The tech-heavy Nasdaq plunged 2 per cent as nasty earnings surprises from big tech stocks left the index bruised and battered. Alphabet (US: GOOGL) fell over 9 per cent and Microsoft (US: MSFT) was down 7.7 per cent after earnings that read across the market. Meta (US: META) earnings only make matters worse for tech. The Facebook owner saw a continuation of the weak advertising demand environment experienced throughout the second quarter and faces many other challenges. Alphabet was the tell after it posted horrible YouTube numbers but Meta was worse.
Meta saw revenues decline 4 per cent and net income down 52 per cent $4.4bn as it felt the industry-wide hit to advertising spending. Revenues would have been higher had it not been for the stronger dollar disrupting the value of foreign currency in which a large portion of FB’s earnings are made. But Meta also faces stiff competition from the likes of TikTok, Snap (US: SNAP), etc who are eating its lunch among younger consumers. And it’s ploughing vast sums of cash into its bet on the Metaverse. And it will burn even more going forward, noting that Reality Labs operating losses in 2023 will grow significantly year-over-year. And it’s not just the $10bn cash burn on the Metaverse each year – overall expenses are soaring and seem to be getting out of control, with 2023 expenditure seen rising from around $86bn this year to between $96bn and $101bn. Notably management say this is mainly going to be down higher cost of revenue – working harder for ad dollars, stiffer competition – and headcount will be flat. Until it either wins the Metaverse bet and starts to see some breakthrough returns from this project, or it seriously gets a grip on expenditures, investors would be forgiven for giving FB a wide berth. Shares were down 6 per cent in normal trading yesterday and plunged 19 per cent in the after-hours market to $103… levels last seen in 2016 – imagine wiping out 6 years of capital appreciation in one year of negative comps and rising rates!
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