Big technology companies are buying up office properties (WSJ article). Why is this noteworthy? It’s a sign they have run out of more productive ways to spend their cash. Typically, high growth companies would lease their real estate because they want to reinvest their cash in something that will grow faster than 10%. Their growth prospects may be slowing if they are using cash to buy real estate instead.
Alphabet, Amazon, and Facebook are all mentioned as paying hundreds of millions of dollars for office buildings in that Wall Street Journal article. There are several factors that go into such a decision – control over the building, the cost of the building (office properties came down in price through the pandemic), and many others. Still, I’m willing to bet that most of those other factors would be set aside if there were fantastic growth opportunities in their core businesses.
In any case, buying a building is better than overpaying for an acquisition and is more productive than sitting on cash earning nothing. I’m just saying, if that’s the best use they have available, it’s a sign earnings growth may slow. That could hurt their stock performance in the long run.
About the Author: John O’Connor
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