The Most Stunning Chart From Oracle's Earnings Report

Tyler Durden's picture

Moments ago Oracle reported that it missed on both the top line ($11.33 billion vs Exp. $11.48 billion), and the bottom line (EPS $0.92 billion, Exp. $0.95). The company didn't blame snow (blaming Snowden would be more appropriate), and yet despite the 6% tumble in the stock price, the miss in operating results was not the most surprising aspect of the company's Q4 earnings release.

What was? The following chart breaking down Oracle's quarterly spending on stock buybacks versus capital expenditures. It speaks for itself, and also explains very succinctly why despite all the propaganda, the stock market surge is completely fake, driven by nothing more than the Fed and companies buying back their own stock, as is the so-called "economic recovery."

Indeed, despite ORCL buying back $2 billion of its stock in Q4, $10 billion in Fiscal 2014, and nearly $21 billion in the past two years, a massive surge compared to the company's pre-Lehman buyback pattern, the company still missed.

Of course, our readers already knew this: it was a month ago when we presented the "Mystery, And Completely Indiscriminate, Buyer Of Stocks In The First Quarter." Today, with a 1 month delay, the FT figured it out too.

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Pinto Currency's picture

 

 

Buy gold, silver, platinum, palladium.

And buckle up.

This is going to be a nasty re-entry to reality.

LawsofPhysics's picture

Optimist.  I see plenty of people are still accepting those paper promises in exchange for their labor.

Pool Shark's picture

 

 

Lowering the 'S' in 'EPS' tends to result in higher numbers that can be touted in CNBS headlines...

old naughty's picture

"Today, with a 1 month delay, the FT figured it out too."

There you have it...

Sometimes they took 4-ever figuring things out, no? What was the percent of sheeples still tuning in, again?

Antifaschistische's picture

This is the .00001%'ers get uber wealthy plan.   Yes...and Larry takes those paper promises via the Fed and buys his Hawaiian Island.    When the Hawaiians repartiate that Island, maybe Larry will get paper promises in exchange....or a case of pineapples.

Freddie's picture

Oracle is a major govt whore that charges Uncle Sam insane prices on their shit.  But Larry was a AL See Eye Aye contractor. 

USA is a joke country police state.

ZerOhead's picture

So sad. Lower earnings for the Moracle of Omabwaaahahahaaa!...

booboo's picture

Oracle ORCL not douchebag wrinkle that takes baths with Becky Quick

I Write Code's picture

Buy-backs have nothing to do with making numbers.

Tyler Durden's picture

Is that so? What does the PS in EPS stand for?

I am more equal than others's picture

 

 

 

Err.... EPS, earings per slut?  No, no, it has something to do with E=MC2.

No, no, it has something to do elephant's pounds of shit?

I'm sorry, next questions.

 

Say What Again's picture

Can you imagine trying to run your business with a program written by that guy?

He must work for Microsoft.

 

Post Scriptum

PlayStation

 

The more serious question is; Is this a good use of Capital?  Why not? 

1. I borrow huge amounts of money for around 1%

2. I buy back my stock now

3. Later when I need to raise moar capital, I issue moar float (when the stock price is much lower)

Sounds like a good business plan to me!

</sarc>

Dr Benway's picture

The funny thing is you just admitted IWriteCode is right.

 

If they both buyback shares and issue shares as per your point two and three, there is no longterm change in shares outstanding. Or actually, since you posit issuing shares at a lower price than the buybacks, there will be an increase in shares outstanding.

 

You pawned yourself.

Say What Again's picture

I can only presume that English is not your first language.

What I said, in a sarcastic voice, is

1: Buy back stock NOW at a high price (using borrowed funds).

2: Sell that stock LATER at a much lower price.

Is it really that difficult to understand?

Dr Benway's picture

And there will thus be no longterm reduction in shares outstanding, exactly as I said.

And the true purpose of the buyback is thus to temporarily jimmy market prices higher, not to lower shares outstanding.

What part of this do you have trouble comprehending? You pawned yourself.

NotApplicable's picture

"Photoshop," right?

Just ask Russell Wasendorf, or Madoff's helpers.

Dr Benway's picture

He's right. Buybacks have nothing to do with reducing number of shares outstanding or increasing EPS, this is just a pretense.

At least in Australia, buybacks are done to directly ramp the "market" price. Companies do buybacks and share issuance alternatively or even at the same time. This proves they are not doing it to reduce shares outstanding.

The plan is to issue shares to parties that have agreed not to sell (eg fund associates) and then buy shares on "market" to jimmy the price.

See for example below from the ASX, where Clearview announces a capital raising and buyback in the very same announcement, openly admitting they will try to jimmy the "market" price. This announcement is a confession of planned securities fraud.

http://www.asx.com.au/asxpdf/20131219/pdf/42lqhxrd16jg1z.pdf

I'm your biggest fan, Tylers, so it surprises me you guys haven't highlighted this!

MrSteve's picture

You obviously know nothing about bear raids or watering stock. Stock buybacks are bull raids.

MrSteve's picture

EPS stands for Every Price Skyward, as in "the stock buyback program was approved by the board of directors in order to increase leverage on the value of the boards' and managements' stock options, by keeping the shares' Every Price Skyward". It's working! What a country!!

ThirdCoastSurfer's picture

Are buybacks a one-way street?  Don't companies hire a broker to execute the transaction?

As such, are these brokers prevented from day-trading the stock, buying, selling, covering, shorting, puts and calls, the gamit, but in the end buying more than they sell or are they limited to buy only by regulation? 

In other words, what is the order flow of a $2 billion dollar a quarter buy-back? 

I see the average trading volume of Oracle is about 17 million shares and the midpoint of the 52 week price is about $36.50; so, $2 billion is about 55 million shares and with 60 trading days in a quarter, 55 million represents about 19% of the volume. 

Ness.'s picture

Wouldn't buying back your own stock, thereby reducing the float, have an affect on earnings PER SHARE?

 

Cheers,

 

Simple Jack

Dr Benway's picture

No, not if you're steadily issuing shares at the same time. So for many companies, this is just a pretense. See my reply above. 

ejmoosa's picture

What you suggest is not happening.  Oracle had 5.8 billion shares outstanding in 1998.

Today they have 4.45 billion.

 

Verify it with a copy of Valueline.

 

Why would you be making such statements when they are easily proven false?

tarsubil's picture

You can do both at the same time but are they all actually doing that? Is this what Oracle is actually doing?

Edit: ejmoosa answered the question and for Oracle the answer is no. They are in fact using buybacks to manipulate EPS (along with price and bonuses right?).

Dr Benway's picture

To both of you: I am talking about the buyback machine in general, not Oracle specifically. Please learn to read.

 

Also, in cases where the outstanding shares actually are reduced, the direct effect on market price is much greater than the predicted effect from reduced share numbers. This is easily empirically proven, and proves my point conclusively.

ejmoosa's picture

Home Depot has been buing back shares.  They still have not made as many total dollars as they did before the recession.

 

But their eps is at all time highs.

 

So you make a generalization that you try to apply to Oracle, which this story is about, and you want us to learn to read?

We gave you specifics.  That trumps inaccurate generalizations every time.

 

 

Dr Benway's picture

I have stated both a general conclusion and specific examples. I have also provided an empirical proof of said conclusion.

 

You have made zero argument.

 

My point stands: The purpose of the corporate buyback machine is to directly affect "market" prices, and not to reduce shares outstanding. The shortterm effect on "market" prices is greater than that which would have been expected by the reduction in shares (easily empirically proven).

Ness.'s picture

It appears you have a problem with words, mate.  Would looking at a chart help?

 

http://ycharts.com/companies/ORCL/shares_outstanding

 

 

ejmoosa's picture

And to manipulate the public opinion that things are better than they would otherwise appear.

So where do they get the money for these "buybacks"?  

 

I'd suggest all the liquidity starts at the Fed.

 

NoDebt's picture

Unless they're stated on a per-share basis.  Repurchased shares don't count in the denominator of Earnings / Share calculations.  Only the outstanding shares count.

CrashisOptimistic's picture

Hmm, unless things have changed, repurchased shares go into treasury and are no longer outstanding.

 

Oops, I don't think we're in disagreement.

 

I Write Code's picture

Yes but the projections are then made against the reduced number (and are pre-adjusted for changes in the float), and whether or not they are made doesn't depend on the number of them.

Anyone who red-ticked me here - and the authors of this article - are donkeys.

pods's picture

So what happens when everyone has eaten the seed corn?

pods

rtalcott's picture

Well...you print more!

NoDebt's picture

They barf it back up (sell the shares again on the open market) to get needed cash for their then-failing operations.  

bonin006's picture

They sell the shares they bought back for $50, for $5.00

Quinvarius's picture

They eat the minorities.

Cognitive Dissonance's picture

Glad to see Oracle has its eye on the stock price ball.

<You know you're at the end of another business cycle when all they care about is the stock price.>

MrSteve's picture

If corporations grow by selling stock to raise capital and invest the proceeds to grow products, sales and profits; what happens when they buy their stock back? Is this a hard question?

ejmoosa's picture

It means they see no reason at this time to grow their business or develop new products.

 

 

 

LawsofPhysics's picture

Please, there is no "market" for true price discovery, period.  What part of NO don't people get?  Dumbasses.

NOTaREALmerican's picture

"True" prices discovery sounds fraught with danger.   There might losers.    It's best to have a system where there are only winners.   This way,  everybody can be above average.

LawsofPhysics's picture

classic, but yes.  nevermind all the innovation that comes from failure, fuck em, kill them all. As one of the "smart and savy" my personal security team is going to dispose of any threats promptly anyway.