At the software giant, buybacks have spurred a lot of borrowing and spending. Executive chairman and co-founder Larry Ellison’s company has spent roughly $75 billion to buy back stock since its 2016 fiscal year, and $41 billion over the last five quarters, which far outpaces the company’s $19 billion in free cash flow. The multiyear buyback binge cost more than a third of today’s market value for Oracle and has pushed the company into net debt despite sporting $35.7 billion in cash and short-term investments on its balance sheet.
“It’s staggering how much money they’ve spent buying back shares,″ said CFRA Research analyst John Freeman, who downgraded the stock to a sell rating on Wednesday. “I’d say 90% of their earnings-per-share growth the last two years has come from buying back shares. He [Ellison] must believe the software-as-a-service companies he would otherwise want to buy are overvalued.″
Oracle spokeswoman Deborah Hellinger declined to comment.
Even though it is still among the 10 U.S. companies with the most cash, according to FactSet Research, its net cash (cash minus short- and long-term debt) is negative $17 billion. That’s about a $32 billion decline since 2016, as the software giant took out a lot of cheap debt to fund buybacks.
For all that, the stock is up just 35% in the last five years, less than half the gain of the Nasdaq Composite, a common tracker for technology stocks, and a third of the gain of the S&P 500 Information Technology sector.
From: https://www.cnbc.com/2019/12/05/oracle-shows-buybacks-can-go-too-far.html