The company curried good favor among investors when new CFO Ruth Porat announced a $5 billion buyback during its Q3 earnings last October, though some thought the amount was still too small, May writes (via Barrons).
Generally, Wall Street likes buybacks because they lower the total number of shares on the market, thus increasing the value of each investors' stake.
May thinks we'll see another buyback most likely during Alphabet's Q2 earnings because he believes the company has already depleted that original $5 billion ($1.8 billion or 2.4 million shares in Q4, $2.3 billion or 3.2 million shares in Q1, and then the last $1.4 billion between Q1 and now).
Here's his full rationale, as reported in Barrons:
Given that 1) the early trend has been for increasing buyback activity, that 2) the stock remained at roughly similar levels during 2Q16 as 1Q16 (i.e., the company likely still views the stock/valuation as attractive), that 3) buyback activity in 4Q15 and 1Q16 would imply that the company likely depleted its repurchase authorization sometime in June, we come to two main conclusions:
- We expect Alphabet to announce an additional repurchase authorization in the next 30 days (most likely on its 2Q16 earnings release in mid-July, though it could come sooner given that the company has likely already depleted its existing authorization), and
- Repurchase activity in 2Q16 could be lower than what it was in 1Q16 and 4Q15 (given that there was only ~$1.4bn remaining as of the end of 1Q16 and that the company has not yet announced a new authorization).
For what it's worth, Google's stock is up 7% since it announced the buyback in October, while the Nasdaq has declined nearly 2% during the same period.