1. By buying back stock companies prop up stock prices/markets, which helps avoid laying off workers. Companies are also building their war chests for emergencies and acquisitions. Corporations are in a war for tech talent (Google alone acquires a company a week) and ideas 💡.
2. 25 years ago, companies used to make big, expensive investments in buildings and machinery. Today, though, value is created far more through new ideas 💡 and new ways of interaction. Facebook paid $20 billion to buy a messaging app (WhatsApp) built by fewer than 8 people.
3. Tesla (a 15 year old company) built high performance electric vehicles that 100-year-old BMW could not. Netflix is more valuable than 50 year old broadcast giants. So corporations now need more cash on hand to snap up startups/talent that can give them a major advantage.
4. For some industry sectors like pharmaceutical and technology, cash reserves or savings are rewarded by investors - for pharmaceutical companies a dollar in savings is worth $1.50. For software/tech companies, it’s even higher: more than $2…which is why some have so much 💰.
5. Basically what investors are saying is that they trust the likes of Tim Cook, Jeff Bezos, Larry Page, Satya Nadella or Mark Zuckerberg to make smarter and better investments with this money than the investors themselves could.
6. Other reasons to hoard 💰(aside from acquiring startups): Attracting + retaining talent. Companies are competing on benefits, offering free lunches, unlimited paid leave (extending such benefits to domestic partners). Facebook offers $4000 in baby 🍼 cash to new parents.
7. Ironically, the bigger even innovative companies get, the less innovative they could become - so they’ll need ever more cash on hand to scout for ideas/talent and quickly snap up a promising emerging player (before the competition does) that can give them major revenue boost.
8. So if you’re going to hire engineers at $175K/year and then give them unlimited paid time off, you’re going to need to hire more of those to avoid burnout/compensate when they take time off - all this adds up and why tech companies build massive talent/benefits war chests.
9. Last but not least, cash rich companies are plowing billions into R&D and infrastructure (especially renewables) - Apple, Amazon, Google, Facebook have all built and continue to build out solar and wind farms to power our thirst for data and connection. https://aws.amazon.com/blogs/aws/more-amazon-wind-and-solar-farms-are-live/ …
10. Amazon alone spent a staggering $75 billion (not a typo) in R&D since 2014 - many companies with extra cash simply can’t match this so they do stock buybacks and hope they’ll be healthy enough to be able to buy or build the next Amazon or Google.
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