Share buybacks are good for CEO options packages and investors with a short-term horizon. Outside of those irrelevant concerns buybacks do not grow revenue, nor earnings. They do not create product differentiation nor do they engender customer satisfaction. They are symptomatic of today’s ultra short-term market. Buybacks provide a short-term fix for the stock but hurt companies over the long-term as they siphon capital away from strategically important allocation areas such as Product Development, Product Management, Sales, M&A, Customer Support and other functions that help leading companies differentiate from the competition.
We told you before earnings season that companies would ramp up buyback activity as Bloomberg reported last week. Guess what? You will see much more of the same when companies report March quarter results in April. The $60,000 question is which companies will actually execute their buyback plans versus simply announcing them? If the Fed maintains elevated rates throughout 2023 as we expect companies will need a follow-up act. At the end of the day share buyback plans do not grow revenue nor do they defeat the competition. They do however goose the value of CEO options packages.