Stocks make investors (contrasted with traders) money either by (a) going up in price or (b) paying a dividend every quarter. In order to make your stock price go up, you have to show not just profits, but growing profits. With something like Wal-Mart, this just means either cutting costs or selling more stuff to more customers. However, Facebook is going to (over the next few years) approach market saturation - they hit 500 million users 6 months ago, and there are only two billion internet users world-wide, meaning they can't keep growing at their historical pace forever. As that user growth slows, there are two ways to increase revenues (and profits) - either extract more money from each user or diversify into other products or services. If they can't do that, then they have to reorient into a "own our stock because we pay dividends" slow-growth company like Microsoft.
A company can also buy its own stock. In the short term this has little impact on the stock price, but as future profits are shared among a smaller pool of investors you can cycle though rising price and splits even with a stable income stream.
PS: This is only really efficient when the P:E hovers around 10:1 but it has great tax implications for long term investors.
Most tech companies do stock buybacks rather than dividends. From the point of view of shareholders, it is almost the same thing.
Here are the differences. Dividends generate ordinary income, which people may have to pay taxes on. Dividends drop the price of the stock by the amount of the dividend.
By contrast a stock buyback reduces the value of the company and the outstanding stock by the same amount, and therefore leaves the stock price alone to first order effects. Over time this increases the likelihood of incurring long-term capital gains, which are generally better from a taxation purpose.
The never stated difference, which I think is important, is that dividends hurt anyone holding options, while a stock buyback increases volatility which helps anyone holding options. Since tech companies tend to have lots of employees with options, this matters a lot to them.
Very few, and why does anybody buy their stock? This guy I know has been borrowing more and more money for years and never paid a red cent back, and now you want to lend him your money?
