Facebook Raises Target to Repurchase Stock by $9 Billion

This is not investment advice. The author has no position in any of the stocks mentioned. WCCF TECH INC has a disclosure and ethics policy.

Thursday, December 6th Facebook Inc. (NASDAQ:FB) filed form 8-K to inform the SEC that their Board of Directors approved and an increase of $9 billion to their share repurchase program.

Stock Repurchases in 2018:

In December 2017 the United States changed the tax law for 2018, the most notable impact for corporations was a corporate tax rate cut from 35% to 21%. This was done for multiple reasons including repatriation of offshore money and to increase corporate spending in the US. When the tax breaks came in companies started to announce share buybacks, which is a common tool to use company money to decrease the number of shares on the market for trading, causing an increase in share price if the company valuation did not change in a meaningful way during the process.

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The process to initiate a share buyback is very simple for a public corporation: have the board of directors vote on the buyback, then register form 8-K with the SEC stating the intention and amount and barring any denials, the program can commence. An interesting facet of these filings is that you don’t need to specify a date or quarter to complete this share repurchase. The announcement of stock repurchases typically raise the price of a stock, (Facebook's stock gained over 3% on the day) and without a time to complete the transaction some companies don’t complete the process and enjoy the stock bump associated with such news. Commissioner of the SEC Robert Jackson published his opinion on the matter and how troubling the agency feels the issue is, however, they have yet to change policy to correct the issue.

Other Tech Stock Repurchase Announcements of Note in 2018:

  • Apple: $100 Billion, May 1st
  • Cisco: $25 Billion, February 2nd
  • Qualcomm: $30 Billion, July 26th
  • Intel: $15 Billion, November 15th
  • Broadcom: $12 Billion, April 12th
  • Oracle: $12 Billion, November 17th
  • Texas Instruments: $12 Billion, November 20th
  • Micron: $10 Billion, May 21st
  • Alphabet: $8.6 Billion, February 2nd
  • Adobe: $8 Billion, May 21st
  • eBay: $6 Billion, January 31st
  • HP: $5.5 Billion, February 22nd
  • Western Digital: $5 Billion, July 26th
  • IBM: $4 Billion, November 30th
  • Marvell: $1 Billion, October 16th

Facebook Repurchase:

Facebook already announced earlier this year that they were going to buy back $15 Billion in stock and now with the additional $9 Billion the purchase total is $24 Billion, although no timeline has been suggested. Due to a horrible 2018, the stock is trading down almost 40% of the peak price of $217 per share in July, so if they intend to purchase on the open market now would be as good of a time as any. It makes sense to buy back the shares when the price is low to increase share price as much as possible. Finally, the share repurchase could signal that Facebook believes their stock is undervalued currently and are looking for an efficient way to raise the price before the end of the quarter, this is common practice if executive compensation is tied to share price. It could also mean that Facebook has money to spare but no sound investments internally to spend the money on.