do, but whatevs) rather than the cash-on-hand. The price should immediately go up once the buyback is announced to reflect that existing shareholders will get a bigger piece of the pie. That increase is not taxed until they sell, and the shareholder comes out ahead for the same cash distribution by the company.
      - gundmc 7y ago
        Fantastic and intuitive explanation. Thank you for this!
      - mav3rick 7y ago
        Really amazing explanation.
      - simonebrunozzi 7y ago
        Man, I hope you do this for a living. You're amazing. Super clear explanation.
        milesward 7y ago
        I agree, he did great!
      - jbay808 7y ago
        This is a great explanation, but who would sell their share back to the company for $1000 if the value of the other shares will increase immediately after the buy-back? I assume that if it's expected the company shares will go up in value due to the buyback, then they will have to pay a premium and buy the shares at a price that is close to the post-buyback share value. So, perhaps at $1010/share. However, I think there's no premium price equal to the post-buyback share price that they can pay to buy back shares that doesn't result in the company total value increasing as a whole from the buyback. This seems to be a contradiction. I can only conclude that it isn't known that the buyback will raise share prices, because the loss of capital from the company should balance the increased fraction of future earnings that each share represents. (edit: rewrote post after working through its logic).
- koolba 7y ago
  It is post tax money. Only difference from a dividend is avoidance of double taxation by shareholders as value goes up.
  - mehrdada 7y ago
    It's not the only difference. Dividends are paid to the shareholders of record as of a certain date. Buybacks effectively benefit all the future as-of-yet-unissued shares, e.g. unvested stock-based comp (which makes it a beloved thing for corporate executives who get their majority of $$$ that way).
  - singron 7y ago
    Just to be perfectly precise, dividends are usually taxed as income, but an increased valuation as a result of a buyback would only be taxed as capital gains when the shares are sold. If there weren't a separate capital gains rate, then the only difference would be the tax would be collected when the shares were sold rather than when the dividend was issued. However, if you had the intention of reinvesting your dividend, then you would buy new stock with post-income-tax dollars, whereas a buyback would increase the value of your stock holdings without using your own post-tax money.
    - vonmoltke 7y ago
      > Just to be perfectly precise, dividends are usually taxed as income Who is usually getting unqualified dividends? Qualified dividends are taxed as capital gains.
      - singron 7y ago
        Good point. I got the two flipped in my head, but I think the rest of the comment applies.
0xDEEPFAC 7y ago
"For most of the 20th century, stock buybacks were deemed illegal because they were thought to be a form of stock market manipulation." https://www.forbes.com/sites/aalsin/2017/02/28/shareholders-should-be-required-to-vote-on-stock-buybacks/#79b336e46b1e https://www.forbes.com/sites/aalsin/2017/02/28/shareholders-...
- asdfasgasdgasdg 7y ago
  Thank goodness that has stopped. They are not materially different from dividends, besides being more tax efficient.
  - scarface74 7y ago
    There is no logical reason that dividends should be taxed differently than capital gains (the result of stock buybacks) and really no reason either should be different than regular income.
    - formercoder 7y ago
      It's not just the question of capital gains. Dividends mandate a taxable event. Buybacks give you the option to continue holding and not pay taxes. That option has value.
      - scarface74 7y ago
        Yes but if you do sell you still pay a lower capital gains rate in the US.
      - markvdb 7y ago
        Stock buybacks versus capital gains makes all the difference for Belgian residents. No capital gains here. Foreign dividends get taxed at >= 40.5%, local dividends at 30%. Which is why accumulating funds are getting rather popular in Belgium...
        7y ago
seldonnn 7y ago
That’s 3% of market cap, try again on your explanation. Hint: accelerating revenue growth
- Despegar 7y ago
  Investors have always disliked Google's bad capital allocation. They'd much rather have the cash. The expansion in the buyback is a signal for a new era of capital return.
  - UncleMeat 7y ago
    If they'd rather have cash then why do they own GOOG instead of holding cwsh?
    - etaioinshrdlu 7y ago
      Investors like GOOG but would rather it focus on it's money printing machine than the founder's moonshot visions.
      - bduerst 7y ago
        If the majority of investors felt that way then the board would adjust leadership. Are you sure you're not projecting?
        tdhoot 7y ago
        Voting power in Google is controlled by the founders, regardless of how much ownership they have.
      - v7p1Qbt1im 7y ago
        This kind of thinking leads to companies becoming irrelevant over time. I for one would much rather go for an interesting 50-year vision instead of pushing for quarterly stock gains exclusively. Ad revenue growth is slowing down across the board. FB is still showing increased growth because of Instagram which is just so perfect for ads. AMZN is a small player to begin with, so their growth will naturally be high. Also their platform is very well positioned for display ads and especially sponsored product ads because they tie in to their main business so well. Alphabet will have ad revenue for a long time, yes. But cloud will eventually be more important. So they need to make sure they catch up to MSFT and AMZN eventually. And the moonshots are very important as well. Their very nature is risk. If successful anyone of them could potentially be worth hundreds of billions. Morgan Stanley speculates that Waymo could be worth a quarter of trillion in 10 years. DeepmMind and Google Brain/AI are two of the leading AI entities in the world. Wing could be very important for Google Shopping. And they really need to build out their shopping offerings. And then there are the healthcare/life science efforts. No one even knows what Calico is doing exactly. What they are missing is basically a space initiative. Yes there is loon and Access but Amazon is already in the process of launching their Starlink-like satellite network. And then there is Bezos's Blue Origin. My (amateurish) prediction is to be positioned in: AI, biotech/genetic engineering, space industries.

deleted 7y ago

[deleted]

snarf21 7y ago

EDIT: Apologies, I was incorrect in this assumption We need to solve this by requiring all repurchases to be with post tax money.

samfisher83 7y ago
Repurchases are done with post tax money. The reason why companies do that instead of dividends is because dividends are taxed for the investor again.
- dgellow 7y ago
  Could someone explains this like I’m five?
  - dlp211 7y ago
    No because it's wrong. The correct way to say this is that by doing a buyback it allows stockholders to realize their taxes at a later point in time since capital gains are only realized at the time of sale. Dividends are immediately taxed at the capital gains rate which is the same as the LTCG rate.
    - georgeecollins 7y ago
      You are right about the buyback allowing shareholders to delay the taxable event. But you are wrong that dividends are taxed at capital gains rate. They are taxed as income. Capital gains are taxed at capital gains rate (almost always lower) and they gain can be offset by losses. This is the main advantage of stock buyback.
      - jonas21 7y ago
        I'm not an accountant, but I believe if the dividend comes from an American company, and you've held the stock for over 60 days, it's a qualified dividend and gets taxed at the long term capital gains rate.
  - deleted 7y ago
    [deleted]
  - cshimmin 7y ago
    Not an expert but I'll give it a shot: Company has extra money and wants stakeholders to get a cut. They can either give all the stakeholders some money based on how much stock they have (this is called paying dividends), or they can buy back stock, raising the stock price (reducing the amount of stock means a given stock now corresponds to owning a larger stake in the company). Dividends would be taxed as income for investors. The increased stock value would only be taxed if/when it was sold for a profit (capital gains tax). Edit: dlp211 points out the income from dividends is (generally) taxed at the same rate as long term capital gains.
  - deleted 7y ago
    [deleted]
  - rfrey 7y ago
    If there are 100 shares of a company worth $1000 each - the company has a value of $1000/share * 100 shares = $100,000. The company has $10000 in after-tax profit that it would like to distribute, and you own 1 share. Since the money will be gone, the company will be worth $100,000 - $10,000 = $90,000 after the distribution. - The company could pay a $100 per share dividend. You would get a $100 dividend but have to pay (say) 15% tax, so you now have $85 cash plus 1/100 of the company ($900), so $985. - OR the company could buy back 10 shares. Now each share is worth $90,000 / 90 shares, or $1000. You don't pay any tax, your share is worth the same, but now you have 1/90 of the company instead of 1/100, so a greater share of future earnings. In real life, the value of future earnings dominates the price (well, hope and greed do, but whatevs) rather than the cash-on-hand. The price should immediately go up once the buyback is announced to reflect that existing shareholders will get a bigger piece of the pie. That increase is not taxed until they sell, and the shareholder comes out ahead for the same cash distribution by the company.
    - gundmc 7y ago
      Fantastic and intuitive explanation. Thank you for this!
    - mav3rick 7y ago
      Really amazing explanation.
    - simonebrunozzi 7y ago
      Man, I hope you do this for a living. You're amazing. Super clear explanation.
      - milesward 7y ago
        I agree, he did great!
    - jbay808 7y ago
      This is a great explanation, but who would sell their share back to the company for $1000 if the value of the other shares will increase immediately after the buy-back? I assume that if it's expected the company shares will go up in value due to the buyback, then they will have to pay a premium and buy the shares at a price that is close to the post-buyback share value. So, perhaps at $1010/share. However, I think there's no premium price equal to the post-buyback share price that they can pay to buy back shares that doesn't result in the company total value increasing as a whole from the buyback. This seems to be a contradiction. I can only conclude that it isn't known that the buyback will raise share prices, because the loss of capital from the company should balance the increased fraction of future earnings that each share represents. (edit: rewrote post after working through its logic).
koolba 7y ago
It is post tax money. Only difference from a dividend is avoidance of double taxation by shareholders as value goes up.
- mehrdada 7y ago
  It's not the only difference. Dividends are paid to the shareholders of record as of a certain date. Buybacks effectively benefit all the future as-of-yet-unissued shares, e.g. unvested stock-based comp (which makes it a beloved thing for corporate executives who get their majority of $$$ that way).
- singron 7y ago
  Just to be perfectly precise, dividends are usually taxed as income, but an increased valuation as a result of a buyback would only be taxed as capital gains when the shares are sold. If there weren't a separate capital gains rate, then the only difference would be the tax would be collected when the shares were sold rather than when the dividend was issued. However, if you had the intention of reinvesting your dividend, then you would buy new stock with post-income-tax dollars, whereas a buyback would increase the value of your stock holdings without using your own post-tax money.
  - vonmoltke 7y ago
    > Just to be perfectly precise, dividends are usually taxed as income Who is usually getting unqualified dividends? Qualified dividends are taxed as capital gains.
    - singron 7y ago
      Good point. I got the two flipped in my head, but I think the rest of the comment applies.

0xDEEPFAC 7y ago

"For most of the 20th century, stock buybacks were deemed illegal because they were thought to be a form of stock market manipulation." https://www.forbes.com/sites/aalsin/2017/02/28/shareholders-should-be-required-to-vote-on-stock-buybacks/#79b336e46b1e https://www.forbes.com/sites/aalsin/2017/02/28/shareholders-...

asdfasgasdgasdg 7y ago
Thank goodness that has stopped. They are not materially different from dividends, besides being more tax efficient.
- scarface74 7y ago
  There is no logical reason that dividends should be taxed differently than capital gains (the result of stock buybacks) and really no reason either should be different than regular income.
  - formercoder 7y ago
    It's not just the question of capital gains. Dividends mandate a taxable event. Buybacks give you the option to continue holding and not pay taxes. That option has value.
    - scarface74 7y ago
      Yes but if you do sell you still pay a lower capital gains rate in the US.
    - markvdb 7y ago
      Stock buybacks versus capital gains makes all the difference for Belgian residents. No capital gains here. Foreign dividends get taxed at >= 40.5%, local dividends at 30%. Which is why accumulating funds are getting rather popular in Belgium...
      - 7y ago

seldonnn 7y ago

That’s 3% of market cap, try again on your explanation. Hint: accelerating revenue growth

Despegar 7y ago
Investors have always disliked Google's bad capital allocation. They'd much rather have the cash. The expansion in the buyback is a signal for a new era of capital return.
- UncleMeat 7y ago
  If they'd rather have cash then why do they own GOOG instead of holding cwsh?
  - etaioinshrdlu 7y ago
    Investors like GOOG but would rather it focus on it's money printing machine than the founder's moonshot visions.
    - bduerst 7y ago
      If the majority of investors felt that way then the board would adjust leadership. Are you sure you're not projecting?
      - tdhoot 7y ago
        Voting power in Google is controlled by the founders, regardless of how much ownership they have.
    - v7p1Qbt1im 7y ago
      This kind of thinking leads to companies becoming irrelevant over time. I for one would much rather go for an interesting 50-year vision instead of pushing for quarterly stock gains exclusively. Ad revenue growth is slowing down across the board. FB is still showing increased growth because of Instagram which is just so perfect for ads. AMZN is a small player to begin with, so their growth will naturally be high. Also their platform is very well positioned for display ads and especially sponsored product ads because they tie in to their main business so well. Alphabet will have ad revenue for a long time, yes. But cloud will eventually be more important. So they need to make sure they catch up to MSFT and AMZN eventually. And the moonshots are very important as well. Their very nature is risk. If successful anyone of them could potentially be worth hundreds of billions. Morgan Stanley speculates that Waymo could be worth a quarter of trillion in 10 years. DeepmMind and Google Brain/AI are two of the leading AI entities in the world. Wing could be very important for Google Shopping. And they really need to build out their shopping offerings. And then there are the healthcare/life science efforts. No one even knows what Calico is doing exactly. What they are missing is basically a space initiative. Yes there is loon and Access but Amazon is already in the process of launching their Starlink-like satellite network. And then there is Bezos's Blue Origin. My (amateurish) prediction is to be positioned in: AI, biotech/genetic engineering, space industries.