Metaplunge
And just like that, the volatility came back. A tarnished earnings report from Meta Platforms (FB), formerly known as Facebook, dented whatever sentiment the market seemed to take hold of over the last few days following the big reverberations seen in January. Shares of Meta tumbled 23% in after-hours trading on Wednesday, wiping out $200B in market capitalization, while the worries spilled over to Nasdaq futures, which slid more than 2% overnight (that came after the biggest four-day rally since November 2020).
Analyst commentary: "It's a black eye quarter," Wedbush's Dan Ives said following the Q4 results. "It's a dark chapter quarter at a time when the bulls need to see good news."
Investors were surprised by weaker user growth (DAUs missed estimates of 1.95B), while Meta gave a disappointing sales forecast for the current period ($27B-$29B vs. $30.3B). Looking under the surface, one can see that the vast majority of Facebook's revenue comes from targeted advertising, though the company has been severely hurt by Apple's (NASDAQ:AAPL) privacy changes, which will result in a $10B hit in 2022. CEO Mark Zuckerberg also acknowledged that Meta is facing serious competition for user time and attention (think TikTok and Roblox (RBLX)), causing the company to pivot into a whole new arena: the Metaverse.
Outlook: Meta still has to convince shareholders that its embrace of the Metaverse will pay off, and despite the rebranding, the company at the moment is primarily an advertising company. "They're a basketball player saying that they're a skier," Dan Ives pointed out in an interview. Many say the firm will also have to sink big bucks and capex to get ahead of the curve in developing the Metaverse, where it will have the opportunity to make revenue from transaction-based or token-based sales (like NFTs) and not only from advertising.
Tech trouble
When Facebook (FB) sneezes, it's no surprise that other social media companies catch a cold. Related stocks crumbled in the AH session on Wednesday, with shares of Twitter (TWTR) declining 8%, Pinterest (PINS) dropping 10% and Snap (SNAP) slumping more than 17%. For good measure, semi-social name Alphabet (GOOG, GOOGL) was also in the red, falling almost 2% even though it flexed its muscles during regular trade following its own upbeat quarterly numbers.
Fallout: Lackluster results from PayPal (PYPL) during the morning may have foreshadowed what was to come after the bell. PayPal shares tanked nearly 25%, notching their worst one-day performance on record and reaching their lowest level since May 2020. Earnings came in soft due to higher expenses, while the company ditched a growth strategy that saw it spend heavily on incentives to attract new users. It was only a short while ago that PayPal had been an investor favorite (pandemic online shopping), though the stock got nailed with several analyst downgrades following the Q4 results.
That wasn't all. Spotify (SPOT) made waves for the second time this week by plunging as much as 23% AH with an earnings report that rippled through markets. Estimates for user growth in Q1 were barely in line with analyst projections, and the company scrapped annual guidance for the foreseeable future since the "vast majority of our initiatives are multi-year in nature and measured as such." However, sales outperformed in the current quarter, with subscription-based revenue climbing 22% to €2.3B and advertising revenue surging 40% to €394M.
Go deeper: For the first time, Spotify acknowledged that it might take financial hit from the controversy surrounding Joe Rogan, who signed a reported $100M deal with the streamer back in 2020. It's "too early to know what the impact may be," CEO Daniel Ek said on an earnings call, noting that "usually when we've had controversies in the past, those are measured in months, not days." Musicians like Neil Young and Joni Mitchell have already pulled their music from the platform because they believe Rogan's podcast was spreading false information about COVID vaccines, and they have since been joined by artists like India Arie and Young's former bandmates Crosby, Stills and Nash.
Hawks and doves?
Pressure is growing on the European Central Bank to raise interest rates as eurozone inflation hit a record 5.1% in January, topping estimates by the most in two decades. Until now, the ECB has lagged other central banks in responding to escalating price pressures, and has said it wouldn't increase its key interest rate until it ends its net bond purchases, meaning a "very unlikely" hike in 2022. "I don't think that something happening at the Fed is bound to happen in Europe," ECB President Christine Lagarde said back in December, though financial markets are now showing a hike of 10 basis points anticipated for September.
Forex: Currency traders are meanwhile preparing for an exciting session today with meetings from both the ECB and the Bank of England. Any signs of a hawkishness from Lagarde could see the euro recover lost ground against the pound, though she may be more hesitant to do so, given that January's core inflation figure - which strips out volatile components like food and energy - actually eased to 2.3% from 2.6% in December. Contrast that to the U.S., which saw a core inflation figure of 5.5% last month, and an overall headline rate of 7%.
On the other side of the continent, the Bank of England is expected to deliver its first back-to-back interest rate hike since 2004, increasing its benchmark lending rate by 25 bps to 0.5%. If that were to happen, sterling could advance against the euro, approaching some of the strongest levels seen since Brexit. The BOE is also likely to take initial steps toward unwinding some of its £895B stimulus program and investors will be on the lookout for comments from Governor Andrew Bailey.
Over in the U.S.: The greenback is taking a breather from a recent three-day slide, finding some footing as a tech slump didn't leave much appetite for riskier currencies. "The bigger challenge to the dollar has come from overseas, particularly in Europe," according to analysts at ING. "Stubbornly high inflation here is prompting a re-assessment of the amount of patience the likes of the ECB can show. And the re-pricing of the ECB cycle is providing support to European currencies in general."
Climate views
Sarah Bloom Raskin is heading to Capitol Hill this morning for a confirmation hearing to become the Federal Reserve's Vice Chairwoman of Supervision (i.e. the government's most influential overseer of the American banking system). She'd also fill one of the three open spots on the central bank's board of governors, which wields much influence over the world's largest economy. Her resume features a Fed governor position from 2010 to 2014 before moving on to become former President Barack Obama's deputy Treasury Secretary.
Bigger picture: Raskin is known as a climate hero in many circles for her calls on financial regulators to use their powers to mitigate the risks of climate-related events. The stance has raised some pushback, with a group of 41 oil-and-gas trade groups urging lawmakers to oppose her confirmation. However, Raskin was careful to address those concerns in prepared remarks, saying she wouldn't discourage banks from investing in fossil fuels in her capacity at the Fed.
"The role does not involve directing banks to make loans only to specific sectors, or to avoid making loans to particular sectors. And the role exists within the laws passed by Congress that govern the Federal Reserve and its responsibilities."
Diverse makeover: The hearing today will also cover the Fed board picks of Dr. Lisa DeNell Cook and Dr. Philip Nathan Jefferson. Cook, who has written extensively about the economic consequences of racial disparities and gender inequality, as well as wages, poverty and income distribution, currently serves as a Michigan State economics professor and formerly worked as a senior economist on Obama's Council of Economic Advisers. Jefferson is a former Fed economist who currently serves as dean of faculty and academic-affairs vice president at North Carolina's Davidson College.
Today's Markets
In Asia, Japan -1.1%. Hong Kong closed. China closed. India -1.3%. In Europe, at midday, London -0.2%. Paris -0.4%. Frankfurt -0.7%. Futures at 6:20, Dow -0.3%. S&P -1.1%. Nasdaq -2.2%. Crude -1.7% $86.77. Gold -0.4% at $1803.80. Bitcoin -5.5% to $36,403. Ten-year Treasury Yield +1 bps to 1.78%
Today's Economic Calendar
7:30 Challenger Job-Cut Report 8:30 Initial Jobless Claims 8:30 Productivity and Costs 9:45 PMI Composite Final 10:00 ISM Service Index 10:00 Factory Orders 10:30 EIA Natural Gas Inventory 4:30 PM Fed Balance Sheet
Companies reporting earnings today »
What else is happening...
Earnings: Can Amazon (NASDAQ:AMZN) maintain its robust financial performance?
Qualcomm (NASDAQ:QCOM) plunges despite strong earnings and outlook.
Energy watch... OPEC+ agrees on 400kb/d output increase for March.
Biden administration pushes again for more EVs in USPS fleet order.
Soaring oil profits prompts Shell (NYSE:SHEL) to lift shareholder returns.
Turnaround? Nokia (NYSE:NOK) reinstates dividend, launches buyback program.
CNN (T) chief Jeff Zucker resigns, citing undisclosed relationship.
New York Times' (NYSE:NYT) profit soars as subscriptions drive stellar quarter.
Electric Last Mile (NASDAQ:ELMS) plunges 50% as top execs leave amid investigation.
