
Alphabet overtakes Apple to become most cash-rich company - espeed
https://www.theverge.com/2019/8/1/20749831/alphabet-google-apple-cash-reserves-richest-company
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wpasc
This reminds me of a talk I watched with Peter Thiel and Eric Schmidt. I know
Thiel is controversial, but he was well-meaningly digging at Google for
running out of ideas and no longer innovating.

The criticism was something like "You have so much cash on hand but no ideas
to invest in. However, you can't pay a dividend because the second you do,
you're admitting you've run out of ideas and are no longer innovating".

I think that may be somewhat of an overstatement, but given news like this,
Thiel's got a point? Buying back their own stock (As mentioned by another
commenter in [1]) is a better investment of that cash instead of investing in
newer technology? Please prove me wrong with a good counterpoint because I
don't want to believe its true.

The specter of technological and scientific stagnation that Thiel/Weinstein
(Right and Left wing individuals) talk about so much really scares me.

[1]:
[https://www.bloomberg.com/news/articles/2019-07-25/alphabet-...](https://www.bloomberg.com/news/articles/2019-07-25/alphabet-..).

~~~
skybrian
This argument relies on a fallacy of binary thinking: either you have ideas or
you don't.

It's perfectly fine to say that you have lots of investment ideas, but they
don't add up to needing $100 billion to implement them. Especially when you
are earning more cash every quarter.

~~~
ehsankia
Exactly, just because you have a lot of cash doesn't mean you should force
investment into things that may not make sense. It's like if you had a huge
buffet and force fed yourself until you threw up. If anything, Google probably
gets flak for having too many ideas and being all over the place. People keep
saying they need more focus, yet when they do that, they get accused of not
having any more ideas...

~~~
siruncledrew
Investors and board members would be way more wary of how the company is run
if Google decided to do drastic things outside the scope of their core
business (like Google Amusement Parks) for superfluous reasons, which would
further make them lose money is the stock sinks.

At Google’s size they can invest a lot in R&D and product iterations, but
because they are so big the innovation seems way less drastic relative to
their size. Put it this way, if I put a new motor, deck, and paint on a small
boat, it would seem like I did a lot, whereas if a giant cruise ship did the
same thing, it wouldn’t really carry the same impact to outside viewers.

~~~
ehsankia
I mean, at the alphabet scale, they have pretty wild stuff like waymo, loon,
verily, calico, wing, etc. Even at Google, there's pretty cool tech too like
stadia, soli, duplex, and so on.

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noego
Finance 101: Being cash-rich is a major advantage in environments where
fundraising is a major hurdle, and where the funds can be put to productive
use very quickly. For example, for a startup to raise funds for a major
marketing campaign, it has to go through a lengthy and attention-demanding
process of pitching to VCs and negotiating terms. Hence why having a big war-
chest ready to fire, can be a competitive advantage for a startup.

For big public companies, it's the opposite. If a company wants to fundraise
10% of its market-cap, either for an acquisition or major investment, it
doesn't require nearly as much effort. It can issue new shares, and
immediately sell them to investors the next day for cash. The hard part is
finding profitable investments, not raising the funds to make it happen. Hence
why there's little competitive advantage in hoarding cash.

On the flip side, having a big cash hoard is bad for your investors' returns.
It bloats your market-cap, without having any impact on earnings. This means
that your P/E ratio is now inflated, and your earnings yield is reduced. From
an investor's perspective, if you have invested $100 in the company, you're
only only getting back $6 in profits every year, not $7 or $8.

Another way to look at this, is that Google/Apple invest their cash hoard very
conservatively, in things like short-term treasuries, because of which their
returns are very low. Whereas most of their investors would far prefer to
invest the money in investments that produce better returns, such as the S&P
500. By not returning the cash hoard to its investors, Google is essentially
forcing them to make low-return investments that they would never make
otherwise. Of course, investors aren't going to be happy with this, and they
will retaliate by lowering their valuation of GOOG stock, thus depressing the
share price.

~~~
jjeaff
Ya, that's finance 101. But here's Finance 5400:

Smart, wealthy shareholders love cash hoarding. Especially if the cash is held
tax free in overseas accounts.

The share price is boosted allowing them to get returns in the form of pure
capital gains.

If the company were to pay dividends, sure, most of those dividends would be
taxed at capital gains rates as well. But that money has to be taxed at the
highest US corporate income tax rate first. Thus, significantly reducing
overall value.

To go a step further, the wealthy don't even have to cash out their shares as
the price climbs and climbs. They can get low interest loans using the shares
as collateral. This deferring taxes indefinitely and leaving all their capital
in these huge companies that are outperforming the SP500 anyway.

~~~
olde_fortran
Dividends at taxed at income tax rates

~~~
winter_blue
In the U.S., if you've held the stock for at least one year, its dividends are
taxed at a very favorable _long-term capital gains_ rate. Stock held for less
than a year is however taxed like regular income.

~~~
jjeaff
It's not that favorable if all the corporate cash is stored overseas in low
tax holding countries.

The corporation will have to repatriate the money and pay corporate income tax
on it before they give you your dividends.

Alternatively, they could just grow that hoard of cash and let your stock
appreciate after which you can sell a few shares and get capital gains rates
on capital that didn't have to be double taxed.

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skybrian
Probably not coincidentally, they also just announced a plan to buy back $25
billion.

[https://www.bloomberg.com/news/articles/2019-07-25/alphabet-...](https://www.bloomberg.com/news/articles/2019-07-25/alphabet-
sales-top-analysts-estimates-calming-growth-concerns)

------
wufufufu
In StarCraft, you always want to be at 0 minerals and 0 gas because that means
you are maximizing your investment into buildings and units. People make fun
of you if you don't have the skill to optimize for this.

~~~
aero142
Google is clearly ultra late game zerg. They are floating minerals, gas, and
larvae to remax on a tech switch. This analogy is holding up surprisingly
well.

~~~
IpV8
Apple is about to drop their mineral line

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parsimo2010
It's important to note that what they really mean is most cash-rich of
companies for which public information is available. There are some state
owned enterprises around the world that might be able to beat this amount of
money even if they don't have the name recognition of Google or Apple.

Saudi Aramco may soon be publicly traded, so we have some information on them,
but what is interesting is that while we know they are more profitable than
Alphabet, we aren't sure exactly where they are putting all their money. It
could be going to a holding scheme that could very well top Alphabet in terms
of cash on hand.

There is probably a Russian entity that gives Alphabet a run for its money as
well.

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aduitsis
This will come out as pure whining and probably off-topic, but how on Earth
can they can have so much money (in cash no less) and at the same time can't
sell some of their flagship products worldwide?

We're halfway through 2019, I'm sitting in a small eurozone country and still
can't give them my money and order a Google Pixel properly from their site.
Using this example because I consider a phone to be a relatively expensive
device that probably generates a good profit over its lifetime. Other non-
hardware products which produce smaller profits, such as activating a magazine
subscription on the Google News application probably don't even register on
their radar.

Apple, with all its failings, is always there and never misses the opportunity
to ring the cash register. Sometimes they move slowly, but always make it
eventually. Won't even go to non-hardware players like Netflix.

Come to think of it, maybe having so much cash is a mixed blessing for
Alphabet, because it could be the actual cause if the above mentioned
behaviour.

~~~
formercoder
Presumably because making that product available in your region is not an NPV
positive investment.

~~~
rasz
Most likely nothing Google makes other than their ad platform could be
considered positive investment.

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jameslk
Personal conspiracy theory: these tech companies are sitting on their piles of
cash waiting for the next recession so they can go on a shopping spree for all
the cheap startups unable to raise any further rounds and unprofitable IPO'd
unicorns crashing on the stock market

~~~
partiallypro
That's not a conspiracy theory

~~~
kensai
And not even personal. I share it myself. :)

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JauntTrooper
Apparently Berkshire Hathaway has even more: $122B vs. Alphabet's $117B:

[https://www.bloomberg.com/news/articles/2019-08-03/buffett-s...](https://www.bloomberg.com/news/articles/2019-08-03/buffett-
s-cash-pile-hits-record-as-berkshire-holds-122-billion)

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JohnJamesRambo
I’ve always wondered what Apple does with all the cash it has and this seems
like a great place to ask. What do companies do with it all? Is there an
article that goes into the details? Is it invested? In what? Hoarded in a bank
vault? What precautions are in place for such large amounts?

~~~
stygiansonic
Check out Braeburn Capital:
[https://en.m.wikipedia.org/wiki/Braeburn_Capital](https://en.m.wikipedia.org/wiki/Braeburn_Capital)

~~~
JohnJamesRambo
Thank you very much.

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rvn1045
Why dont Google, Microsoft or Apple start operating more like Amazon? these
companies have so much cash that thet could literally start 100s of startups
within with small teams just like Amazon is doing.

~~~
dmoy
Amazon still has >$40B in cash. Sure Google has 3x that, but it's still within
spitting distance.

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webninja
Google had a Earnings Per Share of $14.21 in the recent quarter. Google can
return a dividend or share buyback of up to that amount. They can say that
they have plenty of good ideas and are working on them but just don’t have $20
Billion dollars worth of good ideas. Apple and Microsoft are strongly viewed
companies that give dividends.

Due to the 3 classes of Alphabet shares, I’m not hanging my hat on this
happening due to how voting rights are structured. Probably won’t happen with
Facebook or Snapchat either for the same reason.

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vadym909
Maybe they can just convert a bunch of their contractors to fulltime and
create new customers for their Pixel phones, Chrome laptops- like Ford did 100
years ago.

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neonate
[http://archive.is/5srXe](http://archive.is/5srXe)

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gesman
Imagine if someone will create an ideal ad blocking service.

How much wealth will be wiped out ...

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tempsy
I feel like this perfectly makes the case for Andrew Yang.

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robertAngst
This is USD?

I know it seems like a doomsday scenerio, but if the US goes through a
moderate hyperinflation, do these companies die?

~~~
patrioticaction
If the economy was hyper-inflating large institutions and corporations would
be the first to trade their cash for other securities and assets like real
estate.

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wyxuan
Apple has used most of it on share buybacks, while alphabet has most of it
locked up in Gov't bonds

~~~
mankyd
Alphabet just announced a buyback a few days ago:
[https://www.bloomberg.com/news/articles/2019-07-25/alphabet-...](https://www.bloomberg.com/news/articles/2019-07-25/alphabet-
sales-top-analysts-estimates-calming-growth-concerns)

~~~
wyxuan
Yeah but much less than Apple

