Ripple Buys Back Even More

TL;DR

• Ripple has announced an unexpected tender offer, for a further 2.5% of the company at $250/share;
• It looks like they’re increasing the frequency of buybacks from 2x/year to 4x/year, as well as increasing the price;
• This lifts the buyback-DCF valuation of Ripple’s common stock significantly, from $79 to $160/share.

Cash on the barrelhead

A few weeks ago, I took a stab at valuing Ripple’s stock after the resolution of the SEC v Ripple suit, and I argued that Ripple’s twice-yearly buybacks implied a ~$79 valuation floor for the stock, compared to $120 where it was trading at the time. I suggested that if Ripple wanted to compress the discount to the $500-ish NAV¹, they should either go public², raise the price, or accelerate the buybacks.

Well. Earlier this week, Ripple announced an unexpected tender offer: they’ve built up a rhythm of announcing buybacks on or around the second Tuesday of June and December, so a September announcement was unusual. They also unexpectedly raised the buyback price from $175 to $250 while maintaining the amount (about 2.5% of the company at each tender offer).

This roughly doubles the DCF-implied valuation of the shares to $160/share. If Ripple maintains quarterly 2.5% buybacks, they’re going to be buying back about 10% of the company every year, much faster than their previous pace; the faster buybacks plus the elevated price mean a significantly higher valuation floor.

The Ripple C-suite has significantly compressed the stock’s discount to NAV, and they’ve done the right thing by accelerating the buybacks; as a next step, they should continue to raise the price if there’s liquidity to do so³. They shouldn’t pay all the way up to NAV (around $500), but if they were to raise their bid to $350 in future, that would make the stock worth $225 on a DCF basis and likely higher in the secondary market⁴.