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.

> A stable company typically has a P/E ratio of 20.

This depends on interest rates, inflation, relative attractiveness of the industry (concentration, ease of entry, etc).

> 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.

pe ratios tend to be closer to 15 over the long term. some good data here https://www.multpl.com/s-p-500-pe-ratio

> stable company typically has a P/E ratio of 20

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.

[1] https://home.treasury.gov/resource-center/data-chart-center/...

[2] https://en.wikipedia.org/wiki/PEG_ratio

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.

It's now more than 10 years ago.

I said "mature." There are companies other than high tech.

The presumption was always "high tech companies have so many opportunities to reinvest their profits, they shouldn't pay any dividends."

If that's really true, then they shouldn't. However, if they can't use the money effectively, then the dividend is the responsible option. Even a one-time payout, like https://www.nytimes.com/2004/07/21/business/technology-micro....

It does seem clear that MZ can't be trusted with all that cash.

Yeah the stock market knows fuck all about tech relative to people in SV. I don’t care what their vote is.

Yes but we live in a society.

The stock market determines what everyone's stock is worth. Other than that: irrelevant.

You think people in tech don't invest in the stock market? The knowledge is priced in to some degree

Probably not active 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...

You said "active investors" -- do ETF managers, hedge funds, and other large institutions not count?

Maybe you mean "individual investors." Institutions account for the majority of trade volume, and have for a long time.

They count, but I fail to understand your point. https://www.investopedia.com/news/active-vs-passive-investin...

> 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?

There is no obligation

Obligation isn’t the right word. There is an “expectation” and it’s enforced by the markets.

Correct, sorry. It's "enforced" by people selling the stock, or, if they're really rich, trying to buy the company and force changes.

I think that the commenter was asserting an ethical obligation, not a legal or contractual one.

In other words, it was a statement of opinion. You can't really [citation needed] opinions like that.

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.

Correct. If you're a shareholder, you can either sue, while you have "standing," or you can just sell and preserve your money.

Even if you sue, you probably wouldn't win, and it would be horrendously expensive.

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.)

You're right. That seems to have been a bad call, with hindsight:

https://markets.businessinsider.com/news/stocks/meta-faceboo...

> 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?

I don't understand the last paragraph. Can you explain?

Several people corrected the word "obligation" to "expectation." That's the right word.

If you get a big dividend check from Meta for your shares (and by "big" I mean "Bobby Axelrod big") you invest it in your leading opportunity.

The biggest problem is that there are no stockholder rights in Meta (just like Zynga, Google and many other ones).

Zuckerbergs owns less than 50% of the company but he can do whatever he wants and no activist investor has any say.

Owning these Class-A shares (why not call them class Z?) is worth 1/10 as much as owning class B shares that Mark and his cronies own.

The multiple voting share structure is an abomination and perversion of stock market.

The old way was at least more honest.

Regular shares -> most risk, most profit, actual voting rights

Preferred shares -> less risk, some profit, no voting (what Class A should be)

Bonds -> least risk, set yield, highest preference at liquidation

Totally true. This isn't unique to Meta, as you noted.

Investors can choose to avoid these shares, of course, since they're missing the "possible takeover premium." In the old days, they would have.

I don't see Elizabeth Warren or Bernie Sanders crusading against this, by the way.

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).

But I mostly agree with your comments here.

They have two dying products and nothing in the pipeline. Basically it’s over.