Inside Yelp’s Share Repurchase Program
Yelp announces $200 million repurchase program
Yelp (YELP) shareholders are in for a treat, as the company has decided to funnel a portion of its capital to repurchase some of its shares. Yelp is planning to return $200 million to shareholders by way of share buybacks. This move could win Yelp favor with investors at a time when the company has stepped up competition with Facebook (FB), Alphabet’s (GOOGL) Google, and Twitter (TWTR) for online advertising budgets.
Yelp had 81.8 million shares outstanding at the end of 2Q17. Yelp intends to fund the repurchase program using cash available on the balance sheet.
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Cash balance up by $22 million
The company had cash and equivalents of $169.1 million on the balance sheet at the end of 2Q17, implying an increase of $22 million over the prior quarter. As illustrated above, and save for one period, Yelp’s cash balance has risen steadily in recent quarters.
In addition to cash on the balance sheet, Yelp is receiving $287.5 million from the sale of its food-ordering service Eat24 to GrubHub (GRUB). Yelp could use a portion of the proceeds from this transaction to fund its repurchase program.
Desirable effects of share repurchase
Share repurchase programs are beneficial in a number of ways. For investors who have seen the value of their stocks appreciate, repurchases present an opportunity to unlock gains in a stock.
Repurchases offset impacts of stock-based compensation and secondary equity offerings, allowing for EPS (earnings per share) improvement. Since repurchases reduce the number of shares available on the market, they can lead to improvement in stock price.