Meta plans $7B bond issue
reuters.com
reuters.com
I did note in an article a couple weeks ago that they participate in groups that commission undersea Internet cables. Those sorts of infrastructure investments seem to have more staying power to me than the other offerings.
I think I'm trying to state: "Aren't the bulk of Meta's offerings too susceptible to trends to garner the trust required for a 40 year bond?"
Can they sell our emails + IP addresses to marketing companies who are going to exploit us based on our facebook posts/likes by targeting our insecurities? That might last 40 years.
Meta has more cash on hand and revenue than most countries. They are an institution unto themselves at this point, regardless of the future success of any individual product.
Sears was dying for decades.
because they see the terms as advantageous
all the money-flush tech companies issue debt, even though they have no "reason" to
IMO, it’s a stupid loophole that legislators should close.
Offering a bond and using it for buybacks is a way for shareholders to make future profits today.
I would never invest in Meta. I would love to invest in specific IP that's been developed, deployed, and optimized within the Meta ecosystem.
None of those businesses are around today, but how many of them had their equity erased and had their bondholders take a haircut? I can't say exactly, but my guess is that none of the top 10 biggest internet companies of that era had their equity fully wiped out.
If institutional investors hold bonds with 40 year maturity in Facebook they might be less inclined to invest in companies that might upend them.
They have no obligation to hold these bonds to maturity.
In any case these factors will presumably lead to an interest rate premium for bondholders. It's just a question of whether you want to take the risk or not.
So besides stock buybacks, what does it actually mean "to build a more traditional balance sheet and fund some expensive initiatives"? Layoffs mean they're doing less (far less!). Are they gonna hire people back? Like, what are you funding if it's not the people doing the initiatives?
And a follow-up question: given the above, who exactly is buying these bonds? "We grew too fast and did too many things so we fired people. Now our numbers look good! Give us money like last year to hire people to do things!" sounds like Lucy encouraging Charlie Brown to kick the football, no?
They've consistently been making $1.2-1.6M in revenue per employee, and their net profit margin has been 20-40%.
They just thought they could make more money.
[edit] I think Patrick McKenzie did a great job of explaining the post-COVID layoffs on Odd Lots a few months ago [1], as saying that companies hired to (a) keep the lights on with a ton of new users (b) tracking the growth trendline assuming things wouldn't return to normal and (c) they didn't see the ordinary 6% annual attrition baked into HR expectations due to employee uncertainty.
So from that perspective, a bond offering seems fine, IMO. Better than a dilutive secondary offering.
they issue bonds because they can
its smart - as money flees iffy industries like banking, it will be looking for a safe home...big tech will have no issue attracting capital
the only real danger is big tech getting extremely overbought, creating another systemic risk
This isn't true, it means they had fat to trim. People that were under performing or working on nothing. There was a hiring arms race the last several years and everyone over hired fearing other companies would get talent first. The industry at most of the notable tech companies was bloated.
I don’t know what went on in meta, but a few years ago I worked on a product team in a tech company. That team had a dedicated sub-team who reworked our AWS hosting every year. The company had a full Dev-Ops team to do it for us. Those 4-5 people were just making busy work and design docs in their name. While I’ve since quit and moved on, i hear that team experienced layoffs this spring. That’s “fat” which can be trimmed even if the engineers are very capable people.
Debt investors likely believe the company can handle a higher debt load.
Apple may have had more discipline with hiring, but they definitely fund R&D ventures - especially the “moonshots” you mention. They seem to have avoided any crypto teams, and any space-tech teams, but they also seemed under invested in AI.
And for raising debt, a factor is it's usually much easier and cheaper to raise debt when you don't need to. This one applies to startups as well, you're in pretty bad shape if you're low on money and need to raise capital. So if the conditions are right, it's worth it to raise now if the conditions are right, even if you're not going to start torching it for a couple of years.
Layoffs were mostly recruiters and PMs. New hiring will be mostly SWEs.
[1] https://companiesmarketcap.com/meta-platforms/cash-on-hand
There also seems to be an effort to show a net zero cash holdings position in order to preempt any political attempts to try to take money that corporations are “just sitting on.” I think there was some rumblings of that when Apple had 100+ billion in the bank. When they got wind of various governments’ ideas of extra taxes on excess cash suddenly share buybacks seemed like a better idea than losing that money altogether.
They looked around and thought, we don't have much debt compared to other companies, I bet our company value would go down less than $7B if we offer a $7B bond.
If they can give the $7B to investors today, but the stock value goes down less than $7B by taking it out, they are increasing shareholder profit.
It also means they don't think interest rates are dropping anytime soon.
At one time they did not think they were going down soon and they did suddenly.
They also thought over hiring was a good idea.
It’s almost as if these people are not good predictors of the future, and are just socially networked such they never lose and it appears to morons as if divine mandate empowers them.
This species is such a joke. Lemmings enabling a minority of abusers. Since humanity is meaningless why not bioengineer a kaiju and have front row seats to the apocalypse. Slowly roasting to death in deference to Zuckerbergs of the world is super boring
But they already have a giant cash hoard. They are going to be making less in interest on that cash hoard than they will be paying in interest on their bonds. This is what is frustrating about a lot of these "hand wavy" responses. Nobody misunderstands how borrowing works if you think you can invest it into something more profitable than you pay in interest. What is confusing to a lot of folks is borrowing with this money while at the same time having stacks of Treasuries earning a lower rate.
I can understand when interest rates are low as part of a "might as well get more money when it's nearly free" mindset, but as that's no longer the case, I don't understand the rationale behind this.
You take out a $1 loan (bond). You then pay yourself with the $1 (stock buyback).
You are realizing future profits today. As long as the cost of bringing those profits forward is less than reward, you net profit.
Interest tax deductions are just a perk.
Yes, anyone can take out a loan to get money now that they don't have to pay off until the future. Nobody misunderstands that. And I also fully understand taking out loans to invest in productive capacity when you need that capital. But if you have a couple billion dollars sitting in the bank, presumably making less interest than you'd need to pay for a bond issuance, then it still doesn't explain why issuing the bond makes sense.
This is an arbitrage play based on the difference between investor sentiment and debt on the books.
The idea is that their market valuation will go down less than $1B if they issue a $1B bond.
Similar nonlinearities are true for other corporate holdings. Facebook has $40B cash on hand. If they had $0 on hand, That would hurt their valuation by a lot more than $40B because investors like to see some cash in the bank, and see it as a red flag. Similarly, Investors dont care much about a little debt, and facebook is an outlier in that it has very low levels of corporate debt.
> The Facebook parent plans to use the funds to help finance capital expenditures, repurchase outstanding shares of its common stock, and for acquisitions or investments, according to the report.
Still not clear why they need a bond issuance to accomplish any of these vs. using their massive cash-on-hand warchest. My guess is some kind of interest arbitrage.
Its hard to figure out what is going to happen to facebook in the future. This is one of those few moments I'd like to be a non-US native to understand if Facebook is doing well/growing outside the US, or if its dying out. (I don't think Instagram is going to last too much longer, the quality has collapsed)
Up to 40 year duration, although long duration bonds carry a very large interest rate risk and either make lots of money on a fed pivot or lose lots of money if inflation doesn’t drop and rates go higher.
Also wouldn't higher interest rates be beneficial for Meta (and worse for lenders) because Meta will be able to lock in the comparatively lower interest rates now for the next 40 years?
Meta bonds would have a very high rating, and a very low risk of default. Not as good as bonds from Apple or Microsoft, but better than most corporate paper.
I wouldn’t want to hold them for 40 years though. My personal view is meta is the tech giant least likely to remain a going concern.
At 40 year duration even a 1% interest rate hike could greatly affect the market price of the bond. While the market seems to be betting that rates won't rise much more, the possibility of stagflation isn't off the table yet IMHO.