Meta spent $45B on stock buybacks last year at $330 a share | Hacker News Reader

Meta spent $45B on stock buybacks last year at $330 a share

markets.businessinsider.com

30 pointsdoener13 comments

Whilst in general buybacks have been the main reason for why a lot of the older stocks went sky high, META's buyback last year was really a huge anomaly. The 45 billion (which to be pedantic is a TTM figure, not the 2021 figure of 50 billion) is 8x the amount spent in FY2020, about 8x the amount for FY2019 and 3x as high as their previous high of 16 billion in in 2018.

On another point: META, unlike a lot of other companies, seems to have made the mistake of being horribly under levered. If interest rates are low and spreads are tight, you need to take advantage of it. Zuck just kind of stayed away from the party for no apparent reason.

Could you explain why buybacks lead to higher stocks as opposed to dividends? I though they were (theoretical) equivalents.

Let's say I have 100 shares outstanding, each priced at $100, and I have $100 I want to give back to investors.

If I give a dividend, each shareholder now has 100 shares priced at $99 (assuming the typical price drop for the dividend), and $1 cash.

If I buy back 1 share for $100, now one ex-shareholder has $100 in cash, and 99 other shareholders have 1 share valued at $100.

In each case, the company has $100 less dollars, and its market cap dropped from $10,000 to $9,900. But the stock price is higher ($100) in the case of buybacks than in the case of dividends ($99).

Can you explain how a $1 dividend on a $100 stock drops the price to $99? Theoretically wouldn’t the stock become more valuable, because its average returns have gone up? (As an extreme example, what if I gave a $1M dividend on that same stock?)

The assets of the company are exactly the same, except that $1*num-shares that was previously on the company's balance sheet is no longer there. The company is less valuable and so the stock goes down.

Having an attractive dividend policy can make a stock more valuable to certain investors, but the act of actually paying out a scheduled dividend basically only makes the stock price go down.

I think you’ve shown equivalence? 100 shareholders own ($1 cash + $99 in stock) or 99 shareholders ($100 in stock) and one former shareholder ($100 in cash). (Not trying to be snarky here. Appreciate the answer.)

Gone out for a reputable source:

CFA [1]

John Cochrane: “That was the big point. Share buybacks are a good way to get money out of firms with no ideas, into firms with good ideas.” [2]

[1] https://www.cfainstitute.org/en/membership/professional-deve...

[2] https://johnhcochrane.blogspot.com/2018/04/buybacks-redux.ht...

Yes - they're equivalent in terms of cash and market cap, but not equivalent in terms of number of outstanding shares or share price.

If the management team is compensated with unvested stock or options, they receive the benefits from share buybacks, but not from dividends (since those only go to actual shareholders) - which is part of why management teams prefer buybacks.

Also not equivalent in terms of tax treatment.

To make up for that, they should buy at $100 a share then announce that they’re going to reign in some of that money they're burning through.

“As for capital expenses, Altimeter makes a startling claim: excluding metaverse investments, Meta is still spending more on capex than Apple, Tesla, Twitter, Snap, and Uber combined, with much of the growth apparently coming in the past three years”

https://www.theregister.com/AMP/2022/10/24/shareholders_to_m...

It's not surprising that Meta spends more on capex than Apple, Twitter, Snap and Uber combined. It's very surprising that it spends more than Tesla. I'd want to see a spreadsheet to believe these claims, as (after Metaverse investments) Meta seems spent less on CapEx last year than Tesla.

Of course, it's possible that the 3-year window was chosen specifically to average down Tesla's CapEx as opposed to a 1 or 5 year window (which has a higher average)

lol what idiots, why didn’t they simply google what the price would be in 12 months?

Since a lot of CEOs don’t understand this I’ll explain/remind that buybacks create wealth for shareholders if stock is priced less than its intrinsic value and destroy wealth if overpriced. If you aren’t sure what your company is worth you should under no circumstances do buybacks.

Buybacks are controversial but most folks agree that they do increase share price. You don't need to know the "true" intrinsic value of a company (which would require a crystal ball) as long as you reduce the number of outstanding shares. EPS increases, future dividends grow, etc. Whether it unfairly benefits large shareholders and those with performance packages, tied to share metrics, is an open question, however.

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