The "high fever" of global inflation data continues, while interest rate hikes by the Federal Reserve and the European Central Bank continue to be lax. Under such a bleak outlook, U. S. stocks have fallen one after another in recent days.

At the same time, the largest Internet companies in the United States by market capitalization have launched tens of billions of large share buyback programmes. will it really work to boost their share prices?

Dividend plus buyback, but the stock price can't stop falling.

Apple Inc, the technology company with the highest market capitalization, generated a net cash inflow of $98.024 billion through operating activities in the nine months ended June 25, 2022, mostly to return to shareholders, including $11.138 billion in dividends and $64.974 billion in share buybacks, totaling $76.112 billion.

In the 12 months ended June 25, 2022, Apple Inc paid a total of $14.778 billion in cash dividends and spent $84.722 billion on share buybacks, resulting in a total return of $99.5 billion to shareholders, equivalent to 4.11% of the current market capitalization of $2.42 trillion.

In the past year, however, Apple Inc's total market capitalization has fallen by 0.31%. With the capital appreciation of the stock price plus the return on dividends and buybacks, Apple Inc brought investors a return of only 3.80% this year, only 1.3 percentage points higher than the current federal funds target rate.

$Apple (AAPL.US)$The situation is pretty good.$Microsoft (MSFT.US)$、$Alphabet-C (GOOG.US)$、$Amazon (AMZN.US)$、$Meta Platforms (META.US)$、$NVIDIA (NVDA.US)$It's even worse.

Alphabet Inc-CL C, second only to Apple Inc in terms of buyback amount, bought back a total of $54.58 billion of shares in the 12 months ending June 30, 2022, and carried out a split of 20 shares per share since July 15, but failed to save the share price performance. its share price has fallen nearly 30 per cent in the past year, and even deducting the 4.04 per cent dividend and repurchase yield, the total annual investment loss is still-25.53 per cent.

Microsoft Corp, who paid a dividend of $18.135 billion and bought back $32.696 billion in the most recent year, was not immune, with a 19.72 per cent drop in market capitalization, completely offsetting a dividend and repo yield of 2.78 per cent, with a full-year return of-16.93 per cent.

Amazon.Com Inc doubled the $5 billion buyback plan in 2016 and launched a $10 billion buyback this year, totaling $6 billion in the last 12 months. Still, even with the plan to split 20 shares, its market capitalization still suffered a drop of 28.84%, and the return of 0.48% from buybacks is a drop in the bucket.

The deadliest is Meta, whose market capitalization has evaporated from $1,000bn in mid-September to $393.2 billion today, when its growth expectations for advertising revenue have been undermined by a poor economic outlook.

Maybe Meta didn't expect its market capitalization to fall so much, and since 2017, the company has been setting up an open-ended repurchase plan and constantly updating authorized repurchase quotas. In the 12 months ended June 30, 2022, Meta did not pay a cash dividend, but repurchased $48.258 billion of class A common shares, equivalent to 12.27% of the current market capitalization!

Even so, it has only partially offset the decline in market capitalization, and the overall performance has almost halved in the past year.

NVIDIA Corp's market capitalization also fell by 40.90%, while its $401 million cash dividend and $5.341 billion buyback did not make the overall return any better, with a return of-39.16% in the most recent year.

As shown in the table below, the six technology companies with the highest market capitalization paid out cash dividends and share buybacks in the 12 months to the end of June 2022, giving back $246.911 billion to shareholders, or 3.50% of their current market capitalisation. but it didn't add to the market capitalization. In the past year, the combined market capitalization of the six listed companies has lost 24.12%.

Expansion is not as good as buyback?

Apple Inc adopted a cash-neutral strategy, which means that after deducting the net expenditure required for investment activities, the net cash inflow from operating activities will be used to pay cash dividends and buybacks, that is to say, the more you earn, the more dividends and buybacks will increase accordingly. directly linked to its future profit growth.

In the 12 months ended June 25, 2022, Apple Inc's net cash outflow from investment activities was only $20.302 billion, equivalent to only 20.4 per cent of the total $99.5 billion he gave back to shareholders.

As rational economic people, listed enterprises, especially scientific and technological enterprises that are regarded as "the hope of the whole village," the most ideal use of funds is investment and expansion, which is what American politicians expect, constantly creating jobs and increasing consumption. then the economy can continue to grow.

However, these listed companies clearly do not think so.

Take Apple Inc as an example. In the 12 months ended June 25, 2022, the company's net interest rate reached 25.71%, while its ROE (return on equity) reached 162.82%, that is, for every $1 invested by common shareholders, it can generate a return of $1.63.

However, Apple Inc did not use the surplus funds to expand the return measurement formula of ROE-- income, but to reduce the denominator-- to reduce the scale of shareholders' equity through share buybacks, so as to strengthen the rights and interests of original shareholders.

This may mean that listed enterprises such as Apple Inc, which are most familiar with the market, products, supply and demand, and are most sensitive to the macro-economy, are not so confident about the prospects of future economic development, and would rather use the money to buy back shares. I don't want to risk business expansion.

Left-handed buyout, right-handed buyback, Wall Street mogul caught in a dilemma

The situation of other tech giants is similar to Apple Inc.

Microsoft Corp signed an agreement on January 18, 2022 to buy the game company in all cash at US $95 per share.$Activision Blizzard (ATVI.US)$At a total cost of $68.7 billion, the deal has been approved by Activision Blizzard shareholders, but the biggest difficulty may be an antitrust investigation by regulators.

NVIDIA Corp has learned a lesson from the past.

In February 2022, NVIDIA Corp announced the termination of the acquisition of chip design company ARM from Softbank Corp., mainly because regulators blocked the completion of the deal on antitrust grounds. To this end, NVIDIA Corp generated a termination cost of US $1.35 billion during the period.

Internet giants are already leaders in the industry segment, and each of their large transactions involves a significant impact on the concentration of the industry, which will naturally attract the attention of regulators.

Rather than saying that there is a lack of promising investment opportunities in the market, it is better to say that as their size expands, these technology companies become more cautious under the regulatory microscope. By comparison, the returns from a large acquisition may not be enough to offset the potential risks they face, and they can only make small fuss, eliminate small competitors and make some innocuous investments.

Alphabet Inc-CL C announced on September 12, 2022 that he had completed the$Mandiant (MNDT.US)$, a provider of dynamic cyber defense, security intelligence and emergency response services, at a total cost of $5.4 billion. Upon completion of the acquisition, Mandiant will join Alphabet Inc-CL C Cloud and retain the Mandiant brand.

The value of the deal is only 9.17% of its remaining share repurchase quota of $58.9 billion on June 30, 2022.

Admittedly, compared with his large technology counterparts whose main investment activities are only buying and selling securities, Alphabet Inc-CL C is very aggressive. the amount of fixed asset investment in the 12 months ended June 30, 2022 is 31.696 billion US dollars, much higher than Apple Inc's 10.831 billion US dollars. however, the amount of share buybacks during the period reached 54.58 billion US dollars, which aspect is clear at a glance.

Amazon.Com Inc is perhaps the most sincere in terms of capital expenditure. In the first half of 2022, its capital expenditure reached $27.8 billion, much higher than the $6 billion spent on buybacks, mainly on technology infrastructure (mostly used to pay for cloud computing business upgrades) and expanding the support capacity of the compliance network. And will increase spending on technology infrastructure in 2022.

In addition, Amazon.Com Inc bought MGM and announced in July 2022 that he plans to buy One Medical, a health care provider with cash on hand, for a total cost of about $3.9 billion, including debt, but is under antitrust investigation by the Federal Trade Commission (FTC).

Meta, which has made a high-end foray into meta-universe, expects its capital expenditure to be between $30 billion and $34 billion in 2022, compared with $48.258 billion in share buybacks in the last 12 months.
From the above analysis, it can be seen that Internet giants have tried to conduct large-scale transactions, but because of their large size, they are easily subject to antitrust investigations. On the other hand, it may be clear that they are not optimistic about the economic outlook from the fact that they are spending more money on buybacks.

However, although a huge amount of share buybacks can please investors, such a large amount of profit transfer has led to criticism from the relevant authorities that they are not enterprising and their expansion is not as good as stock speculation. Recently, the United States is discussing imposing a surtax on share repurchase activities of listed companies, thus reducing the boosting effect of buybacks.

When will the bear market in US stocks end?

As mentioned earlier, large acquisitions are subject to antitrust investigations, buybacks are likely to be subject to additional taxes, and technology stocks, which lead the performance of US stocks, face many obstacles.

Buffett, the god of stock, mentioned in an interview with Fortune magazine in 2001 that the market capitalization of listed companies to GDP or the single indicator that best reflects the current valuation, hence the Wilson 5000 index / GDP ratio. The Wilson 5000 index covers the most active stocks on the New York Stock Exchange, AMEX and NASDAQ exchanges.

See below, the index had a relatively large peak and pullback in 2000 and 2007, due to the dotcom bubble in 2000 and the subprime storm in 2007, with the most recent peak in December 2021. As can be seen from the picture, the peak in December 2021 is much higher than that in 2000 and 2007, and shows signs of decline.

The peak decline in 2000 occurred in February 2003, with a ratio of 70.72%; the low of withdrawal after the peak in 2007 occurred in March 2009, at 53.42%; now, the ratio is still as high as 156.53%, which does not seem to have been adjusted.
Considering that interest rates will be raised one after another, it will have a certain impact on economic growth and the stock market. At a time when the largest technology stocks leading the market are not expanding well and buybacks are not helping, the bear market in US stocks may be just the beginning.