Facebook Buying Back $2bn in Stock to Bolster Share Price
The soap opera surrounding Facebook stock continues to rumble on, with fresh twists and turns seemingly every morning.
To provide a bit of context to this morning's affair, last week saw a research company slash $1 billion from the companies earnings forecast. That contributed to the stock falling to an all time low, some 50% down on its IPO price.
The slump revolves around continued concerns over how the company will make money, especially from its mobile users. The share price hasn't been helped by many early investors selling up when the mid-August release date arrived.
Worryingly for Facebook, another such release date was fast approaching in November, sparking fears that another share dive was imminent. Hence the news today that Mark Zuckerberg will not sell any stock for at least a year.
The company also announced that they will move forward the planned share release from November to October 29th, at which point 234 million employee-owned shares will become available.
Interestingly though the company will be doing some financial wizardry to essentially buy back 101 million of those shares.
These withheld shares will no longer be considered "shares outstanding," so the company's fully diluted share count and free float will be slightly lower than previously expected.
At $19 per share, the tax bill will amount to $1.9 billion, and the 101 million shares are worth about $1.9 billion. So Facebook will effectively be using $1.9 billion of cash to buy back its own stock.
It's a smart move by the company, who received a big windfall when they floated, and are now using part of that windfall to buy-back stock when it's significantly lower than post-IPO.