De-FAANG-ed: It’s Been a Rough Earnings Season for Big Tech
October 31st, 2022
Last week’s market summary (October 24th-28th, 2022):
- S&P 500: +3.70%
- Dow: +5.37%
- Nasdaq: +2.17%
- Bitcoin: +6.40%
As we'll see below, it was a spooky week for Big Tech…but Mobileye's IPO was one of the few treats in a week full of tricks for investors.
Here's a quick look at what we're covering today.
- Big Tech Stocks Were Rocked by a Brutal Selloff
- Elon Musk Closed His Twitter Deal & Has Already Begun Cleaning House
- Warner Bros. Discovery Plans to Take $2 Billion Write-Off on Content
- Intel Spun Off Mobileye, Its Self-Driving Tech Division
- Rishi Sunak Officially Became the UK's Third Prime Minister in 2 Months
That's a lot to cover, so grab some candy and let's dive in!
What Everyone’s Been Buzzing About
1. Big Tech Stocks Were Rocked by a Brutal Selloff
Silicon Valley looked like more like Death Valley last week as investors responded to dissatisfying quarterly earnings reports from multiple Big Tech companies. Of the five FAANG stocks (Facebook, Amazon, Apple, Netflix, and Google), three fell big during the week.
(Side note: these companies now actually form the acronym MAANA thanks to Facebook and Google messing things up by changing their corporate names to Meta and Alphabet.)
Meta's shares plunged to their lowest levels since 2016 after reporting that profits fell 50%. Next came Google which fell nearly 8% after posting disappointing results. Then Amazon tanked 14% after providing a surprisingly weak forecast for Q4 (which, of course, includes the critical holiday shopping season).
Each of these companies are feeling the heat of inflation and higher interest rates. Plus, consumers are relying less on tech today to “do life” than they did during the pandemic. Netflix began feeling these effects earlier in the year. And while their shares have rebounded slightly since their last earnings report, they're still down over 50% for 2022.
Apple was one of the few bright spots in the tech sector after it beat on both revenue and earnings on Thursday. AAPL shares finished the week up 5.72%.
2. Elon Musk Closed His Twitter Deal & Has Already Begun Cleaning House
Elon Musk had till Friday to finalize his purchase of Twitter (otherwise they were headed to court). And on Thursday evening, the two parties finally came to an agreement.
Musk didn't waste any time firing the company's CEO, CFO, and policy chief. He also posted an open letter to Twitter advertisers, reassuring them that he understands “Twitter obviously cannot become a free-for-all hellscape, where anything can be said with no consequences!”
As we've previously reported, Musk has all along intended to take Twitter private and that's indeed what will happen. On November 8th, Twitter's stock (TWTR) will officially be delisted from the New York Stock exchange and will no longer be tradable.
3. Warner Bros. Discovery Plans to Take $2 Billion Write-Off on Content
Not long after Discovery's acquisition of Warnes Bros, the newly-formed company announced that it would not be releasing the Batgirl movie which had already finishing filming. Instead, it had chosen to write off the flick's $80 million cost of production.
The move shocked the film industry at the time. But it turns out that Batgirl was just the start. In an SEC filing this week, Warner Bros. Discovery revealed that it had written off over $2 billion in content. In addition to scrapping unreleased projects, they've also removed several shows and movies that were underperforming on HBO Max.
That brings a whole new meaning to the idea of a film or TV show being “trash,” right?
These write-offs are part of Warner Bros. Discovery’s larger restructuring efforts that are intended to provide $3 billion in debt reduction. But the budget-tightening moves have yet to impress Wall Street. WBD continued its descent last week and has now fallen 49% in 2022.
4. Intel Spun Off Mobileye, Its Self-Driving Tech Division
Think self-driving tech is dead? Not so fast. The success of Mobileye's IPO last week shows that it may still have a bright future. However, that future might look a lot different than we once thought.
When Intel bought Israeli company Mobileye in 2017, several companies were promising fully autonomous self-driving vehicles by 2020. Spoiler alert: that didn't happen. And many of those companies (like Google-owned Waymo) are still struggling to find their footing today.
But Mobileye took a different path. It focused more on building driver assist technologies that could be sold to third-party manufacturers. And the strategy worked. Today, vehicles from 6 OEMs come pre-loaded with Mobileye tech, including Nissan, BMW, and Volkswagen.
Mobileye is also on the cusp of reaching profitability which may be why Intel thought it was the right time to spin out the division as its own separate stock. The IPO was a huge success. Mobileye's shares jumped over 37% on their IPO day and held fairly steady throughout the remainder of the week.
Related >>> 5 Best Spatial Computing Stocks for 2022: VR, AR, and Beyond
5. Rishi Sunak Officially Became the UK's Third Prime Minister in 2 Months
That headline alone signifies the chaos that has been UK politics since late summer.
After Boris Johnson vacated Downing Street in September, his successor Liz Truss managed to send the country's economy into a tailspin in a matter of days. She resigned in October, after just 6 weeks in office. Now as winter nears and fears of rising energy costs continue to mount, the UK is hoping that Sunak can provide some much-needed stability.
He certainly has his work cut out for him. But here's the good news: if there's one thing that Sunak understands, it's finance. Before taking the PM role, he served as Chief Secretary to the Treasury from 2019-2020 and his prior job experiences includes gigs at Goldman Sachs and a London-based hedge fund.
It's also worth noting that Sunak's wife is the heiress of Indian billionaire N. R. Narayana Murthy. Together, the couple's net worth is reported to be $730 million which makes them one of Britain's 250 richest families.
What To Keep Your Eye on This Week
Here are a few noteworthy economic events that are coming up this week:
- Monday, October 31st: Chicago PMI | October
- Tuesday, November 1st: Jobs Openings | September
- Wednesday, November 2nd: Federal Funds Rate Announcement
- Thursday, November 3rd: Foreign Trade Deficit | September
- Friday, November 4th: Average Hourly Earnings | October
And here are a few of this week's notable earnings calls:
- Tuesday, November 1st: Pfizer (PFE), Airbnb (ABNB), Uber (UBER)
- Wednesday, November 2nd: Qualcomm (QCOM), CVS (CVS), Humana (HUM)
- Thursday, November 3rd: Toyota (TM), Starbucks (SBUX), PayPal (PYPL)
- Friday, November 4th: Berkshire Hathaway (BRK), Hershey Company (HSY), Honda (HMC)
At IJ, we know that many other publishers are creating great personal finance content. So each week we like to call out a few recent stories from our colleagues that we felt were interesting, eye-opening, challenging, inspiring…or just funny.
Here are our picks for this week:
- The Only Crypto Story You Need, by Matt Levine (Bloomberg Businessweek)
- Is Wall Street Really to Blame for the Affordable Housing Crisis? (New York Times)
- How a ‘Magic Mike’ Scammer Stole More Than $4.2 Million From Misled Investors
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