Coincidentally, I answered this same question earlier today. Below is a repost of what I wrote on another thread.
A stock repurchase (or “buyback”) is a way for a company to quickly increase the price of its stock.
When a company buys back stock, these shares of stock typically are retired and are no longer are available for trade. Effectively, these shares no longer exist. With fewer shares available, the price of the remaining shares increases.
Buying back stock is a way to reward existing shareholders since it increases the price of the shares they already own.
However, stock buybacks do nothing to improve the long-term health of a company. They do not increase revenue or profits.
Consider a large project like Epcot. In 1979-1982, corporate Disney could have spent over a billion dollars buying back stock (which might have made shareholders at that time very happy) or they could have built Epcot.
Wall Street roundly criticized the Epcot project back then but, 30 years later, corporate Disney and its shareholders are much better off financially because of Epcot. In the long-term, Disney is a stronger company because of Epcot.
It’s important to remember that senior executive compensation is tied directly to stock price. Executives sometimes are accused of repurchasing stock not because it’s best for the long-term health of the company or its shareholders, but because it’s in the best interest of executives.
Fund managers at institutional investment firms are in the same boat as Disney executives. They are not worried about how Disney will be doing 10 years from now. Their compensation (and even their jobs) are tied directly to how well Disney is doing today.
Long-term, WDW (and corporate Disney) almost certainly would be better off with a 5th Gate but there is no one who is part of the current decision-making process who would benefit financially. Rather than invest billions in a 5th Gate, today’s shareholders and Disney executives would rather see that money spent on stock buybacks.
CEO Michael Eisner built in part because of ego (he felt these projects were his Disney legacy) and in part because Disney’s largest shareholders at the time understood that real estate development takes time.
Today’s corporate Disney is owned by large investment firms that, for the most part, don’t have the patience for long-term investing.
