Pre-market actions: Why Facebook’s stock is imploding

These are just some of the reasons investors are dumping Facebook Meta (Facebook) after a dire earnings report, which could erase more than $200 billion from the company’s market value.

What’s happening: Meta said after markets closed on Wednesday that its profits had fallen in the last three months of 2021 as the social media company invested heavily in the technology it needed to expand its offerings in the “metaverse”, which she sees as the future of her business.

Its shares fell more than 22% in premarket trading, dragging other tech companies down with it. Snap and Pinterest, which report results on Thursday, are 16% and 8% lower, respectively.

Break it down: There’s a long list of reasons Meta revenue has given Wall Street a reality check.

CEO Mark Zuckerberg said competition from rival TikTok, whose short-form video product is more popular than Meta’s, is weighing on the company’s ability to monetize its Reels product.

“We’re up against a competitor TikTok that’s a lot bigger, so it’s going to take some time to build up and catch up there,” Zuckerberg said on a conference call with analysts.

Facebook’s monthly active users were also flat from the previous quarter at 2.91 billion, while daily active users in the United States and Canada fell. And Meta reported slowing growth in its core advertising business, which still accounts for about 99.5% of its total revenue.

Yet perhaps the biggest shock came from Zuckerberg’s vapid assessment of the company’s prospects as Meta funnels billions into augmented and virtual reality.

“That fully realized vision is still a long way off,” he said. “And while the direction is clear, our path forward is not yet fully defined.”

UBS analysts Lloyd Walmsley, Chris Kuntarich and Mary McKennon answered: “Indeed”.

“We have been struck by the breadth of priorities the company juggles simultaneously (seven?), most of which do not appear likely to result in any near-term improvement in the revenue outlook,” they wrote in a memo to shareholders. clients.

This contrasts with rival tech behemoths Apple (AAPL), Amazon (AMZN) and google (GOOGL)which in recent years have generated significant revenue from new parts of their business.

Analysts also expressed deeper concerns about Facebook’s future. They pointed to a “world largely moving away from the strengths of Meta, as content consumption shifts towards creator content and private messaging and away from public sharing, eroding the moat of the enterprise.”

On the radar: Facebook isn’t the only tech company whose shares are being hammered in part because of questions about its user base.

Shares of PayPal fell 25% on Wednesday after the payments company, an early darling of the pandemic, abandoned its goal of growing a user base of 750 million. And Spotify (PLACE) just reported a lukewarm forecast for its subscriber growth this quarter, sending its stock down 10% in premarket trading.

The Bank of England is two steps ahead

The Federal Reserve plans to raise interest rates for the first time since the start of the pandemic when it meets in March. But the Bank of England is not waiting.

The latest: The central bank on Thursday raised interest rates for the second time since December in a bid to combat soaring prices. It has not raised rates in two consecutive meetings since 2004.

The Bank of England set its bank rate at 0.5% as it expected inflation – which rose to its fastest level in 30 years in December – to continue to climb until April, when which it would peak at 7.25%.
That month, consumers face a sharp rise in costs when a cap on energy prices is raised and taxes are raised. Energy bills for a typical household rise by £693 ($939) to £1,971 ($2,670) per year.

Across the Atlantic: St. Louis Federal Reserve Chairman James Bullard told Reuters this week that he supports the Fed’s interest rate hikes at its March, May and June meetings, but stressed that the outlook remained very uncertain.

“We’re going to have to be more nimble, faster, better at reacting to inflation data and other developments over the course of this year,” Bullard said. “It will be a more data-dependent environment.”

Wall Street titans get huge paychecks

Big Wall Street companies had a bumper 2021 thanks to a booming stock market and a wave of mergers and acquisitions and IPOs. Today, bankers and CEOs are reaping the rewards, reports my CNN Business colleague Paul R. La Monica.

Goldman Sachs announced last month in its fourth-quarter earnings report that it set aside $17.7 billion for compensation spending last year, a 33% increase from 2020. Morgan Stanley said its compensation spend increased nearly 20% in 2021.

Remember: compensation consultancy Johnson Associates predicted in November that Wall Street bonuses would reach their highest levels since 2009 for many Wall Streeters thanks to what the firm described as a “market burning IPOs” and “robust M&A activity”.

And while many employees benefit, CEOs are at the top of the list.

Goldman Sachs CEO David Solomon took home $35 million in compensation in 2021. This is up from $27.5 million in 2020. Morgan Stanley CEO James Gorman received compensation of $35 million last year, up from $33 million in 2020. And longtime JPMorgan Chase chief Jamie Dimon got a $3 million raise to $34.5 million.

It could be another strong year for banks as interest rates start to rise, allowing companies like JPMorgan to make more money from their lending business. The KBW banking index has risen almost 5% since the start of the year. But market volatility as the Fed shifts gears could chill deals, which would set back investment banks like Goldman Sachs.

Following

biogenic (IBIB), Eli Lily (THERE IS), Estee Lauder (EL), Hershey (HSY), Honeywell (HON), Merck (MKGAF) and Outside view (VSTO) publish the results before the opening of the American markets. ActivisionBlizzard (ATVI), Amazon (AMZN), Clorox (CLX), Ford (F)News Corp., pinterest (PINS) and Break (BREAK) follow after the close.

Also today :

  • US jobless claims for last week’s release at 8:30 a.m. ET.
  • January’s ISM non-manufacturing index, which tracks the services sector in the United States, follows at 10 a.m. ET.

Coming tomorrow: The latest US jobs report is expected to show 150,000 jobs added in January, compared to 199,000 in December.

Garland K. Long