🧠 What really happened with Netflix?
Announced a buyback of $25 billion in shares
After:
Price drop (~10–13%)
Results with weak expectations
Cancel a mega acquisition (Warner Bros)
👉 Simply put:
They had cash… and decided to invest in themselves.
💰 Why does a company do buybacks?
There are 4 real reasons (not marketing):
1. 📉 Take advantage of the stock being 'cheap'
When a company buys back shares:
👉 It's saying:
“We believe our current price doesn't reflect true value”
In this case:
The stock dropped after earnings
Netflix takes advantage of that 'discount'
2. 📈 Increase the price (mechanical effect)
Fewer shares outstanding =
👉 Each share represents a bigger piece of the business
Simple example:
Before: 100 shares → you have 1%
After: 90 shares → now you own a bigger % without doing anything
👉 This pushes the price up.
3. 💡 Lack of better opportunities
This is key and few mention it:
Netflix didn't go through with the Warner buyout
→ so:
Options:
Buying another company ❌
Investing in growth 🚧
Returning money to shareholders ✅
👉 They chose to buy back shares.
4. 📊 Improve metrics (EPS)
EPS = earnings per share
If you reduce shares:
👉 EPS automatically goes up
👉 This makes the company look better on paper.
⚠️ Is the buyback really effective?
👉 Honest answer: it totally depends on the context
🟢 WHEN IT'S REALLY GOOD (ideal case)
The stock is cheap
The company generates a lot of cash
There are no better investments
👉 This creates REAL value.
🔴 WHEN IT'S BAD
The stock is expensive
It's used to polish results
The company isn't growing
👉 This destroys value.
📊 What about Netflix?
🟢 Positive
Has strong cash generation
Avoided a risky buyout
Signal of confidence
👉 This is slightly bullish
🔴 But be careful (this is the important part)
Slower growth
More competitive market
Needs to maintain narrative
👉 The buyback also serves to:
“supporting the price after bad news”