While other Seeking Alpha commentators are more bearish on the announcement, I find Facebook's (NASDAQ:FB) buyback authorization to be a very bullish signal from the Board of Directors that Facebook's shares are too cheap to ignore. I think shares are without question a buy at current levels in light of their recent swoon.
From a pure magnitude point of view, I certainly agree that Facebook retiring ~1.7% of shares outstanding is not particularly meaningful. Stock-based compensation is a major expense for Facebook, accounting for $3.1 billion over the trailing 12 months. So, effectively, Facebook would offset two years of dilution.
But it isn't about using share count to boost EPS, it's about Facebook's investment prospects. CEO Mark Zuckerberg has been incredibly aggressive when it comes to M&A, snapping up Instagram, WhatsApp, and Oculus Rift in multi-billion dollar deals. Facebook has never come out and found its own shares to be a great investment but this is exactly what the buyback authorization indicates: Facebook is a terrific investment at current levels.
Shares have pulled back off of their all-time highs in a sell-off that is not very fundamentally driven. One of the primary reasons seems to be money managers using well-performing tech stocks as a use of cash as the sell-off has coincided with the post-election run in financials and industrials. Secondly, the company encountered an issue with over-counting of its calculation of page impressions as well as an undercounting of its metric of videos watched in full.
After speaking with some contacts in the advertising industry, I'm confident that large corporations do not consider this issue to be material. The magnitude of the change has not been very large, and Facebook's key strength - targeting - remains unmatched. Nothing has fundamentally changed about Facebook's advertising product. As a result, I do not think the event will impact Facebook's advertising dollars at all.
Ultimately, Facebook remains a terrific growth stock with potential to easily trade back to the $130-135 range. I bought the stock a few days ago, and the new buyback authorization only strengthens my conviction.
Disclosure: I am/we are long FB.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.