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> if Google thinks its company is significantly undervalued, in which case buybacks are smart Honest questions here, as my stock understanding is fairly limite

> if Google thinks its company is significantly undervalued, in which case buybacks are smart Honest questions here, as my stock understanding is fairly limited: Why does a company care if it's "undervalued"? How does a buyback actually change that valuation? (doesn't the market cap remain the same after the purchase?)

theonemind 7y ago
No expert, but as a first guess, with their "insider information" (as the first party), if they believe the market undervalues them, they also expect a future correction (their price rising when they show revenue/market share/whatever proves the market wrong) and then they profit.
Klathmon 7y ago
I think the idea is that if they think they are "undervalued", they can buy the stock back now for X and sell it for >X later to raise more cash for when they need it.
- nostrademons 7y ago
  Or just that they can buy more shares in the buyback for the same amount of cash. All of the per-share fundamentals will go up more in that case, because there are fewer shares outstanding. Eventually, if the stock is truly undervalued, the market will realize it as shares are taken off the market and ownership is concentrated among those who recognize the value of the business, and the stock price will pop upwards.
johannes1234321 7y ago
Buying the stock is a way for distributing money to their share holders. Similar to a dividend.
- andrekandre 7y ago
  it would be interesting if companies that size would distribute more to their employees one fantasy calculation i do a lot is google-profits / total-google-employees or apple-profits / total-apple-employees and you get something like half a million dollars a year (60 billion dollars of profit divided by 132,000 apple employees for example) in the above scenario, work a few years at a company like google or apple and your a millionaire basically... what would happen to the economy if suddenly there was hundreds of thousands of millionaires? how many new businesses and ventures could be started? would it in the end be good or bad economy? what about the company if it only had a few billion of liquid assets on hand instead of hundreds? would it make a difference?
  - xur17 7y ago
    Isn't that already what is happening at FAANG companies? According to levels.fyi, a senior developer at Facebook and Google is at ~$360k in total comp. After working 5 or 10 years, you could easily have $1M in savings (perhaps a bit more challenging given the cost of living where these companies are located, but still possible).
    - andrekandre 7y ago
      yea, that is definitely true that they are compensated very well, but i was thinking in a more “equitable” way considering the insane profits they are generating if you added say half the profits to employees and half the stock as well, they could become multi-millionaires even sooner.... maybe it’s just my bias, but i feel like if those employees were really empowered by their earnings they would be more entrepreneurial and start all kinds of new ventures i guess this is just my crazy idea, but it’s something i feel strongly recently... it’s just weird to me to see such huge amounts of capital just sitting there (or being used in buybacks)
      - alain94040 7y ago
        An engineer at Google started a new ambitious project and the rewards were structured similarly to doing your own startup. After the math was done, his payment added up to $600M. Anthony Levandowski then left for Uber and the rest is history.
adamlett 7y ago
The value of a company’s shares is the sum of its assets and its expected future earnings, both divided by the number of shares. The assets are a known quantity and do not fluctuate much in value, but the expected future earnings may. When a company makes a buyback, it is changing the constituent parts of its shares’ value to be less asset(ie. cash) heavy and more expected future earnings heavy. If the expected future earnings were underestimated for some reason, the result will be a more share than if the company had kept its cash. If OTOH the future earnings were overestimated, the value of the share will decline more than if the company had kept its cash.

theonemind 7y ago

No expert, but as a first guess, with their "insider information" (as the first party), if they believe the market undervalues them, they also expect a future correction (their price rising when they show revenue/market share/whatever proves the market wrong) and then they profit.

Klathmon 7y ago

I think the idea is that if they think they are "undervalued", they can buy the stock back now for X and sell it for >X later to raise more cash for when they need it.

nostrademons 7y ago
Or just that they can buy more shares in the buyback for the same amount of cash. All of the per-share fundamentals will go up more in that case, because there are fewer shares outstanding. Eventually, if the stock is truly undervalued, the market will realize it as shares are taken off the market and ownership is concentrated among those who recognize the value of the business, and the stock price will pop upwards.

johannes1234321 7y ago

Buying the stock is a way for distributing money to their share holders. Similar to a dividend.

andrekandre 7y ago
it would be interesting if companies that size would distribute more to their employees one fantasy calculation i do a lot is google-profits / total-google-employees or apple-profits / total-apple-employees and you get something like half a million dollars a year (60 billion dollars of profit divided by 132,000 apple employees for example) in the above scenario, work a few years at a company like google or apple and your a millionaire basically... what would happen to the economy if suddenly there was hundreds of thousands of millionaires? how many new businesses and ventures could be started? would it in the end be good or bad economy? what about the company if it only had a few billion of liquid assets on hand instead of hundreds? would it make a difference?
- xur17 7y ago
  Isn't that already what is happening at FAANG companies? According to levels.fyi, a senior developer at Facebook and Google is at ~$360k in total comp. After working 5 or 10 years, you could easily have $1M in savings (perhaps a bit more challenging given the cost of living where these companies are located, but still possible).
  - andrekandre 7y ago
    yea, that is definitely true that they are compensated very well, but i was thinking in a more “equitable” way considering the insane profits they are generating if you added say half the profits to employees and half the stock as well, they could become multi-millionaires even sooner.... maybe it’s just my bias, but i feel like if those employees were really empowered by their earnings they would be more entrepreneurial and start all kinds of new ventures i guess this is just my crazy idea, but it’s something i feel strongly recently... it’s just weird to me to see such huge amounts of capital just sitting there (or being used in buybacks)
    - alain94040 7y ago
      An engineer at Google started a new ambitious project and the rewards were structured similarly to doing your own startup. After the math was done, his payment added up to $600M. Anthony Levandowski then left for Uber and the rest is history.

adamlett 7y ago

The value of a company’s shares is the sum of its assets and its expected future earnings, both divided by the number of shares. The assets are a known quantity and do not fluctuate much in value, but the expected future earnings may. When a company makes a buyback, it is changing the constituent parts of its shares’ value to be less asset(ie. cash) heavy and more expected future earnings heavy. If the expected future earnings were underestimated for some reason, the result will be a more share than if the company had kept its cash. If OTOH the future earnings were overestimated, the value of the share will decline more than if the company had kept its cash.