The reason the stock is up so much. They're going to stop blowing money on stuff they aren't good at.
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.
That's great if you're, say, under the age of 50 and plan to hold your stock your entire life until retirement.
But consider a company whose stock price never went up but which had a great 50 year vision. Maybe towards the end of the 50 years it starts going up fast, but by then you already lived a big chunk of your life and passed many moments when you could have used some of the money.
At some point you're going to want ROI. One quarter is short for sure, but 50 years is the opposite extreme. Why wait such a long time for hypothetical ROI that may never come?
For Google specifically their problem is their revenue has way outpaced their ability to come up with new ideas. Since Larry Page stepped into the shadows the ambition and drive are gone. I'm not sure there's any vision, let alone a 50 year vision. The only highlights are their successes with AI, and maybe Waymo, but those are small parts of the overall company. AI mostly seems to be leading to incremental improvements in their existing products.
When you cast your eyes wider you see large amounts of what might uncharitably be described as self-indulgent waste. How many chat services are they up to now? And how many of them had any kind of interesting competitive advantage? How many languages and VMs without any obvious competitive advantage has Google created? How many internal systems do they rewrite without any clear idea of why, other than because someone needs to get promoted?
Dig around and discover just how many projects there are producing uncompetitive 'experimental' pseudo-products nobody has ever heard of and likely nobody ever will e.g.
https://nsynthsuper.withgoogle.com/
https://www.blog.google/outreach-initiatives/google-news-ini...
https://www.blog.google/outreach-initiatives/arts-culture/ex...
https://www.blog.google/products/photos/gallery-go/
Google has so many products they end up reusing their own names! Google Go is one thing, Google Gallery Go is a totally different thing - a mobile photo gallery app specifically for Nigeria, for some reason.
When you look at the firm closely you see a firehose of projects with zero business case and often near-zero impact. Why does Google think these things are better ways to invest the money than what other companies are doing?
Silicon Valley often sees "a firehose of startups with zero business case and often near-zero impact." And yet, it is considered a key driver of the economic growth / innovation / good jobs and places all over the world want to replicate its success. Maybe, Google just wants to have an in-house Silicon Valley?
At least, that's why I've been holding my shares. I was thinking of dumping them for better performing tech stocks, given the malaise I see there, but if they're finally starting to admit they may have run out of ideas and start returning money for reallocation elsewhere in the economy, then ... well ... maybe I'll hold a little longer.
https://www.forbes.com/sites/aalsin/2017/02/28/shareholders-...
Which is why accumulating funds are getting rather popular in Belgium...
Just to make things absolutely clear, I'll even happily make it explicit: I oppose it.
The super wealthy would just end up paying a bit more, but it's likely they'd remain super wealthy.
Also, given the eagerness of investors to gamble on unicorns, it's unclear that there is any shortage of investment money. Occasionally there's talk of a global savings glut.
I don't mean to impugn your political feelings. I consistently vote for people who will raise my taxes, personally. That doesn't mean I'm volunteering to pay more than I'm obligated within a system that doesn't provide the social services my family needs. I just want to point out that almost no one pays more taxes than they are legally obligated to, regardless of their political views. This implies that substantially everyone sees value in optimizing their taxes.
In light of that, surely you can understand why the question you asked does not make much sense? The law is what it is, so of course within the law people will attempt to pay less taxes.
We need to solve this by requiring all repurchases to be with post tax money.
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.
Edit: dlp211 points out the income from dividends is (generally) taxed at the same rate as long term capital gains.
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.
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).
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.
Who is usually getting unqualified dividends? Qualified dividends are taxed as capital gains.