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John Grotteau (0:01)
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Anne Barry (0:31)
Robinhood, the OG retail trading platform is looking to diversify. But will Wall street go all in on a financial super app? Mickey D's Squares off with GLPS we look at how the fast food giant is prepping for the super sized adoption of weight loss, drugs and Meta. I dig into the company's SEC filings and financial engineering that's kept a $27 billion data off its balance sheet and what this may mean for a bubble Fizz. For Thursday, February 12, it's Blue Markets Daily and I'm Ann Barry. More market details to come. But first, meta A fascinating 24 hours for the company with one headline grabber. That's hedge fund manager Bill ackman revealing a $2 billion stake in the social media giant as of the end of December representing a whopping 10% of his fund, Pershing Square Capital. I mean, that really is a lot of concentration. That's a vote of confidence in the stock that he thinks is undervalued and is still about flattish versus the end of 2025. But it was a different and more nuanced story that caught my eye, a pretty short article in the Wall Street Journal that prompted me to ned out and go pull Meta's annual filing with the SEC called its 10k and here's why I'm raising it. It's a real example with a bit more flash on it as to why some in the market are worried that all this AI capex could be bubblicious. Well, according to this Journal article, Meta's auditor, that's Ernst and Young, raised a question mark over financial engineering that Meta used to keep a $27 billion data center project off its balance sheet. Stick with me as I go through some of the details on this. I'm going to try to bring it to life as enthusiastically as I can, but it is worth sticking this out. The way this project called HYP was structured. Meta owns 20% of it so not a huge amount. Meanwhile, funds of private credit giant Blue Owl owns the rest. And then an entity that's connected to Blue Owl sold $27 billion of debt against it to bond investors. So here's why the auditor slagged it. The way this has been accounted for keeps that $27 billion of debt of Meta's balance sheet, because technically it isn't the borrower. It just holds 20% ownership in the entity. And that is. Now there's a test of whether that's too cute for accurate financial reporting. And that is whether Meta is the, quote, primary beneficiary of the borrowing entity and whether it controls it in practice, even if the majority ownership sits elsewhere. Well, According to that SEC filing, that's the 10K I pulled. Hyperion is booked in Meta's financials as something called a variable interest entity, or vie, meaning it is technically, technically not the primary beneficiary here. So all that debt, debt and the assets too, in that project don't have to be consolidated and show up on Meta's balance sheet. But Ernst and Young's audit letter, which does get published in that filing, states, quote, and I read it, determination of the primary beneficiary of the VIE was especially challenging due to the significant judgment required in determining the activities that most significantly affect the VIE's economic performance, and goes on to say it had it was challenging to assess whether the company has the power to direct those activities. Now, when you see the word judgment, it means it's up to someone to decide. And there aren't hard and fast or black and white rules. So while I have no doubt that the contracts surrounding the operations of Hyperion, the rights to it, where the risk of it sits, were all very meticulously and carefully crafted to ensure that Meta does not trip the VIE language so it doesn't have to consolidate all of this debt. I get it. But from a common sense perspective, Meta benefits from the data center. Of course, Meta knows how to run it because it has its hyperscaler expertise. Blue Owl and the lenders and the other owners almost certainly do not. And it's this tension between smart, technical, totally allowable financial engineering and intuitive concern about a possible debt fueled AI capex bubble that's going to create louder and louder voices pointing this all out, this is just one example that's bringing to life the concerns in the market. The market, including, by the way, some of the sell off we've been seeing over the course of today. The devil is in the details. It sits in the footnotes and it's lurking there in the weeds. We are going to keep nerding out and we're going to keep watching. Well, coming up, we go inside the latest earnings for Robinhood and survey how investors are reacting to record revenue amidst a crypto slump. Plus the CEO's vision for the platform's future. But first, a word from our sponsor, Charles Schwab. Trading at Schwab is powered by Ameritrade. Unlocking the power of thinkorswim, the award winning trading platforms loaded with features that let you dive deeper into the market. You can visualize your trades in a new light on thinkorswim desktop with robust charting and analysis tools all while you.