The US markets had a very pleasing day of trading last night (our time). By the end of the trading day, the S&P 500 Index has risen by 1.05%, while the NASDAQ 100 was up an even rosier 2.16%. But let’s talk about the Meta Platforms Inc (NASDAQ: META) stock price.
Meta, the company formerly known as Facebook, looked like it had a pretty decent day on the surface. The company closed at US$153.12 a share, up a robust 2.79%. But in after-hours trading, the story was dramatically different.
By the time after-hours trading finished up, Meta shares had risen by a whopping 19.81% all the way up to US$183.45 each.
So what was behind this dramatic jump in value?
Well, the company’s latest earnings report, of course.
Meta has been under intense pressure over the past two years or so. Between September 2021 and November 2022, the company’s shares fell from close to US$380 to just over US$88. That’s a fall of over 76%:
Ouch.
Investor concerns ranged from increased competition to Meta’s social media apps like Facebook and Instagram from rivals like TikTok to Meta’s ambitious and expansive plans to expand into the ‘metaverse‘.
But it appears that the company’s latest quarterly earnings report has restored a lot of faith.
Meta stock jumps, but why?
But, initially, it’s not too easy to see why.
Meta reported falls in revenue, income and earnings per share (EPS) for the quarter ending 31 December 2022. Against the prior corresponding quarter, the company’s revenue fell 4% to US$32.17 billion. Net income dropped 55% from US$10.29 billion to US$4.65 billion. Diluted EPS also fell, sliding from US$3.67 per share to US$1.76.
The only positive metric was a big reduction in costs and expenses. These dropped from US$12.59 billion for the three months to December 2021 to US$6.4 billion for the three months to 31 December 2022.
So what then has gotten investors so excited with Meta shares?
The company has announced a massive increase to its share buyback program.
Meta reported that over the quarter just gone, the company bought back US$6.91 billion of its own stock. That took 2022’s annual total to US$27.93 billion, with US$10.87 billion left in the kitty for further buybacks.
But Meta announced this morning that it would be increasing its funds available for buybacks by a whopping US$40 billion ($56 billion).
Investors love share buybacks because they reduce the total share count of a company. This has the effect of reducing supply, therefore pushing up share prices over time. Further, a reduced share count increases earnings per share, since there are fewer shares to divide a company’s earnings amongst.
So it’s this monster expansion to Meta’s share buyback program that has probably gotten investors so hot under the collar for Meta stock.
