For a decade, Big Tech’s ATMs paid for every moonshot. Now Meta (META) is passing the hat, and the plan behind it started with a showdown between Mark Zuckerberg and his board.
Meta sells nearly $100 billion in stock to fund AI. Even Nvidia (NVDA) is investing $3 billion. The company that sells Meta its AI chips is now also buying its shares.
624.53 -6.03 (-0.96%)
At 10:40:23 a.m. EDT. Open market.
Meta is not the only giant to fail. Amazon (AMZN) and Alphabet (GOOGL) each spent more than their companies brought in in any quarter this year, then borrowed heavily. Meta is the first to hand over a large part of the bill to shareholders.
Who pays, piece by piece
Meta valued $25 billion of common stock at $625 per share, below Friday’s closing price. Another $12.5 billion was invested in preferred shares which yield 6.5% and will convert to common shares in 2029.
The largest share, worth $60 billion, has not yet been sold. This is a new class of non-voting shares that Meta plans to sell little by little starting next year.
Why Meta needs money
Last quarter, Meta spent nearly $34 billion on buildings and equipment, mostly for AI. Its activity brought in nearly $33 billion in cash. This made free cash flow negative for the first time since 2012, the year Meta went public.
The company that repurchased about $45 billion of its own stock in 2021 hasn’t repurchased a share in a year. Now it’s selling.
A house, a board of directors and a share without a vote
Meta’s non-voting shares grew out of a fight over Zuckerberg’s taxes, according to a company filing. He told the board he plans to leave California before the Nov. 3 vote on a billionaires tax. At a board dinner Sept. 9, he said he would list his Palo Alto home within a few days.
Five days later, they reached a deal. Each shareholder receives one free non-voting share for each share held, the same type that Meta plans to sell. The filing says Meta needs to raise “hundreds of billions of dollars” over several years.
Zuckerberg owns about 13% of Meta but controls about 61% of the votes, and the non-voting stocks stay that way. Your money is welcome. Your vote is not necessary.
The bond market is not so sure
The cost of insuring Meta’s debt against default hit a record high of 127 basis points on Friday, then declined on Monday even as the stock slid. At 120, Meta’s five-year credit default swaps imply almost a 10% chance of default over five years, up from about 4% a year ago, according to Yahoo Finance calculations.
Bond investors are more worried than stock investors. The riskiest junk bonds now pay nearly 8 percentage points more than slightly safer bonds, according to BTIG data cited by The Market Ear. The last four times the gap got this wide, the S&P 500 (^GSPC) was already down at least 12% from its peak. Today it’s only about 2% off.
Gn bussni
