Tuesday, February 23, 2010

The Knot's stock repurchase a.k.a So it's come to this

What is the deal with weddings this week? All the news is either A) terribly sad B) about uninteresting celebrities C) "news" in the form of a press release.

I found this press release and asked my husband to write a little about it.

The Knot Inc. Announces Stock Repurchase Program - The Knot Inc., the premier media company devoted to weddings, babies, and everything in between, today announced that its Board of Directors has authorized the repurchase of up to $50 million of the Company's common stock from time to time on the open market or in privately negotiated transactions.

"We believe the repurchase of the Company's shares represents an excellent long-term investment and that this action demonstrates our commitment to enhancing shareholder value," said Chief Executive Officer of The Knot, David Liu.

From the ever-suspicious mind of Mr. Kay Banks:
Stock repurchasing is used as a short-term pump for the stock price so that insiders (founders, board members, etc.) can sell at a more favorable price in the near future. Typically it convinces other "retail buyers" to get on board and boost the share price even more.
If there really were good things happening at The Knot, they would take that $50MM and invest it back into the company, which would grow the business and ultimately the stock price.

If you want a generic analysis here you go:
Companies buy back their own stock to keep controlling interest in the company and not in someone else's hands. There is a second reason as well. If they are sitting on cash and think the stock is under-valued, they will invest in their own company. This does two things. First it props up the price by increasing the buy side demand. Second, it provides them the opportunity to enjoy a gain in the exchange when they put those share back into the market at a higher price.
It also helps increase the Earning Per Share EPS, when earnings come out they put them into a per share basis. When companies buy shares they are no longer considered outstanding, so the same amount of money is divided among less shares

What does it all mean, and why are there SO MANY WORDS in a wedding blog? My best guess? The Knot is experiencing this crap-tastic economy just like everyone else. When the self-important brides of the world are spending less money on wedding junk, FEAR FOR YOUR WALLET'S FUTURE. (Ha, and I call my husband a nut.)

I hope you've enjoyed* this finance-minded installment of BotB. See you tomorrow!


*well, maybe enjoyed is a little strong, but you tolerated it, right? I mean, you made it this far.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.