Meta: first bond sale sends message to equity investors

Meta is in a bind. The company formerly known as Facebook has staked its future (and its name) on virtual reality — a segment of the business that has lost close to $6bn this year. The Oculus headsets it sells, devices that will give users entry to the digital universe known as the metaverse, remain clunky and uncomfortable. More investment is required. Tapping credit markets is a good option. It also suggests more share buybacks are coming.

Like its Big Tech peer group, Meta is well cushioned. It has close to $40.5bn in cash, cash equivalents and marketable securities. It also has no debt. But the advertising business that comprises the majority of revenues and should be funding future plans has problems. Social media competitor TikTok is more popular with young users. Meanwhile, Apple’s decision to make it easier for internet users to opt out of ad tracking has made it more difficult to collect information needed for personalised adverts.

Meta has missed the era of ultra-low borrowing rates. Rising interest rates mean rising yields — a trend likely to continue in coming years. It should lock in long-dated maturities now. Earlier this week, Apple sold 30 and 40 year bonds. Meta is well placed to do the same. Novelty is prized by bond investors. It is likely to be in demand.

It can avoid convertible bonds too. A number of tech companies have spent the past few years issuing this, including Snap, Peloton and Beyond Meat. Investors were happy for tech companies to pay little or no interest — the appeal was the possibility of turning the debt into stock at a fixed price in the future. Since then, stock prices have fallen along with the value of the bonds. The cost of refinancing will be high.

Meta’s plans will not only interest bond investors. After Apple broke records with the biggest corporate bond sale in 2013, payouts to investors jumped. Meta’s share buybacks exceeded $5bn in the second quarter. If the sale of debt is successful expect that figure to keep rising.


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