Yesterday, we looked at a possible case of severe overreaction-itis affecting Wall Street. Analysts who had expected online advertiser DoubleClick
That said, there was one facet of DoubleClick's earnings report that deserves criticism: stock dilution. According to the company's CEO, Kevin Ryan, DoubleClick has "invested in its business" by spending more than $59 million to repurchase stock over the past six months. The result has been that, in contrast with such serial stock diluters as Intel
If you read the company's first and second quarter earnings releases carefully, you will see that in Q1, DoubleClick bought back 1.9 million shares at an average price of $10.74 per share, and in Q2, 4.7 million shares at an average price of $8.08 per share. Total shares repurchased: 6.6 million, or about 4.7% of diluted shares outstanding. Once more, just to be clear: The company bought back 6.6 million shares, yet its shares outstanding declined by only 5.7 million shares.
The situation seems remarkably similar to what we found when reviewing Symantec's
Moreover, consider this: DoubleClick's shares sold for just $7 a share before Friday's big drop. Yet the company spent $59 million to buy back 6.6 million shares at an average price of nearly $9 a share. So it is hard to argue that the buybacks created any shareholder value at all. Rather, they just wasted shareholder money in a vain attempt to mask the transfer of even more shareholder money to company insiders through dilutive stock issuances.
Fool contributor Rich Smith owns no shares in any company mentioned in this article.