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The meme-y-ist of tech stocks like Peloton weren't doing stock buybacks. The idea that Apple is "taking on debt to buy back stock" is pretty misleading. Sure,

The meme-y-ist of tech stocks like Peloton weren't doing stock buybacks. The idea that Apple is "taking on debt to buy back stock" is pretty misleading. Sure, Apple has some debt - but it has net cash. Ditto for the rest of the megacap tech stocks.

tempsy 4y ago
i didn’t say every company was. this is mostly true of the mega cap companies. and it’s not misleading at all. Apple and Meta are both known to sell bonds aka taking on debt for the primary purpose of buying back their own stock. that doesn’t have anything to do with their multibillion pile of cash.
- mulligan 4y ago
  Meta has sold a single bond, in August of 2022. That isn't a pattern and it isn't enough for them to be "known to sell bonds to buy back stock"
  - tempsy 4y ago
    They got caught in the hype and lost a lot of money. Apple has many times. I don’t know why this is suddenly a conspiracy that some mega cap tech firms used cheap debt to buy back their stock. It’s not. It’s actually the primary way that these companies hid dilution from investors due to employee stock comp.
- deleted 4y ago
  [deleted]
sokoloff 4y ago
GP is missing one of the major reasons for tech stocks to fall in a rising rate environment. (They're probably not missing knowing it, but missed saying it explicitly.) When risk-free rates of return increase, that harms the value of all growth companies by increasing the discount rate applied to future cash flows (while not giving a corresponding "credit" for near-term losses of cash)
- cudgy 4y ago
  Higher interest rate was the catalyst to recognizing reality, not so much a fundamental shift of financials. Many of these companies were losing money and their future imaginary positive cash flows were wishful thinking given their business models. Higher interest rates accelerated loss in value as the speculative sentiment shifted to a more risk-averse posture once the market accepted the reality that was always there: these companies never exhibited the ability to make any money, plus they were cannibalizing themselves due to the extreme competition from other startups fueled by the huge amounts of money vc’s were able to gather during the zero interest rate mania. Discounting future negative cashflows was always a foolish game.
  - sokoloff 4y ago
    I think changing interest rates can easily (and often do) cause a fundamental shift of financials. If I have a company that will lose 100 units of currency this year and next year, break even the year after that, and then return 20 units of currency for each of the next 17 years, then vanish without a trace, that's worth positive 46 units of currency at a 3% discount, nothing at a 5% discount, and negative 37 units of currency at a 7% discount rate. (Whether you discount the initial losses changes the analysis by only a small amount.)
    - cudgy 4y ago
      Discounting of cash flows is not what I consider to be “financials”. Financials are the output / cash flows themselves not the speculative investment calculation of future flows given a determined discount rate. Initial cash flows weigh much more heavily than later cash flows, so initial losses in a cash flow series have a much larger impact on npv. Therefore, I disagree with the conclusion of your hypothetical.
  - twelve40 4y ago
    > these companies never exhibited the ability to make any money the most talked-about layoffs right now are happening at salesforce, facebook, amazon, etc. I'm not sure what you are trying to convey or which hypothetical companies you are talking about, but these are printing money.
rogerkirkness 4y ago
The reason they take out debt to buy back stock is generally that they don't want to pay tax until later.
- onlyrealcuzzo 4y ago
  Are you talking about why Apple has so much cash in Ireland? Why can't Apple buy its stock from Ireland without paying more taxes?

tempsy 4y ago

i didn’t say every company was. this is mostly true of the mega cap companies. and it’s not misleading at all. Apple and Meta are both known to sell bonds aka taking on debt for the primary purpose of buying back their own stock. that doesn’t have anything to do with their multibillion pile of cash.

mulligan 4y ago
Meta has sold a single bond, in August of 2022. That isn't a pattern and it isn't enough for them to be "known to sell bonds to buy back stock"
- tempsy 4y ago
  They got caught in the hype and lost a lot of money. Apple has many times. I don’t know why this is suddenly a conspiracy that some mega cap tech firms used cheap debt to buy back their stock. It’s not. It’s actually the primary way that these companies hid dilution from investors due to employee stock comp.
deleted 4y ago
[deleted]

sokoloff 4y ago

GP is missing one of the major reasons for tech stocks to fall in a rising rate environment. (They're probably not missing knowing it, but missed saying it explicitly.) When risk-free rates of return increase, that harms the value of all growth companies by increasing the discount rate applied to future cash flows (while not giving a corresponding "credit" for near-term losses of cash)

cudgy 4y ago
Higher interest rate was the catalyst to recognizing reality, not so much a fundamental shift of financials. Many of these companies were losing money and their future imaginary positive cash flows were wishful thinking given their business models. Higher interest rates accelerated loss in value as the speculative sentiment shifted to a more risk-averse posture once the market accepted the reality that was always there: these companies never exhibited the ability to make any money, plus they were cannibalizing themselves due to the extreme competition from other startups fueled by the huge amounts of money vc’s were able to gather during the zero interest rate mania. Discounting future negative cashflows was always a foolish game.
- sokoloff 4y ago
  I think changing interest rates can easily (and often do) cause a fundamental shift of financials. If I have a company that will lose 100 units of currency this year and next year, break even the year after that, and then return 20 units of currency for each of the next 17 years, then vanish without a trace, that's worth positive 46 units of currency at a 3% discount, nothing at a 5% discount, and negative 37 units of currency at a 7% discount rate. (Whether you discount the initial losses changes the analysis by only a small amount.)
  - cudgy 4y ago
    Discounting of cash flows is not what I consider to be “financials”. Financials are the output / cash flows themselves not the speculative investment calculation of future flows given a determined discount rate. Initial cash flows weigh much more heavily than later cash flows, so initial losses in a cash flow series have a much larger impact on npv. Therefore, I disagree with the conclusion of your hypothetical.
- twelve40 4y ago
  > these companies never exhibited the ability to make any money the most talked-about layoffs right now are happening at salesforce, facebook, amazon, etc. I'm not sure what you are trying to convey or which hypothetical companies you are talking about, but these are printing money.

rogerkirkness 4y ago

The reason they take out debt to buy back stock is generally that they don't want to pay tax until later.

onlyrealcuzzo 4y ago
Are you talking about why Apple has so much cash in Ireland? Why can't Apple buy its stock from Ireland without paying more taxes?