Riverbed Technology (RVBD) announced the doubling of the existing buyback program to $300M. This amounts to nearly 12% of the company.
While our firm is a big fan of buybacks for large established firms, it isn't always the best use of capital for a company with a $2.5B market cap. Typically we'd rather see them spend the money or make an accretive deal.
In the case of Riverbed though, it really is difficult to argue against at least the threat of a significant buyback. The stock has been absolutely crushed and if you believe management it is on the verge of a major new product explosion.
The one fact that shorts or just sellers of the stock seem to miss is that Riverbed is a cash generation machine. The company has $600M in cash and will generate somewhere around $150M in positive cash flow this year. In essence, the doubling of the buyback will come directly from cash flow each and every day.
The markets now see these great companies as just a piece of paper or more likely a digital stock symbol with nothing real backing it up. Otherwise, a $5M shortfall wouldn't have lead to over a $2B loss in market cap.
So far the company has spent $63M on the buyback with $26M purchased since the end of Q1. Considering the revenue numbers and guidance, hopefully this means the company bought after it provided guidance for Q212.
Note the stock is up 6% today. Though the overall tape is good today, a increase in the stock buyback shouldn't have been a huge surprise considering the strong cashflow and low stock price.
Disclosure: Long RVBD. Please review the disclaimer page for more details.