Full article at SA.
Meta could fairly easily afford to repurchase $10B of its shares each quarter, especially if the company were to recalibrate its investments in the Reality Labs business. Based off of Meta Platforms' Q3'22 cash flow statement, the company spent $6.35B on Class A stock buybacks in the third-quarter and $21.09B in the first nine months of FY 2022. In FY 2021, however, Meta Platforms repurchased $44.54B of its shares and the company did so at a significantly higher valuation. The tech company paid an average of $330 per-share in FY 2021 and therefore paid a massively inflated price to buy back a ton of its own stock just when the stock price peaked.
Plotting Meta Platforms' stock buybacks against the P/E ratio shows that Meta Platforms repurchased a ton of its shares at the exact wrong time: when the pandemic and advertisers temporarily inflated the firm's revenue growth, Meta Platforms' market cap was at an all-time high… and when the stock was historically expensive.
Meta Platforms is trading at $120 right now and the share price hasn't been this low since the start of 2017 (with the exception of the October/November 2022 draw-down) and, at a P/E ratio of 15.2 X, I believe Meta Platforms is at an attractive valuation level to warrant a material up-size in its stock buyback. At the end of the September-quarter, the tech company had $17.78B in its stock authorization remaining, and Meta Platforms could very well exhaust this program in FY 2023. Right now is possibly the best time since 2017 for Meta Platforms to reevaluate its capital allocation strategy and buy back more of its stock while reducing its investments in the Reality Labs business.
What do you think? Should Meta redirect Reality Labs spending towards aggressive buybacks?
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