At a certain point in a company’s development, it reaches a growth plateau, at least one that ceases to be sufficiently attractive to some investors. At this stage, companies resort to stock buybacks to return shareholder value by reducing the number of outstanding shares.
These mature companies use their excess cash reserves from entrenched market positions to signal confidence to shareholders. For buy-and-hold investors, share repurchases represent a boon because the tax liability is deferred until they sell the shares, which are then subjected to capital gains tax.
In contrast, dividends paid out in cash are treated as immediate tax events akin to ordinary income, according to federal income brackets. Given that the bulk of the Big Tech sector consists of mature companies with slower growth but stable earnings and deep cash reserves, Goldman Sachs (NYSE:GS) already called the crossing of the $1 trillion milestone in stock buybacks in 2025.
For investors looking for this type of safe exposure, here are three companies leading the stock buyback race.
Apple
Owing to the decline in iPhone sales and greater competitive pricing from Chinese companies, Apple Inc (NASDAQ:AAPL) stock had a lackluster performance this year, at only 2.5% gains YTD. The unusually high price tag on Vision Pro, as if Meta’s Oculus Quest headsets don’t exist, also didn’t help.
Yet, Apple’s successful branding and closed ecosystem of devices and apps ensures the retainment of its loyal user base. The company left fiscal Q2 with $23.6 billion net income.
Although lower than the $24.1 billion in the year-ago quarter, Apple leadership decided to bolster shareholder confidence with a record-breaking $110 billion for additional share repurchases, representing 3.9% of the total shares outstanding.
During fiscal year 2023, Apple returned $78 billion to shareholders via stock buybacks, reducing the number of outstanding shares by ~2%. Over the last decade, since 2013, Apple has spent $621 billion on share repurchases. This firmly cemented Apple’s attractiveness as blue-chip exposure.
Case in point, Warren Buffett, who thinks repurchasing shares is a good idea if the stock is priced below the company’s intrinsic value, noted in 2018 that he is “delighted to see them repurchasing shares”. Of course, given Berkshire Hathaway’s still large stake in AAPL stock, this represents an effortless way to boost its value.
Buffett also noted that for a company to keep doing that, it has to have a wide-spread ecosystem and sticky products, which fits the bill for Apple. Most recently, the company reported a rebound in iPhone sales. At the present price of $191.92, AAPL stock is nearing its 52-week high of $199.62 per share, while the average price target twelve months ahead is $206.52, per Nasdaq data.
Alphabet
Despite the embarrassing mishap with Google’s deployment of Gemini AI, the company holds one of the widest software moats alongside Microsoft (NASDAQ:MSFT). Google’s Workspace (LON:WKP) (previously G Suite) alone has a 68.66% market share by enticing users with generously free Gmail, Google Drive, Google Docs, Sheets and other workflow apps.
Likewise, Google’s Play Store cornered the market on app dissemination, akin to Steam for PC gaming. According to Business of Apps, consumers spent $47 billion on Google Play mobile games and apps during 2023. In its latest earnings for Q1 2024, Alphabet reported similar net income to Apple’s, at $23.6 billion vs $15 billion in a year-ago quarter.
Given this profitability spike and exceeding forecast expectations, Alphabet’s Board of Directors authorized an additional $70 billion in GOOG (class C without voting rights) and GOOGL (class A with voting rights) share repurchases. This is in addition to cash dividends of $0.20 per share, paid out on June 17th.
In the meantime, Alphabet Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) continues to expand, with the recent potential addition of HubSpot (NYSE:HUBS) worth $35 billion. HubSpot fits Google’s advertising ecosystem as a comprehensive customer relationship management (CRM) platform.
At the present price of $176.33, GOOGL stock is up 27.6% YTD. This is adjacent to the 52-week high of $178.77 per share. Per Nasdaq data, the average GOOGL price target twelve months ahead is $197.53 per share.
Meta Platforms
As another advertising juggernaut with a wide ecosystem of social apps, Meta Platforms Inc (NASDAQ:META) is also the leader in extended reality. By Q4 2023, Meta’s AR/VR market share expanded to 62.2%, with Sony (NYSE:SONY) distant second at 16%, according to International Data Corporation (IDC).
The company has big plans for this market, although Reality Labs has yet to churn out a profitable quarter. Nonetheless, Meta has plenty of deep pockets to draw from. In Q1 2024 earnings, the company reported a 117% YoY profitability increase to $12.3 billion net income.
Meta left the quarter with $58.12 billion in cash and cash equivalents. During the quarter, Meta repurchased $14.64 billion worth of stocks while paying out $1.27 billion in dividends. Taking the cue from other Big Tech giants, Meta authorized a $50 billion share buyback program at the end of January.
This represents 5% of total outstanding shares, now valued at $1.21 trillion. As noted in February, META has been leading the Magnificent Seven pack at 38% YTD returns, outperformed onWly by the unique phenomenon of Nvidia (NASDAQ:NVDA) at 138% YTD gains.
At the present price of $479.30, META stock is yet to catch up with its 52-week high of $531.49 per share. That may take some time, as analysts forecast an average META price target of $522.95 per share, twelve months ahead.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
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