A buyback is essentially where the company buys back their stock, in large amounts and the reason that they are doing it, is because it is more profitable for them rather then investing in another company. Microsoft is following what other tech companies, such as Apple are doing, and that is that they have so much money that they don’t need to invest in other companies, and they are doing it to increase the value of the stock.
When an investor looks at a stock we need to look at the value of the stock, and look at what are the chances of this stick increasing. Microsoft’s stock barely moves so as an investor why do I want to invest into a company where I am making pennies? So by buying back these stocks there are less around, and then the value of it goes up. When you analyze we mentioned we don’t like making pennies, so Microsoft realizes “why would someone invest in our stock over Google’s?” The fact is investing and making pennies is not good enough so by buying back those stocks it takes less shares to be sold for that value to increase.
Tech companies are the most inclined companies to buy back stock, and that is generally because there was too much stock in the market, so Microsoft might be doing something really smart. If Microsoft had a stock value of Google then the common man will be more inclined to invest in them.
Now wall street looked at this and the stock rose about $0.13 which is very little, and that is because wall street wants more stock and a larger program. More stock means that there are more potential sales however we have two types of investors.
Those who want to see large numbers and want to make a large amount of money. These people are more inclined to buy from Google.
Then we have those who are safer investors and they are looking for small but consistent change. They would go after Microsoft, because the stock does not really decline that much.
We will have to wait and see what this does to their value, but Microsoft does not really mess up on their buyback deals.