A business with excess cash on its books can return value to shareholders in various ways. One of them is distributing the surplus among shareholders as dividends. However, they are more tax-efficient ways to reward existing shareholders with delayed gratification.
A business can choose to reinvest its earnings into its own business or acquire other businesses to upgrade or expand its operations organically or inorganically to increase its future earnings and consequentially increase the intrinsic value of each of its outstanding shares.
Alternatively, the business may choose to decrease the number of outstanding shares, making each share worth a greater percentage of the corporation. All else being equal, this increases the earnings attributable to each share almost immediately. This method of allocating excess capital is called a buyback.
Buybacks are initiated through tender offers or open market transactions when the management of an organization feels that its shares are undervalued. In addition to signaling financial health and increased confidence in their own prospects, businesses also repurchase their own shares to reduce supply and dilution by shrinking the float to prevent other shareholders from taking a controlling stake.
In a nutshell, a buyback is a way for a business to get its skin deeper in the game with the hope of rewarding investors who choose to keep supporting it.
Can Meta Platforms Be a Good Investment Given Its Buyback Program?
On February 1, Meta Platforms, Inc. (META) announced that it had repurchased $6.91 billion and $27.93 billion of its Class A common stock in the fourth quarter and full year of 2022, respectively.
It also announced a $40 billion increase in its share repurchase authorization, in addition to the $10.87 billion available and authorized for repurchases as of December 31, 2022.
As the parent company of world-renowned social networking platforms, such as Facebook and Instagram, META builds technologies that help people find communities and grow businesses through mobile devices, personal computers, virtual reality (VR) headsets, wearables, and in-home devices. The company operates through two segments: Family of Apps (FoA) and Reality Labs (RL). Continue reading "What Is A Buyback? 1 Company Buying Back Its Stock in 2023"