Daily Tech Snippet: Monday, March 28

• In Yahoo, Another Example of the Buyback Mirage: It is one of the great investment conundrums of our time: Why do so many stockholders cheer when a company announces that it’s buying back shares? Stated simply, repurchase programs can be hazardous to a company’s long-term financial health and often signal a management that has run out of better ways to invest in the business. And yet investors love them.  Not all stock repurchases are bad, of course. But given the enormous popularity of buybacks nowadays, those that are harmful probably outnumber the beneficial. Those who run companies like buybacks because they make their earnings look better on a per-share basis. When fewer shares are outstanding, each one technically earns more. But a company’s overall profit growth is unaffected by share buybacks. And comparing increases in earnings per share with real profit growth reveals the impact that buybacks have on that particular measure. Call it the buyback mirage. Consider Yahoo. The company bought back shares worth $6.6 billion from 2008 to 2014, according to Robert L. Colby, a retired investment professional and developer of Corequity, an equity valuation service used by institutional investors. These purchases helped increase Yahoo’s earnings per share about 16 percent annually, on average. But a good bit of that performance was the buyback mirage. Growth in Yahoo’s overall net profits came in at about 11 percent annually. Given these figures, Mr. Colby reckoned that Yahoo, if it had invested that same amount of money in its operations, would have had to generate only a 3.2 percent after-tax return to produce overall net profit growth of 16 percent annually over those years. Yahoo is not alone. Mr. Colby conducted a cost-benefit analysis of 26 companies buying back stock versus using that money to invest in a business. He found that McDonald’s was another problematic example. Since 2008, McDonald’s has allocated almost $18 billion to buybacks. This has helped produce 4.4 percent increases in annual earnings per share over the period. To equal that growth in overall earnings, the company would have had to generate just a 2.3 percent return on the money it spent buying back stock, Mr. Colby estimated. Last November, Moody’s Investors Service downgraded McDonald’s unsecured debt rating, citing its plans to increase its borrowings in part to fund future buybacks.

• Microsoft Apologizes After Twitter Chat Bot Experiment Goes Awry: Microsoft apologized after Twitter users exploited its artificial-intelligence chat bot Tay, teaching it to spew racist, sexist and offensive remarks in what the company called a “coordinated attack” that took advantage of a “critical oversight.” The company will bring Tay back online once it’s confident it can better anticipate malicious activities, he said. “A coordinated attack by a subset of people exploited a vulnerability in Tay. Although we had prepared for many types of abuses of the system, we had made a critical oversight for this specific attack,” Lee said, without elaborating. The company introduced Tay Wednesday to chat with humans on Twitter and other messaging platforms. The bot learns by parroting comments and then generating its own answers and statements based on all of its interactions. It was supposed to emulate the casual speech of a stereotypical millennial. Some users quickly tried to see how far they could push Tay.   In less than a day, Twitter’s denizens realized Tay didn’t really know what it was talking about and that it was easy to get the bot to make inappropriate comments on any taboo subject. People got Tay to deny the Holocaust, call for genocide and lynching, equate feminism to cancer and stump for Adolf Hitler. The worst tweets quickly disappeared from Twitter, and Tay itself also went offline “to absorb it all.” Some Twitter users appeared to think that Microsoft had also manually banned people from interacting with the bot. Others are asking why the company didn’t build filters to prevent Tay from discussing certain topics, such as the Holocaust. The bot was targeted at 18- to 24-year-olds in the U.S. and meant to entertain and engage people through casual and playful conversation, according to Microsoft’swebsite. Tay was built with public data and content from improvisational comedians. It’s supposed to improve with more interactions, so should be able to better understand context and nuances over time. The bot’s developers at Microsoft also collect the nickname, gender, favorite food, zip code and relationship status of anyone who chats with Tay.

• Uber profits elsewhere support 'sustainable' spending in China: CEO: Ride hailing app company Uber Technologies Inc is generating more than $1 billion in profit a year in its top 30 cities globally, and partly using that money to bankroll its expansion in China, Chief Executive Travis Kalanick said in an interview. The company said in February it was losing more than $1 billion a year in China's red-hot ride hailing market, where it is battling large local incumbents to win customers. Kalanick said China was the company's most intense market, but also a crucible for new ideas that it has exported to other markets, and that its investment here was sustainable. "If you took our top 30 cities today, today they're generating over $1 billion in profit a year, just our top 30 cities. And that profit multiplies every year because we're growing," he said on the sidelines of the Boao Forum in the Chinese island province of Hainan. Other cities among the 400 where Uber operates were also profitable, he added.

• Snapchat Is Buying Bitstrips, the Company That Turns You Into an Emoji: Snapchat is buying Bitstrips, the company behind the Bitmoji app that lets you create an avatar of yourself to share on social media and over text, according to a source familiar with the deal. Fortune’s Dan Primack, who first reported the news, said Snapchat is paying “in the ballpark of $100 million” for the company, which was founded in 2012. It quickly became popular on Facebook, as users created and shared cartoon versions of themselves in a bunch of different settings. It’s not entirely clear why Snapchat wants Bitmoji, but it feels like a good fit for the company, which has a number of other fun features to help users spruce up their photos and videos. Snapchat allows users to put emojis on photos and videos they send, and has generated a lot of buzz for facial filters that let people distort their faces into different animals or characters. (Facebook just bought a similar company two weeks ago.) Personal emojis are a logical fit in that regard.