Quick take:
- Meta Platforms has announced its first-ever bond offer.
- The company plans to use the proceeds for capital expenditures, share repurchases, acquisitions or investments.
- The Facebook parent did not disclose the target amount but has been investing heavily in the metaverse.
Facebook’s parent Meta Platforms Inc. (NASDAQ: META) has announced its first-ever bond offer. The global social media conglomerate did not disclose the amount it seeks to raise from the bond issue.
The company said it will use the funds for capital expenditures, share repurchases, acquisitions or investments. That final use-case is very important because Meta has been heavily investing in the metaverse. In fact, the company rebranded from Facebook last October for the sole purpose of taking a new direction, which it described as focusing on creating the future of human interactions.
Meta invested $10 billion towards the metaverse in the final quarter of 2021, which significantly affected its bottom line. And in May, Zuckerberg warned investors about more pain, with the leading social media company expecting to burn more cash to attain its metaverse goals.
The metaverse is generally described as a 3D virtual space where people can interact with each other and participate in experiential activities like gaming and virtual concerts. Meta’s big bet on the industry has taken a toll on its finances.
This will be Meta’s first debt on its books. It is the only mega tech company in the US that has never financed its business with debt. However, after reporting consecutive quarters of a declining bottom line, this move seemed inevitable.
The company missed analyst expectations on revenue and earnings in its most recent quarterly results, prompting a huge decline in the stock price. Meta reported its first quarterly revenue decline last week, signalling a slowdown in the business.
Meta’s cash reserves have declined significantly recently, with the company reporting $4.45 billion in free cash flows from the quarter that ended June 30. This compares to $8.51 billion reported in the same quarter a year ago, and $8.53 in the quarter ending March 31, 2022.
The share repurchases announced could help repair the damage done to the price, but that is likely to be temporary, although the company sees it as a long-term project for reallocating capital to investors.
Meta’s plans to acquire virtual reality company Within is facing an antitrust lawsuit from the Federal Trade Commission (FTC) on fears the technology giant could create a monopoly in the burgeoning new sector, the metaverse.
The metaverse was recently projected to reach a $5 trillion valuation by 2030 in a research report published by McKinsey, while Citi had previously issued a forecast of $8-$13 trillion.
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