Google’s parent company Alphabet overtook Apple in order to become the most cash-rich company in the world. Per Financial Times, as of the second quarter of this year, Alphabet has $117 billion in liquid reserves. Just for comparison – Apple has $102 billion.
However, this way of attracting attention could increase pressure from shareholders who probably want to see the company spending more money on share buybacks or dividends. Also, this could become suspicious to regulators as well. Last few years, both Google and Alphabet had to pay more than €8.2 billion (around $9.05 billion) in antitrust fines imposed by the EU.
U.S regulators are also becoming more and more curious and it’s a matter of time when this case will come to the order. The company faced scrutiny for holding on to too much cash, especially following the 2017 GOP tax plan, which imposed a tax on overseas cash holdings for US companies.
This is, by all means, a pretty controversial era for the company. Also, Alphabet is facing protests from its employees and questions about it handles YouTube extremists and its activities in China.
Mentioned Alphabet’s liquid reserves surged by $20 billion since the end of the last year, and Apple’s, as we could see from their latest quarter report, fell from a peak of $163 billion.
Nevertheless, Alphabet still hasn’t held the title of “world’s most valuable company”. Apple took that title last August as it became a trillion-dollar company, but Amazon and Microsoft overtook it quickly just a few months later.
While Apple increased its buybacks by $122 billion and paid dividends over the past 18 months, its research-and-development increased its spending by 15% in the last quarter, to its highest level in 18 years.
Alphabet, on the other hand, is holding more in its financial reserves and is eager to break into new markets. Last year, the company spent $25 billion on real estate including buying Google office spaces in New York and building data centers for its cloud-computing business.
Ruth Porat, chief financial officer, tried to depreciate the real estate investments, saying that they are a one-off and that, in a normal quarter, 70% of capital spending goes into servers and other new equipment.
Alphabet spent almost nothing on its stock buybacks, and the company’s board approved adding $25 billion to its stock repurchase program. Since the beginning of this year, the company has been authorized to repurchase $37.5 billion of its stock.
Walter Price, a portfolio manager at Allianz Global Investor,s says that in general, Alphabet’s attempts to revamp themselves with their new initiatives aren’t working out. He noted:
“I wish they’d return more cash to shareholders and waste less.”
Youssef Squali, an analyst at SunTrust Robinson Humphrey, said that the infrastructure to support artificial intelligence that Google had been building “requires a ton of compute power.”
He noted that, like some other big tech companies, it had seen higher spending on machine learning feed through directly into higher revenue. Such a situation had left Wall Street rather comfortable with the spending surge.