Jordan Hayes jmhayes at j-o-r-d-a-n.com
Sat Mar 11 12:26:48 PST 2000

From enrique at anise.ee.cornell.edu Fri Mar 10 14:03:16 2000

> Tell that to Microsoft ($17.8B), Intel ($11.5B), Cisco ($4B) ...

Yep. And they spend nearly all of it in stock buybacks

which, curiously enough, never actually decrease outstanding


It decreases the float. What exactly is wrong with buybacks? Equity is an expensive way to finance growth; would you have a problem if, instead of selling stock INTC sold bonds and, as a result of generating over $20B in profits, they retired some debt?

And I think that, with Dell, that about covers significant

cash flow in the NASDAQ.

And it also accounts for ~37% of the NASDAQ index. Ok.

> That's a silly proposition: if they were expensed, they

> wouldn't be so plentiful.

Yeah. Kind of, like, if Amazon wasn't losing so much money,

it would be making a profit, eh?

No, nothing so tautological: I mean to say that the benefits of stock options (most of which go unexercised, so how would *that* influence earnings after you've plundered them before?) *are the reason* for their popularity. Treating them the way you suggest would instantly stop their use, not lead to the decrease in earnings that you predicted.

To paraphrase Buffet, if stock options are not compensation,

what are they? If compensation is not an expense, what is


They are _deferred_ compensation, just like future sales are deferred revenues. But until they is, they ain't. Get it? The fact is that options are interesting and everyone has a hard time valuing them. Realistically, most exprire worthless. So your idea of accounting for them before they "are" anything is a little naive.

I bet you think that people should be taxed on the face value of frequent flyer miles, right?

what about the main point, i.e., can tech companies actually

put any cash in shareholders' pocket until their stocks

decline significantly and void all those options?

I'd say that buybacks are much more successful way of putting cash into the hands of shareholders. Dividends are so 20th Century. For a $100 stock, would you rather have a 4% dividend or a buyback that results in a 20% appreciation?


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