The
buzz in the investor community to analyst post Facebook announcement of $6Bn Share
buyback program raises multiple queries. We all know that Facebook turned
itself as formidable technology powerhouse. Facebook result indicates that
their profitability is increasing but earning per share growth is muted. In
2019, Facebook common a floated share in the market was 2Bn and witnessed 45%
growth of floating shares in 4 years. The unprecedented growth in floating
share is because of employee stock option getting converted into share as well
as Whatsapp buyout.
In
Technology world cash is king as we don't know when a slight move will act as
disastrous for any organization. We all should remember Sun Microsystems,
Lucent Technology, Motorola, Nokia, Tell labs and many more as their slight
misstep forced them to the brink.
All
those companies distributed stock option lavishly to their employees during
their pick and in order to meet analyst and street earning expectations;
companies went for frantic share repurchase program. Look at Cisco Inc and
check out their spending on share repurchase program.
Facebook
in similar way wants to reduce the floating share so that their EPS goes high
which will propel their share price which in turn again helps employees who
received the stock price at higher prices to make profits.
As
Facebook clearly stated that they may increase the amount with top up indicate
that they do not want to make their intentions clear to stakeholders. One
should get trapped by buying the share at higher price but should question them
about their investment strategy.
Why
can't they invest allocated money to 10 growing company which will bring in
recurring revenue and profitability down the line? It’s not important that one
need to buy only multi-billion $ company but may invest in potential oriented
companies who are already buzzing the market.
At
last its investor call but I differ with Facebook strategy
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