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Facebook unveils $6bn share buyback

Facebook unveiled a share buyback scheme on Friday, saying it would repurchase up to $6bn of its stock as its investors brace themselves for slower growth next year.

In a regulatory filing, Facebook said that the board had approved the buyback on Friday. It will begin in the first quarter of 2017 but the scheme has no set expiration, leaving Facebook the flexibility to be opportunistic if and when it buys its stock.

“The timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions, and alternative investment opportunities,” Facebook said. “The programme will be executed consistent with the company’s capital allocation strategy of prioritising investment to grow the business over the long term.”

Facebook shares, which are down about 9 per cent over the past month, rose about 1 per cent in after-hours trading to $118.50.

The move is an unusual one for a company like Facebook, which went public in 2012. Until now, Mark Zuckerberg, Facebook’s founder and chief executive, has been better known for high-priced acquisitions such as his $22bn WhatsApp Messenger deal and $2bn purchase of Oculus VR, both in 2014.

Capital return programmes are associated more closely with older, slower-growth companies that are trying to attract a different kind of investor. Alphabet, parent company of Google, which went public in 2004, did not begin returning cash to shareholders until just last year. A month ago, Alphabet announced a further $7bn buyback after completing the previous $5.1bn repurchase.

Silicon Valley companies have amassed huge hordes of cash in recent years. Moody’s has estimated that tech firms will own almost half of the $1.77tn held in cash by non-financial companies by the end of this year.

In some cases, these stockpiles have prompted activist investors to pressure boards to redistribute earnings to shareholders. Three years ago, for instance, Carl Icahn targeted Apple over its capital allocation policy, demanding that the iPhone maker repurchase $150bn in stock. However, Mr Zuckerberg’s control at Facebook makes it an unlikely target for activists.

Facebook has accumulated $26bn in cash and marketable securities, with no debt, and free cash flow of $6.5bn in the first three quarters of this year.

Facebook’s decision to repurchase $6bn worth of shares follows a sharp fall in its stock price earlier this month, as it warned investors that revenue growth could slow next year from its current 50 per cent rate. The social network said that by the middle of 2017, it may reach the limit on the number of ads that can be shown in its news feed. That, alongside a steady increase in its user growth as well as expansion into new formats such as video, has driven rapid growth in Facebook’s revenues in recent years.

During its earnings report, Facebook also promised to invest considerably to expand data centres, hire engineers and research new innovations.

At the same time as announcing the buyback, Facebook said that its chief accounting officer, Jas Athwal, has resigned. A nine-year veteran of the company, Mr Athwal will retire in February. No successor has been appointed.

Via FT