Alphabet overtakes Apple to become most cash-rich company • Hacker News Board

Re: Alphabet overtakes Apple to become most cash-rich company

#71

Post by nostromo » Fri, Aug 02, 2019, 7:02 PM UTC

MegaButts wrote: post #69

Skunkleton wrote: post #60

Earlier quoted context omitted.

> Ya, that's finance 101. But here's Finance 5400: And another point: you have to imagine that the richest companies in the world have the best possible financial expertise on staff. It is safe to assume they know what they are doing.

While I think you're probably right, a blanket assumption that "they're smarter therefore they know best" is why everyone was so surprised by what happened to Enron. I do not think this is the case with Alphabet, just saying you shouldn't blindly trust experts. There's also the subprime mortgages issue from just over 10 years ago which is much better understood now, but at the time people didn't understand them and j…

And Bear Stearns, and Washington Mutual, and Deutsche Bank, and AIG, etc., etc.

"It is safe to assume they know what they are doing" because they're managing a ton of money has been proven wrong over and over again.

Re: Alphabet overtakes Apple to become most cash-rich company

#72

Post by ajross » Fri, Aug 02, 2019, 7:13 PM UTC

noego wrote: post #11

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 advant…

> On the flip side, having a big cash hoard is bad for your investors' returns.

This is absolutely true, but sort of misses the point. What happens in practice is that such stocks end up being disfavored and investors prefer to buy other securities with better dividends. Which has the effect of depressing the share price. Which has the effect of making it harder for the company to raise money via issuing debt or stock.

...which the company doesn't care about in the first place, because it's sitting on a truck load of cash and doesn't need to raise money.

Honestly, the jury is very much out on whether or not this kind of behavior is bad for companies in a micro sense. Really all it means in practice is that these companies haven't been able to find a way to invest this money productively, they're out of ideas to purse, or markets to expand into. And that's bad, but it's not bad because of cash.

In a macro sense, though, the argument is clearer: all that money sitting around doing nothing (well, nothing but sitting around in safe investments) does nothing for the GDP as a whole, and in particular it does nothing for the bulk of the population with little to no investment holdings.

Re: Alphabet overtakes Apple to become most cash-rich company

#73

Post by nootka » Fri, Aug 02, 2019, 7:21 PM UTC

ceejayoz wrote: post #62

mhb wrote: post #59

Earlier quoted context omitted.

How does hoarding cash increase the share price to generate those capital gains? Shouldn't they be buying back their own shares?

The company's market cap will typically factor in the giant hoard of cash. As it increases, so does the stock.

Doesn't that contradict noego's ultimate point?

Re: Alphabet overtakes Apple to become most cash-rich company

#74

Post by noego » Fri, Aug 02, 2019, 7:23 PM UTC

jjeaff wrote: post #35

noego wrote: post #11

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 advant…

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 corpor…

> "Smart, wealthy shareholders love cash hoarding"

Any evidence to back this up? Activist investors generally pressure companies to not hoard cash, for exactly the reasons outlined earlier. Example: http://money.com/money/3484599/icahn-letter-apple-cash/

"Icahn controls 53 million shares of Apple, worth $5.3 billion, which gives him about a 0.9% ownership in the company. In his letter, Icahn lays out his reasons that Apple should repurchase its own shares"

Companies can return money to investors using share-buybacks - this avoids any taxable event for investors, while also not suffering from the downsides of hoarding cash.

There is one significant tactic where it makes sense to hoard cash temporarily - keeping it overseas while waiting for a tax holiday or a reduction in the tax rates. This only works as a temporary tactic though. If any company announced that they were going to hoard cash over a long period, it would depress the share-price significantly. This is exactly why activist investors like Icahn pressure their companies to reduce their cash hoards.

Re: Alphabet overtakes Apple to become most cash-rich company

#75

Post by wyxuan » Fri, Aug 02, 2019, 7:23 PM UTC

mankyd wrote: post #54

wyxuan wrote: post #46

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

Alphabet just announced a buyback a few days ago: https://www.bloomberg.com/news/articles/2019-07-25/alphabet-...

Yeah but much less than Apple

Re: Alphabet overtakes Apple to become most cash-rich company

#76

Post by dahfizz » Fri, Aug 02, 2019, 7:25 PM UTC

nostromo wrote: post #71

MegaButts wrote: post #69

Earlier quoted context omitted.

While I think you're probably right, a blanket assumption that "they're smarter therefore they know best" is why everyone was so surprised by what happened to Enron. I do not think this is the case with Alphabet, just saying you shouldn't blindly trust experts. There's also the subprime mortgages issue from just over 10 years ago which is much better understood now, but at the time people didn't understand them and j…

And Bear Stearns, and Washington Mutual, and Deutsche Bank, and AIG, etc., etc. "It is safe to assume they know what they are doing" because they're managing a ton of money has been proven wrong over and over again.

Nobody is claiming that money managers have omniscience.

What they do certainly have is more information and expertise than a random internet commenter. They don't know everything, but it's safe to assume they know more than you.

Re: Alphabet overtakes Apple to become most cash-rich company

#77

Post by whatshisface » Fri, Aug 02, 2019, 7:27 PM UTC

friendlybus wrote: post #68

arcticfox wrote: post #50

Earlier quoted context omitted.

The game is a little bit different because you don't just win by crushing your opponent like you do in a 1v1 RTS. This game goes on. I'd say the situation is more akin to a Free-for-All situation in a game like Age of Empires 2, where the winning strategy is generally to take control of key resources and suck them dry while fighting as little as possible. And then when you need to fight someone during a tech switch,…

Yeah well the discussion moves into the value of money in trying to win a tech race. Elon's Starlink broadband provider via very-near-earth satellites could be leveraged to provide a real-world advantage against google's internet dominance. If that conflict happened google would have to dump money into blue origin and would that be enough to counteract the advantage Starlink would have in dumping it's profits into ge…

Google's internet dominance isn't in telecommunications, SpaceX will be competing with the likes of ATT.

Re: Alphabet overtakes Apple to become most cash-rich company

#78

Post by sokoloff » Fri, Aug 02, 2019, 7:34 PM UTC

nootka wrote: post #73

ceejayoz wrote: post #62

Earlier quoted context omitted.

The company's market cap will typically factor in the giant hoard of cash. As it increases, so does the stock.

Doesn't that contradict noego's ultimate point?

A company that has an extra $100MM in cash will have a market cap approximately $100MM higher than the same company without the extra cash.

noego's point is that that $100MM might be more valuable if freed up to invest in a risk-asset, but not that is has no value whatsoever.

Re: Alphabet overtakes Apple to become most cash-rich company

#79

Post by friendlybus » Fri, Aug 02, 2019, 7:34 PM UTC

whatshisface wrote: post #77

friendlybus wrote: post #68

Earlier quoted context omitted.

Yeah well the discussion moves into the value of money in trying to win a tech race. Elon's Starlink broadband provider via very-near-earth satellites could be leveraged to provide a real-world advantage against google's internet dominance. If that conflict happened google would have to dump money into blue origin and would that be enough to counteract the advantage Starlink would have in dumping it's profits into ge…

Google's internet dominance isn't in telecommunications, SpaceX will be competing with the likes of ATT.

For sure, just making an example to show the pattern

Re: Alphabet overtakes Apple to become most cash-rich company

#80

Post by neonate » Fri, Aug 02, 2019, 7:40 PM UTC

bduerst wrote: post #7

wpasc wrote: post #4

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".…

Thiel is also on a jingoist bend against Google, so I would take whatever he says with a grain of salt. I saw him on CNBC claiming that Google was unpatriotic for dropping the government project Maven (machine vision for millitary drones) and that Google was also a Chinese sympathizer - despite there being no evidence and also the fact that you can't even use Google in China. The same Google employees that revolted a…

The debate mentioned above was in 2012. That's many years ago, long before any recent "jingoistic bend", so I don't think it's relevant. Actually I don't see how it would be relevant anyway, since it has nothing to do with his actual argument in this case.