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Meta plans $7B bond issue
- deleted 3y ago[deleted]
- misterprime 3y agoI know Facebook/Meta is huge and well established, but a 40 year bond seems like an eternity in the tech world. Is Meta that entrenched that people are this confident that they'll still be around in 40 years? Perhaps there's a lot more to their staying power and value than some web pages, apps, and VR hardware, but I'm not very aware of it. 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?"
- hospitalJail 3y agoMaybe some lawyer can read the fine print that everyone agreed to. 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.
- ramesh31 3y ago>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?" 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.
- bobthepanda 3y agoYeah, most company implosions take a while, and WeWork, Moviepass et al. are not the norm. Sears was dying for decades.
- chris_wot 3y agoSo why do they need to raise more funds?
- 0zemp2c 3y agowhy does any company? because they see the terms as advantageous all the money-flush tech companies issue debt, even though they have no "reason" to
- voisin 3y agoTo avoid taxes many companies keep profits offshore in lower tax jurisdictions, only paying US taxes when money is repatriated. It is super common for companies to have billions offshore but to keep it there, take out US debt to und share buybacks or other US domestic initiatives and then only repatriate each year the amount needed to service that debt. IMO, it’s a stupid loophole that legislators should close.
- bragr 3y agoMight be cheaper to borrow than turn some cash equivalent into cash or move it where they need it.
- s1artibartfast 3y agoNeed to or want to? Offering a bond and using it for buybacks is a way for shareholders to make future profits today.
- shanebellone 3y agoIn my opinion, the value of its sandbox far exceeds the value of its business. 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.
- wefarrell 3y agoConsider the very first cohort of internet companies - AOL, CompuServe, Yahoo, Ask Jeeves, etc... 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.
- dogma1138 3y agoQuite possibly some of the strategy behind this is to improve their staying powers. If institutional investors hold bonds with 40 year maturity in Facebook they might be less inclined to invest in companies that might upend them.
- almog 3y ago> 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.
- blsapologist42 3y agoBondholders get the $$ first when a company goes under. And typically businesses don't completely disappear and lose all their assets. They usually have a slow decay then get acquired by someone else who takes over the debt. 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.
- hospitalJail 3y agoBroken link to the report, doesn't say what the investment is for. 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)
- robopsychology 3y agoIt's still very popular in Europe for my age range (25-34) - FB Messenger is the default option to contact friends, even more so than WhatsApp.
- nrmitchi 3y agoWell Meta owns WhatsApp anyways
- s1artibartfast 3y agoI'm in the US and haven't used facebook in 10 years, but thinking of getting back on. With the death of forums, self destructive nature of reddit, I keep finding myself turning to fakebook groups to keep up on relevant interests.
- roncesvalles 3y agoMost people in my bubble (Canada, age 25-34) have stopped using Facebook.com for social sharing -- all that's moved to Instagram and, to a lesser degree, Snapchat. FB.com primarily seems to be used for marketplace groups, or support groups like for parenting.
- dougmwne 3y agoWhy would Facebook need to raise all this cash? Don’t they have plenty of profit? Aren’t interest rates high enough to discourage borrowing against future profits like this?
- Out_of_Characte 3y agoThis is an investor's game. Why waste profits if you can raise 7B to invest for safe returns?
- sowbug 3y agoIt's not about need. It's just a rational financial decision. They believe they can make more profit with the cash than the price they're paying in interest. It also means they don't think interest rates are dropping anytime soon.
- roribolden 3y ago“…they don’t think interest rates are dropping anymore 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
- hn_throwaway_99 3y ago> They believe they can make more profit with the cash than the price they're paying in interest. 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.
- devnull3 3y agoMeta has ~$40B as Cash-on-Hand [1]. Why does it need to raise this money via bonds? [1] https://companiesmarketcap.com/meta-platforms/cash-on-hand https://companiesmarketcap.com/meta-platforms/cash-on-hand
- rullelito 3y agoThis way they would not have to risk failing to issue a bonds at a later time.
- jjtheblunt 3y agoperhaps it has greater than $40B of expenses anticipated?
- mminer237 3y agoI can't find any solid information, but is it possible it's largely stuck in Ireland? By borrowing money and paying the interest with out-of-country cash, they should be able to avoid US tax, right?
- deleted 3y ago[deleted]
- brotoss 3y agolook up the interest tax shield
- musictubes 3y agoApple has been pursuing a “cash neutral” policy for a while by selling bonds in order to do what Meta says they are going to do. I’m no corporate financial whiz but I think that using debt to do those things has some sort of tax advantage. 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.
- s1artibartfast 3y ago
- bastawhiz 3y agoIf meta needs to lay off tens of thousands of people to make their financials look good enough to appeal to investors, that suggests to a layman like me that they weren't turning enough profit per employee to justify the things those people are working on. This comes, notably, after raising $10B last year before the layoffs. 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?
- arcticbull 3y agoThey definitely were making tons of profit per employee. 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. [1] https://www.youtube.com/watch?v=Hb7G7sY4p9o https://www.youtube.com/watch?v=Hb7G7sY4p9o
- 0zemp2c 3y agothey lay off because they can 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
- ProAm 3y ago> Layoffs mean they're doing less 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.
- slashdev 3y agoWithout paywall: https://archive.is/pgyis https://archive.is/pgyis
- slashdev 3y agoThis is interesting, these will be low risk bonds with a better yield than treasuries. It could be a safe place to park money during the coming recession and get paid for waiting. 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.
- nafey 3y agoWhy are they low risk? There is a significantly higher chance of meta defaulting than us govt on a 40 year horizon. 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?
- slashdev 3y agoHigher interest rates in the future are good for Meta, bad for people holding the long duration bonds. And visa versa. 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.
- kevinventullo 3y agoYou think banking on Facebook being around in 40 years is low-risk?
- slashdev 3y agoNot really, but there are bonds of many durations, not just 40 years. You also do not have to hold them to maturity.
- hnfong 3y agoBe careful, SVB went bust because they invested heavily into long term debt securities and got a big haircut when interest rates rose steeply in 2022. 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.
- mdorazio 3y agoFor those curious... > 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.
- seydor 3y agowhy would people bet on FB?
- hn_throwaway_99 3y agoI know there are already lots of questions to this effect, but if anyone can point to a good blog post that outlines "Why massively profitable companies with huge amounts of cash sell lots of bonds", I'd love to see it! 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.
- brotoss 3y agointerest tax shield it's beneficial for companies to raise debt and pay interest
- hn_throwaway_99 3y agoThat makes 0 sense without more context or information. Even if interest is a tax deductible expense, it doesn't make sense to spend a dollar to save 30 cents.
- s1artibartfast 3y agoYou also make a dollar in the process. 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.
- hn_throwaway_99 3y agoYour comment does nothing to aid my understanding of the situation. 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.
- jldugger 3y agoSeems like Meta is pursuing a reverse LBO: lay off a bunch of people, _then_ take on a bunch of debt to pay out as a shareholder dividend.