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How GitHub Acquisition Could Impact Microsoft’s Share Buybacks

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Sep. 4 2018, Updated 10:30 a.m. ET

What’s affecting MSFT’s buyback trends?

Microsoft (MSFT) maintains a robust share repurchase program. The company’s solid free cash flow trend, coupled with strong revenue growth, supports its share buyback plan.

From the graph below, we can see that Microsoft repurchased shares at an average of ~$12.0 billion per year in the last five years. During this period, the company has spent ~$60.2 billion in share repurchases.

Microsoft’s share buyback in fiscal 2018 stood at $10.7 billion versus $11.8 billion in fiscal 2017. Its buyback total in 2018 was lower than the shares repurchased in the last three years. Its June acquisition of GitHub for $7.5 billion has slowed its share repurchase activities.

At the end of June, Microsoft had $28.0 billion in shares to be repurchased under its $40.0 billion buyback program. This buyback program started on December 22, 2016, and it doesn’t have an expiration date.

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Peer comparisons

In the last five years, Microsoft repurchased an average of ~$60.2 billion in shares. Its peers Accenture (ACN), IBM (IBM), and Oracle (ORCL) repurchased shares worth about $13.0 billion, $40.0 billion, and $55.0 billion, respectively.

Impact on FCF

Microsoft utilized ~33.0% of its free cash flow to buy back shares in fiscal 2018 compared with 38.0% in fiscal 2017. In fiscal 2015 and 2016, the company used more than 60.0% of its free cash flow to repurchase shares. The acquisition of GitHub may impact the tech giant’s cash flow in fiscal 2019 and also subdue its share repurchase plan.

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