Meta Issued Bonds For The First Time

Last Thursday, Meta's first bond offering went under the table. Almost no one talked about it, perhaps because they had reported the first quarterly revenue drop in their history days ago.

Meta logo
(Photo by Dima Solomin on Unsplash)

However, the company reported raising $10 billion in its first bond offering this Tuesday. They'll use the proceeding to drive changes at Meta in facing rivals' challenges and new technology development. For those keeping an eye on Meta, this bond offering has been an excellent opportunity to invest in a solid, stable company with excellent prospects for the future amid an uncertain economic outlook.


Beyond the regulatory hurdles that could come for Meta in the coming months or years and that will impact its revenues, this company has a projection into augmented reality, virtual reality, and the metaverse, where vast amounts of money await it. The company, which is currently strongly rivaling TikTok, Bytedance Ltd's social network, for the preference of young users on its social networks, is now focused on making massive investments to finance its ambitious projects.



Meta Bond Issuing

Although Meta had not initially disclosed the size of the public offering, in the end, the company offered bonds to raise 10 billion dollars (approximately 9.79 billion euros at the exchange rate). With this issue, Meta surpassed the amount raised by other U.S. technology giants such as Apple and Intel, which also issued bonds recently, raising 5.5 and 6 billion dollars, respectively.


According to Bloomberg, investors who have had Meta in their sights boosted demand for the bond Tuesday afternoon on the New York Stock Exchange to push it above $30 billion at its peak. At Meta, they only limited themselves to pointing out that these proceeds from the bond issue would go directly to cover capital expenditures, share buybacks, acquisitions, or investments without giving specific details on how they'll use the money. Still, some estimate that much of it will go to the metaverse.


Meta is working hard on the metaverse along with Microsoft. Epic Games, among other companies, created the Metaverse Open Standards Group, which would drive the creation of interoperable open protocols that allow users to move through future immersive 3D worlds quickly. For this, it requires a lot of money to invest in R&D.


The Meta issue consisted of four tranches, with maturities ranging from 5 to 40 years and a yield of 1.65 percentage points above Treasury bonds, which is suitable for investors looking for this kind of return. In addition, Meta had received an "A1" rating from Moody's and an "A.A.-" rating and a "stable" outlook from S&P, which puts it in a perfect position to become an attractive investment, taking into account the strength and size of its business.


Meta is the only one among the large technology companies with no debt on its balance sheet, so by issuing bonds in search of fresh capital, it would have more room to maneuver while trying to finance some transformations during the arrival of a global recession.



Meta Business Model

Meta is turning to the market to boost its latest bet on augmented and virtual reality technology, which is key to the future of the metaverse and the plans of this company located at 1 Hacker Way, in the heart of Menlo Park, California. The metaverse is an area where Meta is fighting an intense battle with Apple to define this new technological environment. It seeks to make people live an entirely digital life, connected with almost all their senses to the Internet.


However, although Meta has an excellent financial position, it reported late last month that it recorded its first revenue decline due to a decrease in ad spending as the global economy slows to the brink of recession. Following that announcement, the company's shares fell slightly in post-earnings trading. The data signaled that Wall Street was already expecting a weak quarterly result following the departure of its COO, Sheryl Sandberg, the head of the company's big advertising business and its social networks.


According to Meta's report, in the second quarter of this year (Q2), which ended June 30, the company owned by Mark Zuckerberg, earned $4.45 billion in free cash flow, compared to $8.51 billion in the same quarter (Q2) a year ago and $8.53 billion in the previous quarter (Q1). In addition to the underlying economic situation, which caused ad spending to decline globally, Apple's privacy changes have had a moderate impact on its operations and earnings, so there is slightly negative investor sentiment about Meta and its subsidiaries.



Meta Public Relations

While it is true that Meta is not a company that enjoys a good image worldwide, including in the European Union, it is possible that Nick Clegg, who this year ascended to the position of president of global affairs, things will change a little. It is worth remembering that Clegg has a great political career, having been deputy prime minister and leader of the U.K. Liberal Democrat Party. He also worked in the European Parliament and the European Commission, so there may be the winds of change for Meta, at least in Europe.


Clegg, who has been working at Meta as vice president of global affairs since 2018, can now turn around the raft of regulations that politicians in the E.U. and elsewhere want to push through to contain the advance of the mega social network that is Meta. In any case, Meta's bonds look like a good investment opportunity in the medium to long term, especially with the advent of augmented and virtual reality just around the corner, with the launches they have lined up for the end of the year.



Conclusion

If we add that in a few more months, we could be inside a "decent" sandbox for the metaverse proposed by the Meta company, then the prospects of earning a reasonable return are assured.



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