Stock Market

GOOG Stock Alert: Alphabet Is Spending Money in All the Wrong Places

Reading Alphabet’s (NASDAQ:GOOG), financial reports can be laborious, but it’s critical for owning Alphabet stock for the long haul. GOOG stock is up 49%, this year but trails the rest of the Magnificent Seven. Fortunately, for shareholders, Alphabet continues to buy back its stock. 

Through the first nine months of 2023, it repurchased $46.16 billion of its stock at an average price of $112.58. That’s a return on investment of 19%. In 2022, the company repurchased 530 million shares of its stock, paying $59.30 billion, or $111.88 a share, an ROI of 20%. It hasn’t done nearly as well on its 2021 repurchases with an ROI of 8.4%. On an annualized basis, that’s 2.7%. 

Alphabet’s OI&E Says a Lot

A quick perusal of Alphabet’s Q3 2023 10-Q suggests the company would be better off investing some of its free cash in an S&P 500 ETF as Warren Buffett recommends for most investors. On page 24 of its 10-Q there are details the company’s Other Income & Expenses. For the first nine months of 2023, its other income was $709 million, up from a $2.50 billion loss a year earlier. 

As Warren Buffett would tell you, some of the numbers Berkshire Hathaway (NYSE:BRK.B) reports are virtually meaningless to the holding company’s overall economic picture. I’m speaking about the 2019 changes to Generally Accepted Accounting Principles (GAAP) that required public companies to account for unrealized gains and losses of their equity investments in their quarterly earnings.       

Three Things Gleaned From Its OI&E

The first thing that catches my attention is the increase in interest income in the first nine months of 2023 compared to 2022. Through Sept. 30, it was  $2.76 billion, 82% higher than a year earlier. 

While its cash, cash equivalents, and marketable securities only increased by $6.2 billion in 2023, thanks to a higher-interest rate environment, interest income jumped by aforementioned 82%. Over the past 12 months through September, Berkshire earned $5.1 billion in interest income. It’s a great time to be a saver. 

The second thing that catches my eye are the $302 million in performance fees, down from $605 million a year earlier. These are fees it receives for certain investments it has made as part of its compensation arrangements for those investments. In 2022, they were $798 million. However, in 2021 and 2o2o, there were losses of $2.52 billion. It cuts both ways. 

As it relates to the S&P 500, its losses related to its equity securities was $194 million in the first nine months of 2023, down from a $1.97 billion loss in the same period in 2022. For all of 2022, the losses were $3.46 billion.

If you look at its 13F from Q3 2023, you see it had $1.56 billion in assets invested in 51 stocks. In Q2 2023, it had $1.86 billion in assets invested in 56 stocks. 

It exited four positions in the third quarter: Lyft (NASDAQ:LYFT), Oportun Financial (NASDAQ:OPRT), Decibel Therapeutics (Regeneron Pharmaceuticals (NASDAQ:REGN) acquired it on Sept. 25) and Robinhood Markets (NASDAQ:HOOD).     

The average return over the past year of the three stocks still trading is -20.3%. Not good relative to the S&P 500, which was up more than 12%.

The Bottom Line on Alphabet Stock

I get why Alphabet buys back as much stock as it does. GOOG stock continues to be the laggard of the Magnificent Seven although it probably has the strongest balance sheet of the bunch. 

Maybe it’s time to listen to Buffett.    

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.