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Comment by ikono | Hacker News Reader

Microsoft has also repurchased a lot of stock over this period which should inflate the stock price.

In any case, it doesn't matter that much especially given a relatively small number of years and a stagnant price per share. The general premise of Microsoft stagnating is true regardless of how you tweak the numbers.

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Buying back stock increases earnings per share, not the stock price.

Yes, and increasing earnings per share generally increases stock price.

In theory you only buy shares back when you believe that they are worth more than they are trading for. If this is true, it will increase the intrinsic value of the company and should increase its price per share. If it is not true, then management is incapable of evaluating their own business and shareholders should demand that all non-essential capital be returned to shareholders in the form of dividends.

In either case, my point still stands. These things don't matter enough to be bickering about them. From January 2000 to present the Nasdaq is down about 29%, for Microsoft to only be down that amount your adjusted price would need to be about $40. You need to be very generous to say that those dividends we're worth ~$15 and that's just to match the Nasdaq.

If you really want to argue with the data you should be arguing about the start/end dates. Comparing to the Nasdaq eliminates some of the problem as most tech stocks were equally inflated in 2000. I still think you're looking at near parity at best. Microsoft should have been better than average and the data shows that it probably wasn't.

Buying back shares doesn't raise the stock price because it doesn't change the underlying fundamentals. If the stock goes up after a buyback, it only stays up if there was a reason other than a share buyback.

If you don't overpay for the shares, your enterprise value should be the same or slightly higher. So market cap should be flat to slightly higher but there are fewer shares outstanding so price per share would go up. When buybacks don't increase share price, by definition market cap must be decreasing.

The market cap goes down. The company has less cash, and that cash was priced into the market cap.

If you yourself had a a market cap of $25 including the $5 in your wallet, giving away that $5 would lower you market cap to $20.

Actually, when buying back stock you're essentially reducing the number of shares outstanding, which, all else equal, would translate into a higher stock price.

That confuses me. When the company buys back shares they don't just disappear, do they? With 1 million outstanding shares owning 50% of a company and the company buys back 500k, then there are 500k shares owning 25%. Why would those shares' value increase?

Yes, the shares disappear. A company cannot own itself, at least not directly. If a company had 3 million shares outstanding, then buys back 1 million shares, there would then be 2 million shares.

So do the remaining shares own more of the company?

Yes. When a company buys back shares, those who do not sell end up owning a larger percentage. It would be the same if you were paid a dividend and then used that dividend payment to buy additional shares of stock.

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