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Tech companies ramp up stock buybacks amid market volatility

Yahoo Finance's Allie Garfinkle discusses what investors should look for in tech buyback programs.

Video Transcript


JARED BLIKRE: Welcome back. Jumping on the buyback bandwagon, buyback authorization announcements generate a lot of headlines that lead to near-term bumps for stocks. We've already seen some massive buyback numbers from major tech companies this year. Joining us now to break down some of those moves for us is Yahoo Finance's Allie Garfinkle. And Allie, what are we seeing here today? And what has been the cumulative story on buybacks this year, especially with respect to tech?

ALLIE GARFINKLE: Yeah, it's great to see you, Jared. So the headline message from experts here is that execution is what matters. So investors actually usually respond to buyback announcements. Those announcements are not binding. They're not even guidance, right? So investors should be looking at if companies are meaningfully reducing outstanding share count and if they're actually smartly deploying those buyback dollars.

And especially, you know, given the market volatility this year, right? Some tech companies have been really reactive in their buybacks. It's outside their CapEx plan. One example of this is Meta, for example, who a lot of experts I spoke to say, those buybacks particularly merit scrutiny. The numbers go something like this. Meta bought back about 44.8 billion in shares at $33.55 in 2021, compared to today's price of around $153. So it's important-- so that's a pretty big [? gulf, ?] right?

And it's important to say these buybacks have all sorts of ramifications, right? The downside is that they're often financed with debt. But they can also bolster share price in difficult times. Sometimes for the best, right?

We also have a couple of other things coming down the pike, right? The tax on dividends next year, which is really another reason for investors to start thinking about these buybacks critically.

JARED BLIKRE: Well, let me ask you then, Allie, we're seeing-- we're concentrating on these buybacks in the tech space. But that's where we see a lot of these types of purchase activities. Why do you-- why is that? Why are they concentrated in the tech space?

ALLIE GARFINKLE: That's a great question, Jared. You know, tech companies are most likely to engage in buybacks because they usually have so much free cash flow. You know, I was talking to a couple of experts about this and the thing they said is-- they were like, it's not like a financial services company.

Apple's been doing buybacks, for example, well into the billions for years now. It's part of their CapEx plan. It's what they do. The-- Apple actually typically makes the largest share repurchases in this sector, and often across the markets entirely. They average about two billion a quarter, Jared, so that's pretty incredible. We also usually see some activity like this from Google, where Google actually recently did its largest quarterly buyback ever.

And as the markets took a nosedive yesterday, it's important to be talking about this, I think, because tech stocks are most likely to be doing buybacks but they also led the way down. The NASDAQ composite went down about 4%-- 5.2% yesterday, I believe?

So the thing I've started wondering, Jared, is if we're at an impasse, right? We're barreling towards another earnings season. We have upcoming guidance from the Fed have macroeconomic challenges that are showing no sign of slowing down. So we can really start to see some abnormal buyback activity from big tech, even amid a sector that frequently does buybacks. So I think investors should keep their eyes open.

JARED BLIKRE: You know, I'm gonna call that-- given what we've experienced in the pandemic-- revenge buybacks. I'm not sure it's good for the capital markets right now but I'm just gonna throw that out there, guys. Allie-- Allie, excuse me. Allie Garfinkle, always great to see you.