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Meta plans $7B bond issue

reuters.com

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Re: Meta plans $7B bond issue

#51

Post by s1artibartfast »

devnull3 wrote: post #9

Meta 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

They don't "need" to. They want to.

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.

Re: Meta plans $7B bond issue

#52

Post by roncesvalles »

hospitalJail wrote: post #4

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.

Re: Meta plans $7B bond issue

#53

Post by s1artibartfast »

hn_throwaway_99 wrote: post #46
brotoss wrote: post #40

Earlier quoted context omitted.

interest tax shield it's beneficial for companies to raise debt and pay interest

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.

You 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.

Re: Meta plans $7B bond issue

#54

Post by jmiskovic »

bastawhiz wrote: post #10

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 sh…

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.

Re: Meta plans $7B bond issue

#55

Post by hn_throwaway_99 »

s1artibartfast wrote: post #53
hn_throwaway_99 wrote: post #46

Earlier quoted context omitted.

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.

You 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.

Your 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.

Re: Meta plans $7B bond issue

#56

Post by dogma1138 »

misterprime wrote: post #3

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 t…

Quite 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.

Re: Meta plans $7B bond issue

#57

Post by s1artibartfast »

hn_throwaway_99 wrote: post #55
s1artibartfast wrote: post #53

Earlier quoted context omitted.

You 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.

Your 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 fo…

The key piece missing then is corporate valuation.

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.

Re: Meta plans $7B bond issue

#58

Post by hn_throwaway_99 »

sowbug wrote: post #30
dougmwne wrote: post #7

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.

Re: Meta plans $7B bond issue

#59

Post by nafey »

slashdev wrote: post #18

This 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.

Why 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?

Re: Meta plans $7B bond issue

#60

Post by kevinventullo »

slashdev wrote: post #18

This 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.

You think banking on Facebook being around in 40 years is low-risk?
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