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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

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.

wjnc 4y ago
Could you explain why buybacks lead to higher stocks as opposed to dividends? I though they were (theoretical) equivalents.
- jmalicki 4y ago
  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).
  - wjnc 4y ago
    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-development/refresher-readings/analysis-dividends-share-repurchases https://www.cfainstitute.org/en/membership/professional-deve... [2] https://johnhcochrane.blogspot.com/2018/04/buybacks-redux.html?m=1 https://johnhcochrane.blogspot.com/2018/04/buybacks-redux.ht...
    - jmalicki 4y ago
      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.
      - neilc 4y ago
        Also not equivalent in terms of tax treatment.
  - glacials 4y ago
    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?)
    - neilc 4y ago
      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.
- deleted 4y ago
  [deleted]

wjnc 4y ago

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

jmalicki 4y ago
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).
- wjnc 4y ago
  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-development/refresher-readings/analysis-dividends-share-repurchases https://www.cfainstitute.org/en/membership/professional-deve... [2] https://johnhcochrane.blogspot.com/2018/04/buybacks-redux.html?m=1 https://johnhcochrane.blogspot.com/2018/04/buybacks-redux.ht...
  - jmalicki 4y ago
    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.
    - neilc 4y ago
      Also not equivalent in terms of tax treatment.
- glacials 4y ago
  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?)
  - neilc 4y ago
    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.
deleted 4y ago
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