Short-term greed has gripped some of the world’s largest Technology companies. A number of CEOs and Boards are guilty of trading long-term innovation and customer value for short-term share price support. Innovative companies (we provide examples), have bucked the buyback trend.
Record high corporate debt levels have funded record share buyback activity in recent years.
Perhaps no Technology company has failed its long-term investors and customers more so than Oracle Corp. (ticker: ORCL). Founder and CTO Larry Ellison, CEO Safra Catz and Oracle’s Board have spent $48.5 Billion on share buybacks over the past two fiscal years while only investing a paltry $12.1 Billion in R&D. ORCL’s buyback program was 3.9x the size of its R&D investment over the period.
Oracle is the prime example of the short-term thinking that is indicative of the larger trend of sacrificing innovation for near-term capital gains. This short-term thinking is especially dangerous in the Technology industry where competitive leadership positions can be tenuous and require consistent, strategic investment.
Innovative companies such as Amazon (ticker: AMZN), Salesforce.com (ticker: CRM) and Workday (ticker: WDAY) have bucked the buyback trend. Other innovative companies such as Facebook (ticker: FB) and Alphabet (ticker: GOOG) have buyback programs, yet R&D investment has outpaced share buyback allocations.