Last year’s tax reform freed up large amounts of overseas cash for the typical tech company. That fact, along with the recent market malaise, have prompted tech companies, such as Oracle, to invest their new found dollars in buying back their stocks in order to buoy their equity prices during the current market shake-out and adjustment period.
Oracle has gone all-out with this strategy seeing it as one that will sustain it during this time period. And, during the past twelve months, the company has devoted $29 billion to buybacks of its stock, which is record-setting and the largest amount paid out by a company in buybacks during a year’s period. Oracle typically generates about $15 billion in operating cash flow over a twelve month period, according to a recent WSJ article. Buybacks have the result of exaggerating and seeming to enhance the company’s growth. For example, Oracle’s per-share earnings jumped 17% year-over-year in the most recent quarter even in the face of net profit growth that was limited to 5% and flat revenues experienced during that time period. When the tech sector’s sell-off began on October 1st, a number of tech companies looked for strategies to ameliorate the actions taken by the market’s investors. In response to the institution of their buyback strategy, Oracle has been able to give some stability to its share prices through the buybacks. Even given its extensive efforts, however, the company is currently barely outperforming the S&P 500s Software and Services group. But, I guess one could summarize with the thought that outperforming, even by a slight margin, is certainly better than underperforming. It will be interesting to see where Oracle goes next in applying strategy solutions to short-term problems. It does appear that utilizing buybacks might have run its course.