Tech giants find ways to spend mountains of cash

Tech giants find ways to spend mountains of cash

Microsoft spent nearly 70 billion USD in cash to buy game company; Apple pays dividends; while Alphabet, Meta Platforms buy treasury shares.

On January 18, Microsoft announced that it would buy the game company Activision Blizzard. This deal attracts attention not only because of the largest scale in the technology industry, but also because Microsoft will pay nearly $ 70 billion entirely in cash.

Many mergers and acquisitions (M&A) deals are paid for in stock, or both in stock and in cash. However, with $130.6 billion in cash on its balance sheet, as of the end of September, the software giant still has more than $60 billion to spend.

Microsoft isn't the only company sitting on a mountain of cash. As of the end of the third quarter of 2021, Apple has $ 190.5 billion. Alphabet owns $142 billion. Amazon has $79 billion. And Meta Platforms holds 58.1 billion USD.

Microsoft will acquire Activision Blizzard for nearly $70 billion. Photo: Reuters

Microsoft will acquire Activision Blizzard for nearly $70 billion. Photo: Reuters

They will now have to find a way to spend this money, as interest rates go up, investors start to worry about the economy slowing down and the stock market becoming more volatile. Apple used a portion to pay quarterly cash dividends to shareholders. So does Microsoft.

Other technology firms choose to buy treasury shares. Investors love this, because the lower the number of shares outstanding, the higher the earnings per share (EPS).

According to S&P Dow Jones Indices, Apple, Alphabet, Meta Platforms, Oracle and Microsoft accounted for the majority of share buybacks in the third quarter. The leading companies will probably continue to do this, especially when the market is as volatile as it is now.

"At this point in time, even a slight decline or correction in the market could cause companies to increase buybacks, given their strong cash flow," said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. said in a report last month.

Silverblatt also emphasized that acquisitions in the fourth quarter could surpass the record of $235 billion in the third quarter of last year. The scale of the whole year 2021 may surpass the old peak of 806 billion USD in 2018.

Like Microsoft, large companies can continue to use cash for mergers and acquisitions. S&P Global Market Intelligence said in a report this week that the value of announced M&A deals in North America in 2021 increased more than 80% to $2.460 billion. Last month, Oracle announced it would spend $28.3 billion in cash to buy medical software firm Cerner.

Large companies with high liquidity may feel the need to do M&A as soon as possible before Washington tightens control on this activity. The Wells Fargo Investment Institute said cash-rich companies "forecast the policy environment to be more difficult".

Some other large companies choose to use cash to raise wages for employees. Goldman Sachs said on January 18 that compensation costs for employees increased by 33% last year. Morgan Stanley also announced in its report yesterday that this number is up nearly 20%.