Buyback

Starbucks is confidently BYOD'ing — buying 40M of its own shares back

Thursday, March 19, 2020 by Snacks
_When you're the only one who BYOD'd_

When you're the only one who BYOD'd

It's a BYOD event... "Buy The Dip" refers to a strategy of buying stocks when their prices are low (taking advantage of "sale" price), and eventually selling if the prices rise (quick reminder: they can fall, too). Starbucks is kind of doing the same thing, but with its own stock — we're calling it: "Buy Your Own Dip" (not to be confused with Superbowl-related "bring your own dip").

  • Starbucks will buy back about $2B of its own stock from investors.
  • In the past month, Starbucks' stock price has fallen nearly 40%. Hence, the dip.
  • FYI, by splurging on its own shares, the coffee legend reduces its assets (cash) which can boost its return on equity.

Stock buybacks are (kind of) like gifts to shareholders... By buying back a large amount of its own shares (reabsorbing them), a company can improve its stock's price because the number of shares outstanding falls. The fewer shares are out there, the more your ownership/earnings per share increase. Another way to reward shareholders is through paying out dividends to them.

  • In 2019, Starbucks reportedly returned $12B to its shareholders through dividend payments and repurchases of 140M shares.
  • The 40M shares Starbucks is now buying back make up around 3% of its outstanding total (and would cost around $2B at the current stock price). Might not be the best time to make multi-billion purchases buuut...
THE TAKEAWAY

Starbucks is flaunting its confidence... when no one else is. Nervous companies are cancelling buybacks and dividend payments — the biggest American banks already cancelled buybacks on growing concerns that the virus will hurt business and cash could be tight in the future. But for those who can swing it, buybacks are easier/cheaper when the stock price is low. Even mid-outbreak, Starbucks is optimistic in its:

  • Stores: Starbucks has banned sipping-in but will still let you take coffee to-go or drive thru in the USA and Canada. Also, 90% of its China stores are now reopened.
  • Delivery: Its new partnership with Uber Eats will be available nationwide by end of April. Nice timing.
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