Why WebMD Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of health information services provider WebMD (Nasdaq: WBMD  ) are dipping 10% after the company announced the preliminary results of its tender offer to repurchase shares.

So what: Some moments leave you scratching your head -- and this is one such moment. Based on its preliminary report, WebMD expects to use $150 million in aggregate cash to acquire 5,769,230 shares of its own stock, or 10.15% of its outstanding shares, at $26 per share. This represents a 10% premium to its currently quoted price.

Now what: Now for that head-scratching part. Usually when a company repurchases its shares, the stock responds by moving higher. Fewer outstanding shares often means easier EPS comparisons and it also shows conviction in a company's long-term business outlook. We're definitely not seeing that happen here today. WebMD has cautioned that its business has weakened recently and EPS estimates have been slashed in accordance with that warning. Perhaps this is the shareholders' way of telling the company to focus more on growth and less on trying to inflate its EPS with fewer shares available? Either way, I'm leaving this stock be.

Craving more input? Start by adding WebMD to your free and personalized watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 04, 2012, at 4:39 PM, PhilRhein wrote:

    I wasn't sure what would happen today (Who is?), but I wasn't surprised by the drop in price.

    I suspected that the buyback was initiated simply to stop the stock price from falling further--not because the company felt that the price was good.

    I could be wrong. Maybe it will bounce back. But my basic question is, Who would buy the stock now and why? I can't see the who and I can't see the why. When you can't imagine why anyone would buy a stock, don't buy it.

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9/19/2014 3:59 PM
WBMD $45.22 Down -0.81 -1.76%
WebMD Health Corp. CAPS Rating: *

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