Someday, startups have to pay back all that equity compensation.

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This season of income was not kind to all companies. Although there were some notable victories, including good results from Uber as well as Amazonother big tech companies performed poorly after the release of their second quarter financial reports.

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However, the two companies, Airbnb and Snap, that posted results that investors didn’t like, are interesting for more than negative share price movements after their earnings reports, despite divergent results. What makes the two companies stand out this reporting season is that they have both announced plans to spend heavily on share buybacks, a form of shareholder return that we don’t see in tech companies until they’re older and have a longer lifespan. history. as public entities.


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The use of cash in fast-growing companies has a virtue-signaling component. Companies that use cash to generate shareholder returns, say growing faster tell investors that they cannot direct all their cash flow to effective growth opportunities. This could be a turning point where the company will generate shareholder value not only in the form of share price growth based on rapid revenue growth, but also in a combination of growth and direct investment in shareholder value. Share buybacks limit a company’s total turnover or equity base, making each individual share more valuable, which investors value.


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