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Will Google Start a Capital Return Program with Ruth Porat?


Jul. 31 2015, Updated 9:06 a.m. ET

Google’s CFO hinted at starting a capital return program for shareholders

In the prior parts of this series, we discussed Google’s (GOOG) better-than-expected 2Q15 earnings, which cheered investors. Other news that cheered investors was the hint that Google’s newly appointed chief financial officer, Ruth Porat, offered that the company might start a capital return program for its investors in the form of either dividends or a share buyback program. Google has never initiated such a program before.

Google’s current cash and cash equivalents balance is around $70 billion with only $3 billion as short-term debt. This balance has continued to increase over the quarters, as the chart below shows. So the company can easily start distributing capital to its shareholders.

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Large-cap technology companies are already returning capital in big numbers

Another initiative that Porat can take on is a stock split. Currently, Google’s stock price is around $630, which is way too high for small retail investors. Netflix (NFLX) took this initiative a few weeks back and split its stock in a 1-to-7 ratio.

Apple (AAPL) is another company that’s been returning capital to its investors in big numbers. In the second quarter, Apple returned $13 billion to its investors—$3 billion in the form of dividends and the remainder to repurchase Apple shares. Even IBM (IBM) mentioned that it has returned $4.7 billion to its shareholders in the last six months in the form of dividends and share buybacks.

Google has reached the maturity level that it will need to start thinking of making optimum use of its cash in the form of capital returns to its investors. We might hear something on that front from Google in the coming quarters. If you’re bullish about Google, you could invest in the Technology SPDR (XLK). XLK invests 3.7% of its holdings in Google.


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