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Don’t Be Fooled by Boatloads of Cash

You hear it a lot in the technology sector these days. Company X is flailing, but don’t worry: “They have a lot of cash. They’ll figure it out.” Cash in the bank, the theory goes, can reverse a company’s fortunes by helping it buy its way to relevance. And tech companies have plenty of it, even deducting the stockpiles stuck overseas they aren’t willing to repatriate.

But I think the tech industry is far too quick to turn to cash as a silver bullet.

Historically speaking, companies generally haven’t bought relevance, through big deals or little ones, and so there’s little reason to think it can reliably happen.

I believe that’s even more true today when companies’ dominance can be disrupted so quickly. It’s nice that Facebook had the cash (and stock currency) to buy Instagram and WhatsApp. But that strategy won’t help it for long if the next potential competitor—Snapchat, for example—never wants to sell.

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Amazon.com is one interesting cash case study. The company holds very little cash, with only about $5.3 billion in cash and cash equivalents on hand at the end of its most recent quarter.