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What Happened This Week: Poor Earnings Reports And Buybacks

www.investing.com/analysis/what-happened-this-week-poor-earnings-reports-and-buybacks-200631388
What Happened This Week: Poor Earnings Reports And Buybacks
By Brenda O'Farrell/Investing.com   |  Oct 21, 2022 04:23PM ET
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Is it a trend? A sign of the times? Or both?

What I am referring to are share buybacks.

Talk on Wall Street this week included a whole lot of conversations about share buybacks. They are a great way to keep investors interested in times when earnings fail to meet expectations or past performances, and that is certainly what is happening now. Buybacks also serve to dominate the takeaways on earnings calls that make headlines. And in this bearish market, that is the sort of stuff that more and more companies seem to be reaching for.

Kicking off the chatter on buybacks this past week, of course, was Tesla (NASDAQ:TSLA) CEO Elon Musk.

Musk floated the idea of introducing a Tesla share buyback program valued between $5 billion and $10 billion during an earnings call following Tesla’s third-quarter report on Oct. 19, according to reports.

This mention did not come out of the blue. Tesla has not put in a stellar performance in the first half of the year, and its stock has dropped about 16% so far this month. It closed yesterday at $214.59, up 3.45% on the day.

Tesla Weekly Chart
Tesla Weekly Chart

Source: Investing.com

And given the reasons for Tesla’s lackluster performance – supply-chain delays and a weakening demand for new cars – the likelihood of this downward trajectory for its stock will continue. But a buyback program changes the dynamic somewhat, increasing shareholder value and keeping investors from abandoning ship.

But keep in mind: The one thing that Musk did not mention when he talked about buybacks was a timeline. All he said, according to media reports, was: “We debated the buyback idea extensively at board level. The board generally thinks that it makes sense to do a buyback. We want to work through the right process to do a buyback.”

Tesla reported a third-quarter net profit of $3.3 billion on revenues of $21.45 billion.

Snap Shares Not Snapping Back

Snap (NYSE:SNAP) shareholders are another group that has been offered a buyback. But this is not the first time.

The social media company reported second-quarter earnings this week that failed to impress, nor met analysts’ expectations. Revenues came in at $1.11 billion, short of the $1.14 billion anticipated.

The board, as it did at the end of the second quarter, authorized a stock buyback program with a limit of $500 million. But will it do the trick?

Since its last earnings report earlier this summer, the company’s shares have shed about 30% of their value.

We’ll see where the valuation goes from here.

Yesterday, Snap stock took a beating, losing another 28% on the day to close at $7.75. That’s rivalling the lowest point it hit back in 2019.

Snap Weekly Chart
Snap Weekly Chart

Source: Investing.com

Tech Companies At Top Of Buyback Charts

Tech companies have been at the top of the leader boards when it comes to the size of buyback programs being offered in 2022, with Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT) and Meta (NASDAQ:META) leading the pack, according to Verity data.

Apple offered a $21.7-billion buyback program in the second quarter of 2022, representing just under 1% of its outstanding shares. Alphabet issued a $15.8-billion offer, which set a company record. Meanwhile, Microsoft put forward a $7.8-billion package in Q2, which matched its offer in the previous quarter. Meta bought back $5.1 billion in the second quarter.

With many of the tech companies set to report in the coming week, we might see a clearer path for this trend. One last fun fact: tech companies represent about 25% of the overall market.

Lockheed Gets In On The Act

But, of course, buybacks are not just for tech companies.

When Lockheed Martin (NYSE:LMT) announced its earnings last week – which were quite spectacular – the company announced it would increase its buyback plan to $14 billion and expects to move on a $4-billion accelerated share repurchase program in the four quarter..

Lockheed shares jumped just over 8.5% on the earnings report at the beginning of the week and climbed steadily since, closing Friday at $454, a gain of about 14% on the week overall.

Lockheed Martin Weekly Chart
Lockheed Martin Weekly Chart

Source: Investing.com

Top Winners And Losers Of The Week

Again, for all those out there who are keeping score, here are the top gainers of the past week:

On the S&P 500

  • Netflix (NASDAQ:NFLX): +25.94%
  • Schlumberger (NYSE:SLB): +19.52%
  • Intuitive Surgical (NASDAQ:ISRG): +19.38%
  • Lam Research (NASDAQ:LRCX): +17.32%
  • Lockheed Martin (NYSE:LMT): +16.76%

On the NASDAQ Composite

  • Mullen Automotive (NASDAQ:MULN): +62.67%
  • Acorda Therapeutics (NASDAQ:ACOR): 53.59%
  • AVEO Pharmaceuticals (NASDAQ:AVEO): +47.31%
  • Aehr Test Systems (NASDAQ:AEHR): +40.96%
  • Clean Energy Fuels (NASDAQ:CLNE): +36.14%

And the biggest losers:

On the S&P 500

  • SVB Financial Group (NASDAQ:SIVB): -27.61%
  • Generac Holdings (NYSE:GNRC): -19.96%
  • M&T Bank Corp (NYSE:MTB): -12.84%
  • Robert Half International (NYSE:RHI): -9.88%
  • Comerica (NYSE:CMA): -9.39%

On the NASDAQ Composite

  • National CineMedia Inc (NASDAQ:NCMI): -30.81%
  • SVB Financial Group (NASDAQ:SIVB): -27.61%
  • Alpine Immune Sciences (NASDAQ:ALPN): -19.15%
  • Stabilis Solutions Inc (NASDAQ:SLNG): -18.95%
  • Neptune Wellness Solutions (NASDAQ:NEPT): -16.9%
What Happened This Week: Poor Earnings Reports And Buybacks
 

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What Happened This Week: Poor Earnings Reports And Buybacks

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Comments (6)
True Stamp
True Stamp Oct 22, 2022 4:36PM ET
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I, for one, would't allow public companies who raised debt in the year before, whilst and after the fact to do buybacks or dividends. Why not? Because as it is simply not right for a government to using borrowed money to reduce taxes, it also is simply not right for public companies to buyback shares or pay dividends with borrowed money!
Chan Vireak
Chan Vireak Oct 22, 2022 1:39PM ET
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0884094749
John Whitfield
John Whitfield Oct 22, 2022 8:58AM ET
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one more bit...because of the tax set these buybacks have to happen in a manner that allows them to have in place to be prepared for tax season. the buyback law is to try and force dividends rather than buybacks so these US funds in the caymans have to pay the government billions in taxes they skip out on when doing buybacks. so theres your timeline.
John Whitfield
John Whitfield Oct 22, 2022 8:51AM ET
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Tesla showed approx just unded 50% growth YoY and QoQ in a rate raise environment. He also did mention a timeline on buybacks. Its also mentioned he will cut 3/4 of twits workforce after acq which reduces the overhead for their books and reduces laborforce in macro numbers (roughly 7500 twitter employees for what? That' anyones guess- we all know why though) which is good for infl.I wonder if sometimes you guys just get fed a plane of vision you have to push.
Warm Camp
Warm Camp Oct 22, 2022 8:30AM ET
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Simplistically speaking, dividends are better than buybacks, while buybacks are better than nothing. Dividends really redirect money, aka profits, to shareholder pockets, while buybacks path to the pockets is less transparent, to put it mildly. Also, new Biden’s tax on buybacks makes them even less positive than before.
Rui rm
Rui rm Oct 22, 2022 8:30AM ET
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Strange how weakening demand leads to increasing production capacity and construction of new factories.
Warm Camp
Warm Camp Oct 22, 2022 8:30AM ET
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Talk about “new factories” is mostly pre-election propaganda, which will disappear in couple of weeks, after the elections.
 
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