A Meta-morphosis of sentiment that may turn again: Morning Brief

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Friday, February 4, 2022

Despite a Meta-drubbing, all might not be lost

Unleash the Meta-phors.

The big fourth quarter earnings miss by Facebook’s re-christened parent company (FB) Meta-stasized on Wall Street (sorry, I just couldn’t resist) — dragging all the major indexes lower in an unmitigated bloodbath

The lackluster results gave the stock, and a broader market already on edge ahead of January’s payrolls data, a “shellacking,” as Yahoo Finance’s Dan Howley so aptly described in a report on Thursday. In fact, it was Meta’s worst-ever single day drop that wiped out around $250 billion in market value.

The Q4 letdown and the resulting washout has a lot to do with new Apple iPhone privacy changes, and is certain to amplify the simmering feud between CEOs Mark Zuckerberg and Tim Cook. Wall Street wasted little time in downgrading the stock, according to Yahoo Finance’s Ines Ferre, with no fewer than four firms giving Meta a thumbs down. Thanks Apple (AAPL)!

Combined with a downbeat quarter from Spotify (SPOT) — not to mention the Joe Rogan drama which is still front and center — investors are decidedly dour entering Big Jobs Friday, and appear set to turn February into a rerun of January’s grim show.

Some might argue that a rout which infected other tech stocks was somewhat overdue, and there’s an element of truth to that. Sky high valuations that The Wall Street Journal noted have been “priced way beyond perfection” are decisively under threat, especially in the context of a Federal Reserve poised to hike rates.

Also, Thursday’s bloody session should be a lesson in the meaning of paper riches that can evaporate just as quickly as they are accumulated.

A cottage industry of wealth envy has given rise to populist politicians railing against billionaires’ money — which is mainly on paper and tied to stock values that can be obliterated in one ugly trading session. In fact, Zuckerberg lost a cool $30 billion in Thursday’s carnage, a staggering yet ultimately Meta-physical sum (OK, last bad pun of this edition, I promise).

But Snap’s (SNAP) dramatic Q4 rebound from Apple’s privacy changes — which sent its stock on a breathtaking 50+% tear after hours — is a potential harbinger for Meta’s future once the dust settles from Thursday’s ugliness. Over in his investor newsletter, reformed hedge fund investor Whitney Tilson wrote that the outlook isn’t nearly as bad as it seems, insisting Meta remains one of his “core” holdings.

“It’s easy to forget amid the near-term uncertainty that Meta remains one of the greatest businesses of all time,” Tilson wrote. “Keep in mind that 3.6 billion people — a staggering 61% of all people aged 15 and older on the planet — use one of Meta’s services every month, up 9% year-over-year in the fourth quarter.” For the record, Meta owns Facebook, Instagram, WhatsApp, Oculus and Messenger.

All of that translates into 20% revenue growth, an operating margin of nearly 40% and free cash flow that hit a record near $13 billion last quarter, and up around 36% year-over-year, the investor added.

A few days ago, The New York Times wrote how Meta’s “sweeping transformation” is unsettling current employees, but creating new metaverse-related jobs that has the tech giant poaching talent from places like Microsoft and its dreaded adversary Apple.

The company’s push into the next generation of the internet is why Bank of America declared itself “willing to wait” for Meta’s longer-term ambitions to bear fruit.

Reiterating its Buy recommendation with a $333 price target, the bank cited positives like user engagement with Instagram’s Reels feature, booming e-commerce and other monetization efforts that are likely to become more apparent in the second half.

TikTok is emerging as a major threat to Meta’s ambitions, but BofA noted those fears should subside once the money printing presses from other areas begin to crank up.

By Javier E. David, editor at Yahoo Finance. Follow him at @Teflongeek

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What to watch today

Economy

8:30 a.m. ET: Change in Non-farm Payrolls, January (150,000 expected, 211,000 prior month)
8:30 a.m. ET: Change in Manufacturing Payrolls, January (20,000 expected, 27,000 prior month)
8:30 a.m. ET: Unemployment Rate, January (3.9% expected, 3.9% prior)
8:30 a.m. ET: Average Hourly Earnings, month over month, January (0.5% expected, 0.6% prior month)
8:30 a.m. ET: Average Hourly Earnings, year over year, January (5.2% expected, 4.7% prior month)
8:30 a.m. ET: Labor Force Participation Rate, January (61.9% expected, 61.9% prior month)
8:30 a.m. ET: Underemployment Rate, January (7.3% prior month)

Earnings

6:30 a.m. ET: Regeneron (REGN) is expected to report adjusted earnings of $19.76 per share on revenue of $4.51 billion
7:00 a.m. ET: Bristol-Myers (BMY) is expected to report adjusted earnings of $1.79 per share on revenue of $12.05 billion
7:30 a.m. ET: CBOE Global Markets (CBOE) is expected to report adjusted earnings of $1.54 per share on revenue of $338.60 million
8:00 a.m. ET: Royal Caribbean Cruises (RCL) is expected to report adjusted losses of $3.77 per share on revenue of $1.12 billion

Politics

President Biden will deliver a speech in the morning on the January jobs report and the state of the economy. The White House has been preparing all week for a “distorted” report due to the Omicron variant.
Treasury Secretary Janet Yellen will preside over a meeting of the Financial Stability Oversight Council beginning at 10:45 a.m. ET.