People act like Meta is going under because their free cash flow went from $8B to $4B in a year when they've faced headwinds from Apple's new privacy policy and the economy overall.
As far as I can tell the company is in perfectly fine financial health.
The market is essentially betting that Meta is headed in the wrong direction to increase profits over the near term. I think Zuck might actually agree with them.
Apple pays a dividend. Microsoft pays a dividend. Most mature companies do.
When a company has cash that it can't invest as profitably as its shareholders could do on their own, it's obligated to pay it to them as a dividend. It's their money.
Of course, Zuckerberg would rather flush it down the toilet and call it "innovation." The stock market is voting No on that.
Apple paying dividends is a relatively new thing. It never did under Jobs. He was adamantly against it. Adobe doesn’t, Alphabet doesn’t Netflix doesn’t.
Bit of a curveball mention of Warren and Sanders there, the latter of whom is certainly focused on what he sees as far bigger issues.
But the Norwegian Sovereign Wealth Fund, which he has mentioned favorably as a potential model for the US, does recommend against investing in companies with these types of share arrangements unless they have a sunset date (their analysis is that there is a benefit to giving founders control but that it diminishes and becomes a detriment over time). Matt Bruenig/People’s Policy Project has written on the topic also.
Thanks. It's certainly a flaw in capitalism, isn't it? A founder wants the public's money, but doesn't want them to exercise ownership.
There are lots of private companies. Going public is not the only way to get liquidity. So I would say, as John Q. Investor, "If you get my money, I get to vote to fire you."
To be perfectly honest, by saying "curveball" I wasn't complimenting your reference to them, I was saying it was unexpected and confusing (as in hard to comprehend how or why you arrived at it).
Even though Meta doesn't issue dividends, they did do massive share buybacks last year. That effectively returns cash on hand to investors, much as dividends do. (Of course, Meta's buybacks are also to offset stock based compensation, but on net, it still represents a return of cash to investors.)
> When a company has cash that it can't invest as profitably as its shareholders could do on their own, it's obligated to pay it to them as a dividend. It's their money.
I'd love to see a source for this. What is the precise nature of this obligation, and who enforces it?
Publicly-traded companies are expected to act in the best interest of their shareholders, which includes the obligation to make the best use of free cash. This is Business Law 101.
Management is generally given huge leeway here and shareholders will usually vote with their feet as has happened with Meta.
> When a company has cash that it can't invest as profitably as its shareholders could do on their own, it's obligated to pay it to them as a dividend.
Aside from, as far as I know, not being any kind of legal obligation... I don't see how that situation would ever even come into effect if it was.
What kind of investment opportunity is going to turn down cash from a company (especially one the size of Facebook/Meta) but welcome it from most/all of their investors?
There are very large funds that focus on tech. And since tech has gotten so big relative to the market, even if a fund doesn't specialize in it, they still have to understand it.
Since they have so much money at stake, they have an interest in understanding it. Not doing so will cost them their jobs.
"Understanding" is "in the financial sense" of course. They mostly care about the volumes of money going in and out, and expectations for that.
Yeah but as individuals, you don't not buy a etf (generally) b/c you don't like a single company. If you think tech or growth will do well you'll buy a tech etf...
Companies are valued based on future cash flows. A stable company typically has a P/E ratio of 20. Meta’s is around 10, which is an indication the market believes profits will cut in half and then stabilize.
This is a 5% earnings yield. That's a whopping 99 basis points ahead of the 1-year rate and 103 north of the 6-month [1]. One can adjust for growth [2]. But a neutral 20x multiple is not a fact of nature.
> the market believes profits will cut in half and then stabilize.
This isn’t true. The market believes Meta will still grow, just slower than before. If they believe growth is zero, as you indicate with “stabilize”, their PE ratio will plummet even further.
People act like Meta is going under because their free cash flow went from $8B to $4B in a year when they've faced headwinds from Apple's new privacy policy and the economy overall.
As far as I can tell the company is in perfectly fine financial health.
The market is essentially betting that Meta is headed in the wrong direction to increase profits over the near term. I think Zuck might actually agree with them.