Nvidia's $1B stock buy-back

[Geo]

Not necessarily. They can go in the treasury and be reissued later. They don't reduce the number of authorized shares unless specifically retired. Did the announcement say they'd be retired?

 

[MfA]

So I am not sure how you can claim it is a lose/lose situation.

If I give you 100$ for nothing in return is that good for me? Stock buybacks are not investments, they are payments to shareholders.

 

[Geo]

If I give you 100$ for nothing in return is that good for me?

Are we assuming you're stupid, or that you have a reasonably good grasp of your own self-interest and that what looks like "nothing" to some is in fact "something" to you? In fact, a "something" you find to be worth not less than $100?

 

[MfA]

Not necessarily. They can go in the treasury and be reissued later. They don't reduce the number of authorized shares unless specifically retired. Did the announcement say they'd be retired?

In that case neither the EPS nor the value of a single share increases, that's hardly the normal way of performing stock buybacks ... if they were going for something like that they would have said so.

 

[MfA]

Are we assuming you're stupid, or that you have a reasonably good grasp of your own self-interest and that what looks like "nothing" to some is in fact "something" to you? In fact, a "something" you find to be worth not less than $100?

They get owner satisfaction and continued job security of their management in return ... but nothing which increases the assets of the company.

 

[Geo]

Unfortunately, dividends are "outmoded" by tax law, not style. And it really is "unfortunately" in my view.

 

[MfA]

Yeah I removed that part after thinking about taxation, mea culpa for the stealth edit.

 

[Arun]

The shares which are bought back are effectively destroyed, the company doesn't own itself.

Since this increases the EPS and that whatever assets are left will be distirbuted over a smaller number of shares (they'll go down anyway, but that's not the point), it's fair to say that market capitalization will remain roughly constant. There wouldn't be much point to it otherwise, and you might as well put your money in the garbage bin.

 

[MfA]

I dunno, 1 billion dollar over a year is a large sum of money compared to it's current market cap. Saying they can fund it out of cash flow is a bit disingenuous, cash flows from a point to another ... diverting the flow leaves bills unpaid. They are spending it out of their assets and profits, their profits stand at perhaps 15% of what they are spending. For their market cap to stay the same either they would need remarkable growth or the market would have to agree they are severely undervalued at the moment.

That's usually what companies seem to gamble on, but it is a bit of a gamble.

PS. hmm, I guess >10% revenue/profit/share-price growth isn't that remarkable for NVIDIA in retrospect. So yes, the market cap after a buyback spread out over a year would still substantially increase if the present trends hold.

 

[INKster]

Could this be a sign to a future major deal with some top automotive industry players ?

http://www.dailytech.com/article.aspx?newsid=7434

At the current time, the core of NVIDIA’s business is still in the PC market. In response to a question asking Hara where NVIDIA is looking to next to grow its GPU business outside of the PC space, he said that the next frontier for the company will be on the road – inside cars.

“We’ll talk to you every quarter more and more about our automotive market. As our customers in the automotive market look for GPUs, you’re going to find at the end of this year NVIDIA making announcements with large car manufacturers putting GPUs in cars,” Hara revealed.

and (a bit obvious, but still a confirmation):

Certainly, growth for NVIDIA appears to be outside of its traditional roots. “You’ll find that every new market we add will be non-PC,” the VP said. “We’re not looking for a way outside of the PC market, but we’re looking for a way to expand the utility of the GPU ... We look at platforms that are trying to deliver an experience to the customer.”

 

[_xxx_]

Dunno, ImgTech is already on a good roll in automotive business AFAIK.

 

[MfA]

Could this be a sign to a future major deal with some top automotive industry players ?

What do you mean? The stock buyback or the article? The article yes, the stock buyback the opposite.

Ignoring some more sinister motivations stock buybacks are essentially a company saying they don't see enough potential for expansion to spend all their profits on and you are better off investing elsewhere. Which is not to say NVIDIA still doesn't see plenty of ways to expand, they probably don't need that much money to launch an SOC core for the automotive industry, just that the stock buyback in itself is not a sign in favor of it.

 

[Arun]

Ignoring some more sinister motivations stock buybacks are essentially a company saying they don't see enough potential for expansion to spend all their profits on and you are better off investing elsewhere.

While I don't completely disagree with the basic idea, I'd reformulate that to say that buying back your own stock implies that:
- You do not believe you will need that cash in the future to fund your operations, as your cashflow is sufficient.
- You do not believe a significant acquisition would be a net boost to your company's earnings, and would in fact most likely be dilutive.

EDIT: So what I'm really trying to say, I guess, is that it means they aren't seeing any good expansion potential via acquisition, but that it doesn't say anything about organic/internal growth.

 

[Geo]

http://www.abcmoney.co.uk/news/18200789409.htm

NEW YORK (AP) - Graphics chip maker Nvidia Corp. has repurchased 3.3 million shares for $125 million under a structured buyback agreement, according to a regulatory filing Monday with the Securities and Exchange Commission.

The structured buyback plan with an unidentified financial institution was initiated under an ongoing board authorization to repurchase shares for up to $1.7 billion.

 

[Maintank]

I wont pretend to remember everything from my finances classes from nearly a decade ago. But wouldnt them losing 1 billion in assets be offset by a higher eps?
I believe stock prices are driven more by eps than assets in the bank. Isnt it American Airlines that leases all of their planes and equipment and has a real asset value something like 2 million bucks but a market cap of several billion?

 

[MfA]

Tangible assets aren't the only kind of asset. EPS however isn't any kind of asset it's only relevance is psychologically for people who track EPS as a fundamental of the company even while the number of shares are changing (ie. idiots).