The massive dividends announced by Meta last week, the company which controls Facebook and Whatsapp will buy a lot hoodies and at least generate enough cash for Sir Nick Clegg to think twice about returning to British politics.
Mark Zuckerberg and his team will be able to generate up to $700m (£550m), annually.
It’s more than just that. It is at this moment that big tech begins to transform into big money.
In the coming years, the Internet giants will begin to compete with the oil and pharmaceutical conglomerates in terms of the huge sums that they generate for their investors – and this cash will also start to change the way the stock market functions.
It was more than anyone could have imagined. Meta, when it announced its results, put aside its misguided foray into Virtual Reality and launched something far more exciting. A dividend.
It said that it would return $1.25bn as a dividend to its shareholders. could also be returning another $50bn through share buybacks.
Now you can buy equity for both its growth potential and the income generated. The announcement was well received by investors, who sent the share price up 15pc the same day. This increased the value of the business to an all-time-high, recovering more than all of its post-pandemic loss on its shift into headsets.
It will be the first technology giant to return cash to owners. Apple has stopped paying anything out under Steve Jobs. He thought it would be a waste of money he could have spent on new gadgets. Since his death, Apple only pays out the minimum amount possible.
It will be necessary to increase that at some point. Amazon reported record profits last week. Moves such as showing advertisements on Prime should increase earnings.
Alphabet (the owner of Google) may not be able resist paying out some of its $113bn in cash for very long. Netflix’s crackdown on password-sharing has led to a surge in revenues. It may have to return some money.
Nvidia has plenty of room to raise the paltry 0.3pc that it pays to its investors. And if Tesla is able to pay Elon Musk 50bn dollars, assuming Musk can overturn the ruling against this decision, then surely it can pay its shareholders something as well?
They will begin to compete with the giant oil, pharmaceutical and banking conglomerates in their ability to generate huge amounts of money every quarter for their shareholders. They will likely quickly surpass them due to their size, semi-monopolistic position, and growth rate.
In comparison, the $100bn paid by last year to five major energy companies will seem modest. This will have three major effects on the market.
First, tech giants are going to become cash cows. As soon as you begin paying dividends, your shareholders’ expectations change. So do the types of investors and funds that buy into the stock.
They may be initially grateful for the dividend, but they soon become dependent on it and expect that it will increase steadily every year. Companies may begin with a modest payout, but soon will have to pay out more.
The rest of the market will have access to a lot more money. If payouts begin to match the $100bn that the energy giants have delivered, which there is no reason for it not to, then the majority of this cash will be redirected into other stocks.
This will cause the market to rise as the cash on the Meta or Alphabet’s balance sheet is now being used elsewhere.
This could mean that some markets, like the UK, which are valued primarily for their ability to generate cash, will begin to perform better. Investors will look for other countries and industries that can generate the same excitement they got from the tech giants.
The growth of tech giants is finally going to start slowing down. It is a huge difference to run a business that has to grow as quickly as possible versus one that must deliver a lot of cash to its shareholders every quarter (just ask the finance directors of BP and Vodafone).
It alters the mindset of those in charge. We can expect fewer crazy ventures in virtual reality, , or company beekeepers.
It could be worse or better. There will be less money wasted on extravagant, stupid ideas, but also less innovation. It will be different.
The global markets will experience a transformation. The giants in the industry will slow down. They will pay more attention to their bottom line. They will also be tougher to work with and will put profits first.
It will also generate billions of dollars in payouts for investors over the next decade. The investors will need to look elsewhere to get a turbo-charged return, but they will make a lot more money along the way.
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