How Larry Ellison became the
richest man* in the world
via share buy backs
* for a few days
Oracle, under Larry Ellison provides a compelling case study of how aggressive share buybacks can artificially inflate stock prices while masking underlying business stagnation.
Oracle’s Massive Buyback Program
Between 2009 and 2019 Oracle has allocated in excess of $100 billions USD of profits on share repurchases, often surpassing the company’s net income in certain years. This strategy has systematically reduced the company’s share count while simultaneously increasing Ellison’s ownership percentage without requiring him to purchase additional shares.
Oracles’ Mathematics of Artificial Growth
Oracle’s buyback strategy demonstrates how financial engineering can create the illusion of improved performance. When the company repurchases 20% of its outstanding shares, the same $10 billion in annual profit is distributed across fewer shares, mechanically boosting earnings per share from $1.00 to $1.25—a 25% increase with zero actual profit growth. This EPS enhancement often triggers higher market valuations based on price-to-earnings multiples, driving up the stock price despite stagnant business fundamentals.
From 2009 to 2019, Oracle bought back 1.6 billion shares, a reduction of ~32.9% of the 2009 share count.
Shares outstanding as of: 22/06/09: 5,007,230,000
Shares outstanding as of 31/05/19: 3,359,194,720
Earnings Per Share (EPS) Boost
2009 profit ≈ $5.6B; 2019 profit ≈ $11.1B
That’s only a ~2x growth in profit over 10 years.
But because shares outstanding fell from ~5.0B to 3.36B, EPS grew much faster:
- 2009 EPS ≈ $1.12
- 2019 EPS ≈ $3.08EPS tripled, even though profit only doubled – thanks mainly to fewer shares in the denominator.
Masking Operational Weaknesses
Oracle’s revenue growth has remained sluggish throughout much of this period, frequently showing single-digit increases or remaining flat. However, the consistent buyback program has created a divergence between the company’s EPS trajectory, which appears robust, and its actual business performance, which has been lackluster. This disconnect can mislead investors who rely heavily on per-share metrics when evaluating company performance.
Strategic Implications
While Oracle’s buyback strategy has provided consistent stock price support and increased Ellison’s ownership stake, it raises questions about capital allocation efficiency. The billions spent on repurchases could have been invested in research and development, strategic acquisitions, or other growth initiatives that might have generated sustainable competitive advantages rather than temporary financial benefits.
Share Prices & Estimated Values of Larry Ellison
The Bottom Line
Oracle’s approach illustrates how buybacks can serve as sophisticated financial engineering that benefits major shareholders while potentially compromising long-term competitiveness. The strategy creates short-term stock price support but may mask fundamental business challenges that require genuine operational improvements rather than accounting adjustments.
More About Share Buy Backs
We have another article on Buy Backs and how they are used, not just used for inflating the share price.
Check out the article here:
Share Buy Backs
Also, check out an example of how share buy-backs have been used to inflate prices.
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