Massive Operating Cash Flow Leads to Overspending
Google Explores HubSpot Acquisition, Bid Rises 30%
Apple Spends More on Share Buybacks Than R&D
Apple, Microsoft (MS), Google parent company Alphabet, and other top five U.S. big tech companies hold cash reserves totaling $570 billion (approximately 771 trillion KRW). It has been pointed out that these companies' massive internal reserves are leading to excessive spending by investing too much capital in mergers and acquisitions (M&A), share buybacks, and dividends.
On the 7th (local time), the Wall Street Journal (WSJ), citing S&P Global Market Intelligence, reported that last year, among companies included in the S&P 500, the operating cash flow of the five companies Apple, MS, Alphabet, Amazon, and Meta, the parent company of Facebook, totaled $476.89 billion (approximately 645 trillion KRW).
Apple had the highest operating cash flow at $116.43 billion (approximately 157 trillion KRW), followed by MS with $102.65 billion (approximately 138 trillion KRW), Alphabet with $101.75 billion (approximately 137 trillion KRW), Amazon with $84.95 billion (approximately 114 trillion KRW), and Meta with $71.11 billion (approximately 96 trillion KRW). Notably, the total operating cash flow generated by the top five big tech companies was double that of the combined total of the 6th to 10th ranked companies?ExxonMobil, Berkshire Hathaway, Bank of America (BoA), Wells Fargo, and AT&T?which amounted to $228.22 billion (approximately 308 trillion KRW). When including both short- and long-term investments, WSJ analyzed that the cash holdings of these five big tech companies reach $570 billion. They were able to generate much more cash flow than other industries such as manufacturing by selling products and services without large fixed costs.
S&P 500 Constituent Companies' Operating Cash Flow Generation Trend Over One Year(*Source: S&P Global Market Intelligence·WSJ)
The problem is that the excess capital accumulated by big tech is causing overspending and inefficiencies in M&A, share buybacks, and dividends.
Google is reportedly considering acquiring HubSpot, an online marketing software company. The acquisition price is estimated to be over $40 billion (approximately 54 trillion KRW), which is a 30% premium compared to before foreign media reported Google's acquisition interest. This amount is more than three times the $12.5 billion (approximately 17 trillion KRW) paid for Motorola in 2012, which was Google's largest M&A deal to date. With investable funds currently available to Google reaching $97.67 billion (approximately 132 trillion KRW), there are analyses suggesting that the acquisition price is inflated.
However, competition authorities in the U.S. and other major countries are scrutinizing big tech's market dominance and monopolistic power, causing M&A deals to require significant time and costs before completion. In MS's case, after announcing the acquisition of Activision Blizzard in early 2022, it took two years to complete the deal due to delays in regulatory approval. This is a considerably longer period compared to the six months it took to acquire LinkedIn in 2016.
Brent Thill of investment bank Jefferies wrote in an investor memo on the 5th, "We have doubts about the theoretical basis of this deal currently under discussion by Google and whether this is the best use of capital," adding, "It is highly likely to face fierce antitrust opposition."
Big tech companies are also significantly expanding share buybacks and dividends based on their massive cash reserves. According to market research firm FactSet, Alphabet spent $59 billion (approximately 79 trillion KRW) on share buybacks in 2022 and $61.5 billion (approximately 83 trillion KRW) in 2023. Apple also spent $77 billion (approximately 104 trillion KRW) on share buybacks last year, which greatly exceeds twice its annual research and development (R&D) expenses of $30 billion (approximately 40 trillion KRW). The U.S. Department of Justice criticized this, stating, "Apple is distancing itself from competition," and "Incentives for innovation are decreasing." Apple also spends $15 billion (approximately 20 trillion KRW) annually on dividends.
WSJ pointed out that big tech "having too much money is also a problem," and that "acquisition attempts by companies like Apple, Amazon, and MS will trigger thorough investigations and delays."
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