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Social Media Companies Debt Leverages Vs Cash On Hand

Come Monday Morning. Source: Flickr Image

Debt and cash is often a hot topic for most companies.

The reason is that a company that has the least leverages and the most cash will often thrive and prosper.

Therefore, buying a stock of a company that is debt-free and the one which holds more cash than debt is always a no-brainer.

This strategy always works for me if you can hold the stock for a long period of time.

The stock price of such a company has only one direction to go and that is up.

It’s no exception for social media companies such as Facebook, Twitter, Snap and Pinterest.

For example, I have reaped enormous gains from Facebook’s stocks all these years.

5 years ago, when I found out that Facebook was debt-free and the company was literally printing cash, I did not even need to think twice when I bought the company’s stock.

Since then I have never looked back.

As of today, I am still holding Facebook’s stock.

That said, in this article, we are going to explore several metrics that involve debt, cash and leverage ratios of social media companies and compare them to see how they stack up to one another.

Let’s go take a look!

Facebook, Twitter, Pinterest And Snap’s Debt And Cash Topics

1. Total Debt
2. Total Liabilities
3. Total Cash On Hand
4. Net Debt
5. Total Liabilities To Equity Ratio
6. Total Liabilities To Assets Ratio
7. Conclusion

Total Debt

Facebook, Twitter, Snap and Pinterest's total debt

Facebook, Twitter, Snap and Pinterest’s total debt

* Total debt is a measurement determined in accordance with GAAP and is obtained from the respective balance sheets.
* Total debt consists of both short and long-term portions of interest-bearing debt such as convertible notes, senior notes, credit revolvers, etc.
* All companies’s fiscal year begins on Jan 1 and ends on Dec 31.

Let’s first look at the total debt of social media companies such as Facebook, Twitter, Snap and Pinterest.

One thing I like about social media companies is that their business models are extremely profitable and they generate mountains of cash.

For this reason, most of them are debt-free as seen from the chart above.

For example, you can see that Facebook has not carried any short or long-term debt for the past 5 years.

Similarly, Pinterest has been debt-free since its IPO in 2019.

While Twitter and Snap do carry some debt, the amount looks peanut when you compare it to the size of the company, the market cap in particular.

Additionally, Twitter and Snap have more cash than debt and their debt leverages are low as you will see in the following discussion.

While Twitter and Snap’s total debt may look small, they have been on a rise since fiscal 2016 and reached a record high as of fiscal 2020.

For example, Twitter’s total debt amounted to $3.5 billion in fiscal 2020, a year-over-year increase of 40%.

Similarly, Snap’s total debt reached as much as $1.7 billion in fiscal 2020, a year-over-year increase of nearly 90%.

In short, Facebook and Pinterest’s total debt was nil as of fiscal 2020.

On the other hand, Twitter and Snap’s total debt clocked in at $3.5 billion and $1.7 billion, respectively, as of fiscal 2020.

Therefore, Twitter has the most debt while Snap ranks 2nd in fiscal 2020.

Total Liabilities

Facebook, Twitter, Snap and Pinterest's total liabilities

Facebook, Twitter, Snap and Pinterest’s total liabilities

* Total liabilities is a measurement determined in accordance with GAAP and is obtained from the respective balance sheets.
* Total liabilities consists of both short and long-term portions of liabilities and includes everything the company owes to 3rd parties such as debt, accrued liabilities, accounts payable, taxes, etc.
* All companies’s fiscal year begins on Jan 1 and ends on Dec 31.

While most social media companies carry little to no debt, they do have a considerable amount of liabilities.

For example, Facebook’s total liabilities amounted to $31 billion as of fiscal 2020, the highest among Twitter, Snap and Pinterest.

In contrast, Twitter and Snap’s total liabilities clocked in at $5.4 billion and $2.7 billion, respectively, as of fiscal 2020.

Pinterest has the least total liabilities at only $367 million in fiscal 2020.

Most social media companies are seeing their total liabilities reaching record highs as of fiscal 2020.

In short, Facebook has the most total liabilities among all social media companies.

Seeing only the absolute numbers of total liabilities does not tell us the big picture of where their leverages are.

Therefore, we need to look at more than just the absolute numbers to find out what these figures mean with respect to cash, equity and assets.

Total Cash On Hand

Facebook, Twitter, Snap and Pinterest's total cash on hand

Facebook, Twitter, Snap and Pinterest’s total cash on hand

* Total cash on hand is a measurement determined in accordance with GAAP and is obtained from the respective balance sheets.
* Total cash on hand consists of cash & cash equivalents, short-term investments and marketable securities.
* All companies’s fiscal year begins on Jan 1 and ends on Dec 31.

The total cash on hand is another figure that is as important as the debt and liabilities figures.

Comparing the cash on hand with the total debt and total liabilities will give us a sense of where these social media companies’ leverages stand.

Looking at the chart, Facebook dominates again when it comes to total cash on hand.

As of fiscal 2020, Facebook’s total cash on hand clocked in at $62 billion, a record high for the company in the last 5 years and the highest among all social media companies.

Twitter does not look too bad either, with total cash on hand totaling as much as $7.5 billion in fiscal 2020.

Snap and Pinterest rank 3rd and 4th at a cash-on-hand figure of $2.5 and $1.8 billion, respectively, in fiscal 2020.

While Facebook’s total liabilities have hit more than $30 billion, its total cash on hand was even higher at more than twice the amount of total liabilities.

In other words, Facebook can literally pay off the entire liabilities and is still left with $30 billion of cash on hand.

Similarly, Twitter, Snap and Pinterest all have much higher cash reserves than their respective total liabilities.

For instance, Twitter’s cash reserves in fiscal 2020 were nearly 40% higher than its total liabilities.

Snap’s total cash on hand was at the same level as its liabilities in fiscal 2020.

On the other hand, Pinterest’s total cash on hand was much higher than its total liabilities in fiscal 2020, notably at nearly 400%.

In short, most social media companies such as Facebook, Twitter, Snap and Pinterest are flushed with cash and their cash piles can literally pay off their entire liabilities.

Net Debt

Facebook, Twitter, Snap and Pinterest's net debt

Facebook, Twitter, Snap and Pinterest’s net debt

* Net debt comes from the author’s own calculation and is based on the difference between total liabilities and total cash on hand.
* All companies’s fiscal year begins on Jan 1 and ends on Dec 31.

As discussed in prior paragraphs, most social media companies have more cash than debt and all liabilities combined.

In this section, the chart above reflects the net debt or the net liabilities of Facebook, Twitter, Snap and Pinterest.

As seen from the chart, all social media companies have net debt that clocks in at the negative region, indicating that they have more cash than debt.

For example, Facebook’s net debt reached -$31 billion in fiscal 2020 while Twitter’s net debt reached -$2 billion in the same fiscal year.

Even Pinterest has a net debt that clocked in at -$1.4 billion in fiscal 2020 despite being a relatively new player in the social media space.

On the other hand, Snap’s net debt reached $157 million in fiscal 2020, a relatively small figure compared to the size of the company.

In short, most social media companies have little to no debt when you take into account the cash on hand of these companies.

Total Liabilities To Equity Ratio

Facebook, Twitter, Snap and Pinterest's total liabilities to equity ratio

Facebook, Twitter, Snap and Pinterest’s total liabilities to equity ratio

* Total liabilitis to equity ratio comes from the author’s own calculation and is based on the ratio of total liabilities to shareholders’ equity.
* All companies’s fiscal year begins on Jan 1 and ends on Dec 31.

The total liabilities to equity ratio measures the debt leverages of social media companies with respect to their stockholders’ equity.

The higher the ratio, the more leverage the company has.

According to the chart, Snap Inc. seems to be the social media company that has the highest leverage in fiscal 2020, at nearly 120%.

At this ratio, Snap’s leverage was $1.00 dollar of equity to $1.20 dollar of debt or liabilities.

Besides, Snap’s debt leverage has been on the rise year over year, and it was 50% higher in fiscal 2020 than the figure in the prior year.

In contrast, Pinterest’s leverage was the lowest at less than 20% in fiscal 2020 and the company has maintained its leverage at this level since fiscal 2019.

Facebook ranks the second-lowest in terms of leverage at slightly above 20% in fiscal 2020.

At this ratio, Facebook’s leverage was $1.00 dollar of equity to only $0.20 dollar of debt or liabilities.

Therefore, Facebook’s equity was about 5X higher than its liabilities.

Twitter’s leverage has been flat but has dramatically risen in fiscal 2020 to 60%.

In short, Snap Inc. is the most leveraged social media company whereas Pinterest is the least leveraged with respect to equity or book value of the company.

While Snap’s debt leverage may be high, it is quite balanced actually.

In this case, its debt to equity ratio nearly stood at a 1 to 1 ratio as of fiscal 2020.

Total Liabilities To Assets Ratio

Facebook, Twitter, Snap and Pinterest's total liabilities to assets ratio

Facebook, Twitter, Snap and Pinterest’s total liabilities to assets ratio

* Total liabilitis to assets ratio comes from the author’s own calculation and is based on the ratio of total liabilities to total assets obtained from consolidated balance sheets.
* All companies’s fiscal year begins on Jan 1 and ends on Dec 31.

Similarly, the total liabilities to assets ratio measures the company’s leverages with respect to total assets.

Additionally, the ratio also tells us about the capital structure of the social media companies.

For example, Snap’s total liabilities to total assets ratio was around 53% in fiscal 2020, meaning that the company’s capital structure was half liabilities and half equity.

As seen in the debt to equity ratio, Snap has a very balanced capital structure.

In contrast, Facebook’s capital structure was only 20% liabilities and 80% equity in fiscal 2020.

Therefore, Facebook has considerably more equity than liabilities in its balance sheets.

Pinterest has even more equity than liabilities based on its total liabilities to assets ratio of only 15% in fiscal 2020.

In the same fiscal year, Twitter’s total assets were made up of 40% of liabilities and the rest came from equity.

While Facebook, Twitter and Snap have considerably more equity than liabilities, the ratio has been on a rise in the last 5 years, indicating that their capital structure has been steadily favoring liabilities over equity.

In the case of Twitter and Snap, both of them have taken on more debt in fiscal 2020 than in the past and hence, the significant rise of the total liabilities to assets ratio in fiscal 2020.

On the flipped side, Pinterest’s leverage has been the smallest among all social media companies given the decreasing ratio all these years.

Again, Snap is the most leveraged company whereas Pinterest is the least leveraged with respect to the assets of the companies.

Conclusion

Twitter and Snap have the most debt at $3.5 billion and $1.7 billion, respectively, in fiscal 2020.

In contrast, Facebook and Pinterest’s total debt came to nil in fiscal 2020.

While Facebook has zero debt, its total liabilities reached over $30 billion in fiscal 2020, the highest among Twitter, Snap and Pinterest.

Despite having the most liabilities, Facebook also has the most cash on hand at more than $60 billion in fiscal 2020, making the company’s net debt at -$30 billion.

From the debt to equity ratio, Snap Inc. is the most leveraged social media company at nearly 120% liabilities to equity.

Snap is also the most leveraged when it comes to the total liabilities to assets ratio at slightly above 50%.

This ratio indicates that Snap’s debt structure is made up of half equity and half liabilities and is the most balanced among all social media companies.

On the other hand, Pinterest is the least leveraged social media company from the perspective of debt to equity and debt to assets ratio.

References and Credits

1. Financial figures for all companies discussed above were obtained and referenced from their respective financial statements which can be obtained from the following links:

a) Facebook Investor Relations
b) Pinterest Investor Relations
c) Twitter Investor Relations
d) Snap Investor Relations

2. Featured images in this article are used under Creative Commons License and sourced from the following websites: Come Monday Morning and Cancel the Debt.

Other Statistics That May Help You

Disclosure

If you find the information in this article helpful, please consider sharing it on social media and also provide a link back to this article from any website so that more articles like this one can be created in the future.

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