Stocks took a drubbing yesterday due to many factors, Facebook/Meta’s record-breaking decline being chief amongst them. The Bank of England hiked rates pushing US yields higher, putting further pressure on ailing tech shares.
F@cepl@nt! I wrote that tagline word and realized that some of my regular readers may be unfamiliar with the meaning. Faceplant is defined by Merriam-Webster as a noun which means “a sudden face-first fall.” That is concise enough and should make perfect sense. However, in this internet, social media world that we live in today, the word has taken on many other colloquial meanings. Picture an amateur video of a bunch of teens running down a grassy hill. It looks like good, clean fun, and you actually get a sense of nostalgia for a brief second. They are giggling and screaming, and suddenly, one unfortunate runner loses his balance and literally falls face-first onto the ground with such intensity that his feet fly up in the air. Your initial response is to cringe. The teen sits up (thankfully), smiles, and his fellow hill-runners all laugh. You start breathing again and let out a laugh. Congratulations have just been entertained à la social media in the 21st century. That is a literal faceplant, but an even more informal use of the word is to define total, epic failure. The idiom can be applied to a person, or a thing and it can be repurposed into a verb. An example would be to say something like “she totally faceplanted on her presentation,” or “Facebook had an ugly earnings call and its stock completely faceplanted.” On that latter example, that is a pretty apt description of what happened to Meta (FB) yesterday.
Though the company is now called Meta Platforms, I will refer to it by its common name, Facebook. Facebook is a social media behemoth. Many would argue that it single handedly created the description: social media. It is the “F” in FANG, and most of us have either used it or use it regularly. Even if you haven’t, you certainly know what it is. Before yesterday’s session it was the 6th largest allocation in the S&P500 and 4th largest allocation on the Nasdaq 100 Index. You would be correct in defining it as a mega cap stock. Even if you don’t invest in technology or fuss with Facebook…heck, even if you still use an old-school flip phone, Facebook has an influence on your daily life, or in yesterday's case, your financial well-being. Facebook principally earns revenue through advertising. The longer you stay active on the site, the more ads Facebook can serve you on behalf of its paying clients. Meta, in recent years began using targeted ads. That means it serves you advertisements that are related to your recent activity. Let’s say that you search Google on your iPhone looking for “best 3-wood for golf” and you browse through the results as you normally would. Later on in the day, you open your Facebook application, and like magic, you notice an advertisement from Titleist or Callaway (both golf equipment manufacturers). After the creepy feeling passes, you might even click on that ad. That is target advertising, and it requires your phone to share information about your activity to work properly. In other words, it must breech your privacy. While some people find it useful to receive contextual ads, others find it offensive. That is why Apple now requires you to opt-in explicitly in order to enable your phone to share your activity…it used to happen by itself in the background. As you might guess, Apple’s new system modifications could have a tremendous impact on platforms that make money serving you targeted adds. Some examples would be Google, Snapchat (owned by Snap), Instagram (owned by Meta/Facebook), TikTok, YouTube (owned by Alphabet/google)…oh, and Facebook itself. So, as you can see, though it is an oversimplified view, companies who offer you free services make money through advertising. The greater the number of users, the more targeted the ads and the more active time spent on the application, the more revenue the platform makes. Wednesday night, Meta announced its Q4 earnings in which it missed EPS estimates by -13.35% but beat Revenue targets by +0.71%. It is not rare for the company to miss earnings, and when it does it can certainly cause the stock to lose some value, but something was different this time. The company gave weak forward guidance, expecting continued pressure in the current quarter, but that was still not the worst of it. Meta execs relayed that active use time was declining as result of competition from other media platforms, and it specifically cited TikTok…several times. Meta has its own short-video offering, Reels, but it is clearly losing to the competition. Regarding lower advertising, the company cited Apple’s new privacy policy as impeding ad revenues. Incidentally, Google and Snap must live with the same impediment but have both been able to overcome them. Facebook has made a tremendous investment in the metaverse, even changing its name to Meta. That investment is costly, and many analysts believe that the virtual reality world, while a very real and compelling business model, will come with lower profit margins due to the big expense of operating the networks. With growth stocks still under massive pressure and volatility on the rise, an earnings announcement of that ilk is likely to land a stock in a faceplant. There is another social media fail video word that has emerged in recent years: scorpion. A scorpion is when a person faceplants so intensely that their feet bend past their head, achieved by arching their body…in the wrong direction. Ouch…people watch the craziest things, but as long as they keep watching, Meta will continue to earn revenues. Despite FB’s scorpion style faceplant yesterday, the company is still quite a force to be reckoned with. This is not the first time the stock had a rough day. You may recall that the company lost nearly -$120 billion in market cap in a single session back in 2018. Though yesterday’s -$200+ billion put it at a record single day loss for any company, the stock is still higher by +36% since its 7/2018 drop... even after yesterday’s rout. It will now be up to the company to respond with action. Meta’s next earnings announcement will be April 28th, a little less than 3 months from now…time to sit up, smile, and get to work.
WHAT’S SHAKIN’
The Clorox Co (CLX) Shares are lower by -12.92% in the pre-market after the company announced a -15.89% EPS miss on a +1.00% Revenue beat. The company relayed that it is facing margin pressures and has lowered its forward guidance. In the past month, 80% of analysts have changed their price targets, 2 up, 10 down, and 3 unchanged. Dividend yield: 2.81%. Potential average analyst price target upside: -6.5%. WHY IS THIS NEGATIVE? Because its current stock price is higher than average analysts price targets. While that can be interpreted as the stocks being expensive, it does not mean that the stock will fall.
Amazon.com Inc (AMZN) is trading higher by +11.72% in the pre-market after reporting a solid EPS beat on a Revenue miss. The company announced that it had a record Prime Day in the quarter, despite declining sales. Further the company reported strong gains in its cloud business highlighting its successful diversification. A key source of revenue, Amazon Prime membership prices are going up and the news tickled investors. Potential average analyst price target upside: +48.9%.
YESTERDAY’S MARKETS
Stocks sold off sharply yesterday led by a precipitous drop in Meta/Facebook after it announced a weak quarter and a soft outlook. The S&P500 fell by -2.44%, the Dow Jones Industrial Average gave up -1.45%, the Nasdaq Composite Index dropped by -3.74%, the Russell 2000 traded lower by -1.90%, and the S&P500 ESG Index slid by -2.04%. Bonds fell and 10-year treasury yields gained +6 basis points to 1.83%. Cryptos fell by -4.24% and Bitcoin lost -4.84%.
NXT UP