Meta reported its free cash flow was $46 billion last year. But this isn't the full story.
As Michael Burry and WSJ point out, investors must consider the real costs associated with stock-based compensation.
Last year, Meta paid $18 billion for tax withholding expenses related to stock-based compensation. It also spent $24 billion repurchasing shares just to neutralize the dilutive effect of stock-based compensation to shareholders.
These are very real expenses Meta spent last year, but they do not count against earnings or free cash flow because they fall under cash flow from financing activities on the cash flow statement.
Accounting for these expenses, the $46 billion in free cash flow that Meta reported dwindles to $4 billion actually remaining for owners, that is, shareholders.
What's the big deal?
Imagine if you owned the company. Your wealth is sitting in data centers across the country—much of it still in construction—and employees' retirement accounts. The company raked in $200 billion in revenues, yet you only get $4 billion out of that.
Doesn't seem very shareholder friendly to me. (Unless, of course, you believe Meta will make significantly more from the data centers it is building.)
Not only does Meta's real free cash flow dwarf its reported number, its debt load (at least the part we can see) doubled to $59 billion last year. If Meta hadn't taken on the debt, it would have had to drain its cash and securities portfolio to pay for data centers or stock-based compensation expenses. Doing so, however, would have a deleterious effect on earnings since it earns interest on the cash and securities it currently holds.
Seems to me that Meta is in a hamster wheel. The only way to keep it moving is to keep running or risk falling out.
As Michael Burry and WSJ point out, investors must consider the real costs associated with stock-based compensation.
Last year, Meta paid $18 billion for tax withholding expenses related to stock-based compensation. It also spent $24 billion repurchasing shares just to neutralize the dilutive effect of stock-based compensation to shareholders.
These are very real expenses Meta spent last year, but they do not count against earnings or free cash flow because they fall under cash flow from financing activities on the cash flow statement.
Accounting for these expenses, the $46 billion in free cash flow that Meta reported dwindles to $4 billion actually remaining for owners, that is, shareholders.
What's the big deal?
Imagine if you owned the company. Your wealth is sitting in data centers across the country—much of it still in construction—and employees' retirement accounts. The company raked in $200 billion in revenues, yet you only get $4 billion out of that.
Doesn't seem very shareholder friendly to me. (Unless, of course, you believe Meta will make significantly more from the data centers it is building.)
Not only does Meta's real free cash flow dwarf its reported number, its debt load (at least the part we can see) doubled to $59 billion last year. If Meta hadn't taken on the debt, it would have had to drain its cash and securities portfolio to pay for data centers or stock-based compensation expenses. Doing so, however, would have a deleterious effect on earnings since it earns interest on the cash and securities it currently holds.
Seems to me that Meta is in a hamster wheel. The only way to keep it moving is to keep running or risk falling out.