Dear Readers,
I’m back from my holiday with Market Mayhem, and wish you a wholesome weekend. Blitz Finance is nearing a milestone in subscriber count, and, as always, I’m grateful for your support!
Kind regards,
JL
Meta, Amazon, and Alphabet Report
Meta (formerly Facebook) released its Q421 financial report last week. In response, the market eviscerated the firm’s stock. The share price fell from $320 to $220, wiping $300 billion off the company’s market cap and setting a stock market record.
Naturally, we want to know why, and a few reasons come to mind:
globally, Meta lost about a million daily users. User growth also stagnated in the U.S. and Canada, which are lucrative markets;
the firm’s profit trailed Wall Street’s expectations;
Apple’s new consent-to-ad-tracking policy will cost Meta $10 billion in lost FY2022 revenues (for context, that’s 8% of FY 21 sales), leading the CFO to whip up a pessimistic full-year outlook;
Meta now reports through the Reality Labs segment, which harbours Zuckerberg’s Metaverse obsession and posted an operating loss of $10.2 billion in FY21 (up from $4.5 billion in FY2019).
Meta now trades at a P/E of 17, down from 23. Zuckerberg’s personal net worth fell $40 billion. He’s now only the 14th richest person on the planet - one sympathises.
In contrast to Meta, Amazon posted decent results.
In comparison to the prior year’s quarter, Q4 sales rose 9% to $137 billion, and net income doubled from $7 to $14 billion.
In comparison to the prior FY, sales rose 22% to $470 billion, with net income increasing 57% to $33 billon.
Now to the elephant in the room. The net income increase was driven primarily by AMZN’s investment in the EV firm Rivian - about $12 billion of Q4 net income came from this source.
Doesn’t that make the results unimpressive? The truth is in the operating earnings.
Q421 operating earnings halved YoY to $3.5 billion.
FY21 EBIT increased only $2 billion to $25 billion.
Still, investors sent Amazon’s stock price up from $2790 to $3230, which translates to a $230 billion market cap advance. That’s another stock market record in the same week. As food for thought, keep in mind that Amazon trades in a P/E range of 60-70.
Bezos’s brainchild will also raise the price of its Prime service by 17% to $139 for U.S. customers.
Now, to round up these mega-tech results, let’s look at Alphabet (Google’s parent firm).
Q421 revenues were up 32% YoY to $75 billion. EBIT was up 38% to $22 billion. Net income rose 40% to $21 billion.
FY21 revenues leapt 41% to $258 billion, with EBIT doubling to $79 billion, and net income also doubling to $76 billion.
Quite phenomenal, except no market record was set this time. Alphabet’s results were buoyed by increased ad spending during the stay-at-home period, but the firm faces anticompetitive pressure from regulators going forward. There are also concerns that TikTok may eclipse YouTube.
The Peloton Spectacle Continues
First, Peloton’s share priced tanked due to the apparent inability of management to streamline and turn around the business.
Second, Blackwells Capital called for exploration of a sale and firing of the CEO, John Foley. The CEO’s poor leadership and Peloton’s turnaround case laid bare in a presentation released by Blackwells on Tuesday.
Third, the WSJ reported that ‘potential suitors’ were circling Peloton, including Amazon.
Now, John Foley - who has led the firm for its 10-year existence - has announced that he will step down as CEO and remain as executive chairman.
His replacement is Barry McCarthy, former CFO of Spotify and Netflix.
Moreover, cost-reduction measures are planned, including a 2,800 headcount reduction and cancellation of the $400 million Peloton Output Park construction, a manufacturing centre. For FY22, the firm aims to cut $800 million in costs, and reduce capex by $150 million.
“I have always thought there has to be a better CEO for Peloton than me, Barry is more perfectly suited than anybody I could’ve imagined.”
John Foley, former CEO of Peloton
Interesting statement… if you always thought there’d be a better CEO, why did you continue?
“Where the company got over its skis is it built out a cost structure as if Covid was the new normal.”
Barry McCarthy, inbound Peloton CEO
Here comes the turnaround effort.
New Inflation Data
The latest measure of U.S. CPI inflation came in at 7.5% YoY, reflecting a cocktail of supply-demand disruption, quantitative easing, and ravenous consumers. The core CPI, which excludes volatile food and energy prices, showed 6%, a 40-year record. This obviously puts further pressure on the Fed to accelerate rate hikes.
The Fed dot plot details the rate expectations of members of the Federal Open Market Committee.
The most recent inflation rate in the EU came in at 5% (the harmonised index of consumer prices).
For a review of central bank policy announcements for 2022, click here.
Nvidia-Arm Deal Fails
In September of 2020, Nvidia announced its intent to purchase Arm for $40 billion in cash and stock.
Arm is a behind-the-scenes player in the semiconductor industry; it licenses chip designs used in almost all mobile devices, without actually manufacturing any chips itself. Anti-competitive regulators all over the globe feared that the takeover could lead Arm to favour certain customers over others, restricting access to its crucial IP.
Nvidia stated that this would not happen, should the acquisition go through.
SoftBank, which owns Arm, is now pursuing a public listing for UK-based Arm to cash in on the semiconductor boom. It will also pocket the $1.25 billion pre-payment made by Nvidia.
For a short WSJ video on chips, click here.