In the second quarter of 2022, Meta, the parent company of Facebook and Instagram, posted a 1% drop in its turnover, the first since its IPO in 2012. The current economic context is not favorable to the tech sector. While Mark Zuckerberg’s company has bet everything on the metaverse, the development of virtual and augmented reality technologies is very expensive. After investing more than $10 billion in this sector alone in 2021, the tech giant was forced to cut its budget the following year. To bounce back, Meta decided to issue bonds.
In response to an uncertain financial situation
In a document filed on August 4 by Meta with the Securities and Exchange Commission (SEC), the policeman of the American financial markets, the parent company of Facebook indicated that it had carried out a bond issue, contracting the first debt in its history. Mark Zuckerberg’s company confirmed the information with Reuters this Tuesday, August 9, specifying that the sum of money borrowed amounts to 10 billion dollars.
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Until recently Meta was the only company among the GAFAMs to have never contracted debt. The company’s sluggish results in the second quarter prompted it to change its strategy. In particular, its profit fell by 36% compared to the previous year. That’s partly a consequence of fierce competition from TikTok, which prompted Meta to invest in major changes to its social media channels, including Instagram.
Meta wants to finance its strategy for the metaverse
The decline in advertising revenue has also dealt a brutal blow to the economic activity of the Californian firm. Meta has been claiming for more than a year all the harm caused by Apple’s App Tracking Transparency, which blocks targeted advertising on the iPhone. More recently, advertising demand has fallen dramatically, in line with rising inflation and fears of a possible recession.
Financial analyst at Wedbush Securities, Daniel Ives, explained to Reuters which Meta should have borrowed a long time ago. According to him, this recent move is smart on the company’s part, as it will allow it to continue to invest aggressively in its metaverse strategy. The company could in particular use this loan to buy back shares or make new acquisitions.