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Comment by paulpauper | Hacker News Reader

lol $10 billion buyback = $100-150 billion in shareholder value created instantly (going by afterhours gains). That's why companies do buybacks even though the media complains about it. It's a good deal, at least in the short-term. Bezos wealth increased enough that he could pay back the buyback by selling some of his inflated stock. It's sort like an infinite $ machine.

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Let's say my company has $50 in liquid assets, the overall company is worth $100 (making the EV, "enterprise value" of the company $50, if we treat the liquid assets as being worth their face value, $50), and there are 50 shareholders, each holding one share.

In this naive model, one would expect each share to be worth $2.

If the company spends all its liquid assets buying out 25 shareholders at $2 apiece (prices respond to demand for shares, of course, so this toy model doesn't hold at these ratios, but ignoring that for a second), we now have 25 shareholders, each owning 1/25th of a company that's now worth only the company's EV of $50, i.e., each share's still worth $2. So no value was created, it was a waste of time.

In practice, many many companies' cash holdings are not valued at par by the company's existing investors. That is to say, if the company spends their cash on something that isn't value destroying (surprisingly difficult! Many an acquisition is value destroying!), they can actually increase the value of each share by spending the money in a way that investors like.

Share buybacks thus have the counterintuitive impact of raising the value of each share not by transferring money to the remaining shareholders, but by reducing existing shareholders' risk that management will misuse the company's liquid assets on some ego-driven vanity project.

bezos selling to "cover" the buyback doesn't produce money. In fact, if he did that, he would lose out to transaction costs and gain nothing!

Buy back doesn't create value (nor destroy value) - it just shifts the dollars from the company to shareholders, who could decide to sell to retrieve the money at a later date.

Of course, buying back at a time when the share price is lower than expected (given a company's inside information) means they actually do gain value (lost from those shareholders who did the selling at the time of the buyback). Market participants who believe Amazon not to be irrational would also start buying as soon as they hear the news, assuming that there's inside info that the company is acting on resulting in such a buyback.

One question I have is about the timing of the orders: If an investor wanted to buy a large amount of a company's stock, they'd be careful to try to not drive up the price for themselves (I would think.) But a company doing buybacks sorta wants to drive the price up. To what extent are they trying to get the best deal?

I suppose it's a matter of if they are favoring their future share holders or the ones selling.

There's no favouring. The price is determined by the market - if a large enough buy order comes, it will move the market, whether it's from the company itself, or the general public.

But Amazon has some options on how their order executes. Do they just place a market order for $10B at some random time?

Use seller data to figure out which of your competitor's products are the most profitable, copy their product, short-sell their stock, buy-back your own stock with the cash, sell a bit of it when it pops to pay your Yacht/Jet/Hooker bill.

Some guys just have it all figured out, huh?

They could do the same thing by circulating a positive rumor for the company.

I don't see how buybacks can help in the long term a company that is not issuing dividends.

They are burning real money to buy a potentially higher valuation that can evaporate in an instant (think of Meta)

Probably a lot of benefit from stock split as well as can be seen with Tesla, nvidia, apple in the past

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