05 August 2022
Meta, the social media company, is planning to issue its first set of bonds to finance new investments and operations, according to reports. The company will be selling $10 billion in debt, to maintain a healthy cash flow and fund buybacks, per statements of two people with reported knowledge of the deal.
Meta, one of the first companies that pivoted to the metaverse as part of its main business model, is set to issue debt in order to continue to fund part of its operations and to maintain a healthy free cash flow. According to reports coming from people close to the deal, the company will be issuing $10 billion in bonds as part of the first debt offering of this kind for the tech giant.
The operation, which was set to happen Thursday, has received a big response, with investors offering $30 billion to take advantage of this move. The bonds will have different maturities, going from five years to 40 years, with the majority of the demand being directed towards the latter.
Per source statements, the offering has been in the works for the last two months, with Meta deciding to launch it after releasing its latest earnings report in July. The company obtained satisfactory ratings from different agencies, getting an ‘A1’ rating from Moody’s and an ‘AA- rating’ and a ‘stable’ outlook from S&P.
The issuance of this bond has to do with the shrinkage of the free cash flow that the company has experienced during the last year. Meta had $4.45 billion in free cash flow, compared to the $8.51 billion the company had a year ago. Sources indicated that the bond offering will have the objective of giving the company more breathing room to keep funding part of its operations, including its metaverse initiatives.
Meta’s metaverse push is costing the company a lot of funds in research and development. In its latest earnings call, the company reported that its metaverse unit, Reality Labs, had reached sales of more than $400 million, but registered losses of more than $2.8 billion during Q2 2022. Predictions are not good either, with the company acknowledging that Reality Labs would continue to lose money during Q3.
Meta has also made some moves on the sales side of the equation, raising the price of its flagship VR headset, the Quest 2, by $100 “in order to continue investing in moving the VR industry forward for the long term.”
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