Meta Platforms spent $ 20 billion during the quarter on repurchases – for free (NASDAQ: FB)

In the meta verse, no one can hear you scream.

The screams shareholders heard over the past week were not just caused at the deep dive in Meta Platforms’ (NASDAQ: FB) market value thereafter reported poor earnings and guidance, but a stinging sound as a result of an increased buyback that left someone confused.

While the decline of more than $ 220 billion may decline as the largest fall in value in stock market history, market values ​​fluctuate. However, the company may have made an even more serious mistake that has largely gone unnoticed: spending nearly $ 20 billion in actual cash on share repurchases during the fourth quarter of last year that yielded little, if any value.

In the period between October and December last year, Mark Zuckerberg-led Meta (FB) spent $ 19.2 billion repurchasing the company’s shares, significantly greater than $ 10 billion as Morgan Stanley analyst Brian Nowak estimated. This helped to reduce the average number of diluted shares by 3% from year to year.

According to the company’s annual report to the Securities and Exchange Commission, Meta (FB) repurchased 21.7 million shares in October at an average price of $ 326.20, and in November it bought 21.6 million more shares, at an average price of $ 335. 09. Finally, in December, it repurchased 14.73 million shares at an average of $ 329.97.

In total, Meta spent the last three months of 2021 buying 58 million shares at prices that may not have been seen in months, perhaps years.

To put Meta’s acquisition in a slightly more context, the company’s shares closed at $ 237.09 on Friday and is now down 30% since the beginning of the year.

Repurchases of shares can be seen as “shareholder friendliness”, as Nowak pointed out – and they usually are if a company has too much money on hand after running its business. But buying back an increased amount of shares in a quarter, only to have the results of that period ruin almost 25% of the company’s value, can look like a colossal waste of money.

For context, Meta repurchased approximately $ 24.5 billion in the first three quarters of 2021 combined. So spending $ 19.2 billion, or about 1.5 times the “record-high repurchase amount” it spent during the third quarter, according to Evercore ISI analyst Mark Mahaney, is eye-opening to say the least.

The significant amount of share buybacks is given extra scrutiny, especially when Meta has admitted that it is hindered via three different avenues: ByteDance (BDNCE) TikTok competes with it for attention; Apples (NASDAQ: AAPL) iOS changes hurt Meta’s advertising effectiveness and cause it to rebuild its advertising infrastructure, according to Chief Operating Officer Sheryl Sandberg; and finally, their own products, like Reels, experience increased engagement with other products, but Reels currently make less money than news feeds or stories.

It is possible that Meta will be able to overcome these headwinds, although Nowak said it is more likely that it will happen in the long run. For the time being, however, Nowak said that there may be some “uncertainty about estimates of advertising revenue in the short term” as the company focuses on Reels engagement and not revenue generation.

The nearly $ 20 billion spent on repurchases could also have been spent in a number of different ways, including increasing spending on the metaverse that Zuckerberg has talked so much about, and which led the company to change course last year after being the first and primarily known as a social network.

Meta is not going to break with the first one, since it ended the quarter with approximately $ 48 billion in cash and equivalents and generated $ 12.7 billion in free cash flow. But JP Morgan analyst Mark Mahaney is sad that there is now a “dramatic fundamental gap” between Meta and its closest competitor in advertising, Alphabet (NASDAQ: GOOG).

And with Mahaney admitting that “FB is now facing one [Netflix]-as a negative inflection point “and the stock” may well be dead money for several months, “it seems silly of the company to have spent $ 20 billion on repurchasing stocks that ultimately gave little, if any value to shareholders.

Last month, EU Meta Platforms (FB) approved the acquisition of Kustomer, a customer service startup that competes with the likes of Zendesk (SNEEZE:ZEN).