Facebook is undisputedly the top social media company in the world, and the success of their stock has been immense. Over the last 12 months, the stock has increased by about $10 per share, but looking at the longer term for this company, the ride has been incredibly impressive. Since 2012, when Facebook had its initial price offering, the company has more than doubled in price. Within the last few months, it had hit a high point of up over $133 per share before settling at its current price of $117 and change.
Some of the recent decline that FB has seen is because of the backlash that it has seen against fake news stories that appear on the site. As a social media site, this is something that is inevitable, and as many people within the company have pointed out, there are very few fake news stories that are posted on the site. But because of the supposed impact that some of these had on the outcome of the recent U.S. election, concern about the company’s role fighting this has emerged. Whatever your personal opinion might be about the issue, the company has suffered as a result of it thanks to the negative backlash.
As traders should observe, this backlash is likely to be only temporary. Facebook is primarily a social site, and not a source of news. There are many who treat it as such, but this is not because of what the company claims to do, but rather as a means of convenience for the people who do so. The price drop that has occurred as a result of this should eventually correct itself, especially as the uproar over the election subsides. This poises day traders—especially binary options traders who don’t need to worry about expenses as much—for large profits if trades are timed correctly. It is a very promising situation.
One other thing to keep your eye on as Facebook attempts to keep its momentum moving forward is the fact that they have announced that they will be holding stock buybacks in the near future. The buyback will begin in the first quarter of 2017, and the board has approved up to $6 billion in purchases. It will pertain to Class A common shares, and is seen as a measure to help fight risk for those that keep their shares. The company has expanded its reach into other areas, and some of them are seen as a bit riskier than the social media aspect of the company. By reducing risk in this way, it gives the company more freedom to move forward with these programs. According to their most recent filing, there is about $26 billion in cash on hand for the company, making the $6 billion a very manageable number. This cash has grown recently thanks to an increase in digital advertising, and the extra income leaves a lot of potential open.
If you are trading the company, it’s important to know how a buyback would influence the short term price of the company. From a very literal perspective, it should have no impact. Share of the company would be reduced, but the company’s cash holdings would be reduced at an equal number, thus keeping the company’s overall worth steady. This rarely happens in reality. What’s most realistic to expect is that the fewer shares will drive the company’s price up, and then after the subsequent SEC earnings filing comes out, the price will drop as investors realize that the company has grown in value beyond what it’s worth. This will happen only if Facebook does not turn this opportunity into extra profits quickly.
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