Facebook has announced that it is authorizing a $6 Billion stock buyback, that will go into effect next year. The cash buyback will allow Facebook to utilize some of the cash it has stockpiled and put it to good use in buying back stocks from existing shareholders.
The reasons behind this buyback were not immediately clear. It is certainly not an issue of control or providing greater authority to the management. Facebook took care of the issue earlier this year when it established and issued a new class of stock that would effectively let Mark Zuckerberg exercise control over the company without fearing pressure from other investors and shareholders.
So yes, it is certainly not a question of authority. Considering that Zuckerberg has of late been making a push for initiatives that will not yield any returns in the short term, the company may be looking to assuage agitators within its camp by purchasing their stocks and issuing them a dividend out of its cash. Look at WhatsApp for example, investors are bound to be unhappy at Facebook’s failure to find a way to monetize the IM service.
And despite the fact that it is growing, Facebook’s growth has slowed. The company is looking for new revenue streams however, as we already said, a large potion of its strategy is looking at the long term — something which has managed to make many stockholders unhappy. Buying back shares from these particular stockholders would let Facebook continue in the direction it has been moving with less of a resistance.
In its filing to the SEC, the company said,
The timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions, and alternative investment opportunities. The program will be executed consistent with the Company’s capital allocation strategy of prioritizing investment to grow the business over the long term.
Also, Facebook has almost $26 Billion of cash piled up — while less than Apple’s mammoth $200 Billion stockpile, it is still a significant amount. This would also allow it to put some of the cash to good use. True, Facebook has been investing heavily of late, however, $26 Billion is too large to be spent by investing that easily.
The buyback will allow the company to get rid of some of the money while also reducing the amount of outstanding shares it has in the field. Indeed, it may just have been one of the best ways Facebook could have put the money to good use.
Meanwhile, the buyback will go into effect in Q1 of next year. Considering that the company saw it shares fall after its latest earnings call, the timing of the buyback may also allow it to pick up more shares for the same amount — even after offering a dividend.