I 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?"
Consider 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.
Bondholders 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.
>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.
Maybe 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.
If 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?
They 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.
Layoffs may not be applied equally though. When you get into big company spaces, they tend to be closer to an amalgamation of a bunch of smaller companies / empires. So layoffs may target business units that are not performing as well as the average, or the bet isn't working out. On the flip side though, there might be other units that require very different skills and experience that the investment in is getting doubled down.
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.
Facebook is now a cash cow making $40 billion of EBITDA and $20 billion of net income annually. They have ~$20 billion of net debt or about one years worth of earnings.
Debt investors likely believe the company can handle a higher debt load.
Compare to Apple who has been crazy profitable but who opted to pile up a cash hoard. Meta and Google and some others saw every spare billion as an opportunity to hire another moonshot team to build AI/VR robot cars. All that stuff was funded by their main businesses. Now they are basically giving up. Stick to their core businesses and just keep the cash.
To be fair, apple is famous for having poured money into AR and robot cars lately. “Project Titan” was a cash burning machine, and we’ve been expecting their rumored AR goggles any day now.
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.
My hunch is that the massive layouts across IT sector are caused by GPT suddenly becoming useful and viable. We are approaching times when replacing humans with robots on such scales will trigger a public outcry, so this was the last opportunity to shed away some tens of thousands of organic brains.
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.
They are not exactly trimming 'fat'. This latest round had numerous people who were getting high marks and even AE. There is some meme going around that this was a performance based layoff and it absolutely was not.
Apple 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.
I 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?
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.
Why 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?
It'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.
> 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.
“…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
I 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.
That 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.
> 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.
Broken 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)
Most 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.
I'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.
Readit News
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?"
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.
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.
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.
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.
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.
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.
[1] https://www.youtube.com/watch?v=Hb7G7sY4p9o
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.
Debt investors likely believe the company can handle a higher debt load.
Layoffs were mostly recruiters and PMs. New hiring will be mostly SWEs.
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.
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.
[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.
Deleted Comment
It also means they don't think interest rates are dropping anytime soon.
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.
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
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.
> 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)