Prof G Markets: Tesla’s Earnings Beat, Chevron’s Share Buybacks, and Elliott’s Salesforce Stake

Buyback Ethics

Share buybacks are a method for companies to return capital to shareholders, often seen as a tax-efficient alternative to dividends. Scott Galloway explains that while buybacks can increase earnings per share and stock prices, they are sometimes criticized as financial engineering. He highlights the ethical concerns when companies prioritize buybacks over investments in growth or innovation, especially when management benefits from stock-based compensation 1.

It's a way of returning capital to shareholders. So it's basically a company says, we are a profitable company. We have positive cash flow. We end up with a billion dollars in cash at the end of the year, and we don't have an immediate plan or growth strategy where we could deploy with a decent ROI hurdle.

--- Scott Galloway

Galloway argues that excessive buybacks can lead to a situation where companies seek government bailouts after depleting their cash reserves, creating a cycle of "capitalists on the way up and socialists on the way down."

   

Chevron's Strategy

Chevron's recent financial decisions highlight the broader implications of share buybacks in the corporate world. Ed Elson points out that despite receiving government support during the COVID-19 pandemic, Chevron is now using its profits for shareholder dividends and buybacks rather than reinvesting in the business or sustainable energy 2.

Now Chevron apparently has $75 billion to play with, and their response isn't to reinvest that capital back into the business, which would help them survive another macro incident or maybe help them move faster towards sustainable energy.

--- Ed Elson

Galloway acknowledges that while some level of buybacks is reasonable, an overemphasis on them without corresponding investment can be seen as financially irresponsible. He suggests that taxing buybacks is a balanced approach to address these concerns.