Google's stock buyback plan: an accelerator for market capitalization growth
Google's (GOOG) Q1 2024 earnings report has been released. While many analyses have discussed its results in detail, this article will focus on a less-discussed aspect: Google's stock buyback program and its potential to accelerate market cap growth.
According to analyst consensus forecasts for the next six years, Google's earnings per share are expected to grow steadily at a strong pace, reaching $7.56 by the end of fiscal 2024 with a 15% compound annual growth rate. This growth rate suggests Google could reach a $3 trillion market cap between fiscal 2026-2027, assuming current valuation multiples are maintained.
Google has been an active buyer of its own stock, spending over $12 billion quarterly on average for buybacks. Thanks to strong Q1 earnings, Google's financial position is robust, creating conditions for accelerated buybacks. Currently, Google holds over $110 billion in cash assets with just $12 billion in long-term debt, and expects over $100 billion in organic operating cash flow for fiscal 2024. As the company continues focusing on computing activities like AI, significant cash is expected to be returned to shareholders through buybacks.
Google announced a new $70 billion buyback program and initiated dividend payments in Q1. Compared to dividends, buybacks represent a smaller portion of capital return programs, but are considered more effective given the stock's fair valuation and future growth potential.
Through the dual compounding effect - combining earnings growth with share count reduction - the buyback program is expected to significantly boost Google's market cap. Based on assumptions including 60% of operating cash flow allocated to buybacks, 15% CAGR, and 22.5x cash flow for stock purchases, projections show Google could reach $3 trillion market cap between fiscal 2025-2026.
Google's current forward P/E of 24.4x (22.5x cash flow) is the lowest among FAANG peers. Its dominance in digital sectors and synergies across search, YouTube, cloud computing and AI operations provide strong growth momentum.
Synergies between Google's ad platform, search engine and Android mobile OS, plus its vast user data and advertising division, create a solid financial foundation for innovations in autonomous vehicles and AI while strengthening its market position.
While Google faces risks common to tech companies like increased competition, rising costs and potential economic slowdown, regulatory scrutiny is a more unique challenge. However, upside potential far outweighs these risks. Its 15%+ growth rate, relatively low P/E and aggressive buybacks, combined with dual compounding, could push Google's market cap above $3 trillion within two years.
Google's buyback program acts as a market cap growth accelerator. Combined with strong earnings growth and low valuation, it presents a compelling investment opportunity. Despite risks like regulatory scrutiny, Google's growth potential and market position make it an investment worth considering.
$Alphabet - C(GOOG.US)
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