Company Spotlight – Meta
Meta Platforms, formerly known as Facebook, has ceased to avoid the spotlight recently for their stock’s shocking underperformance and for culling their workforce.
Zuckerberg’s interesting decision to dump $9 billion of the company’s funds into his new venture Reality Labs in his strive towards his beloved metaverse. In combination with this, the repeated missed earnings calls, the latest being an 11.32% underperformance in their Q3 report, have caused a mass selloff of Meta stock due to their significant underperformance. Meta’s dual-class share structure is largely to blame for this, as Zuckerberg is able to make any decision he pleases since he personally owns over half of Meta’s voting shares, hence the blame lying almost solely on him for Meta’s questionable allocation of funds.
Meta has also followed the latest trend in Big Tech – mass layoffs. Shareholders appreciated this spending cutback, with the initial announcement on November 7th leading to a 6.53% increase in share price, followed by the announcement that they are laying off 11,000 employees (13% of Meta’s workforce) which led to a further 5.5% price increase in pre-market trading on November 9th.
Overall, Meta has managed to wipe out 70% of their stock’s price year to date as of November 9th due to the questionable decisions of the management team, namely Zuckerberg himself. Their inability to recognize their massive overinvestment in Reality Labs has caused huge losses for their shareholders and has now affected their employees too, leading many investors to question the competence of Meta executives.
UK – Gilts & GBP
UK gilt investors have had a rollercoaster of emotions recently due to Kwasi Kwarteng’s ‘mini-budget’, Sunak stepping into Downing Street, and massive interest rate rises.
The UK ‘mini-budget’ announced by the ex-chancellor of the Exchequer, Kwasi Kwarteng, proposed £45 billion of unfunded tax cuts in an attempt to stimulate economic growth. This sent UK gilt markets into a selling frenzy, causing UK 2-year gilt yields to rise as high as 4.7% and GBPUSD to reach a record low of $1.035, as no investor wanted anything to do with the previous UK government’s “fantasy economics”, as PM Rishi Sunak said.
The most recent ONS inflation report indicated that the Consumer Price Index (CPI) has risen to 10.1% in the trailing 12 months up to September 2022, and the Bank of England predicts that inflation could hit as high as 10.9% this year. Such high inflation has prompted the BoE to buy back their own bonds and issue a series of Bank Rate hikes. These rate hikes include four 0.25% rises followed by two 0.5% rises and the most recent 0.75% rise on November 3rd. This quantitative easing in combination with rate hikes was done in an attempt to stabilize UK gilt markets to counter inflation while also stimulating the economy, which is much needed after the debacle that occurred due to the ‘mini-budget’.
In summary, rate hikes and quantitative easing can only do so much amidst the looming recession, record-low GBP value, unstable gilt yields, and political turmoil, therefore the UK economy will likely continue to suffer for at least some months while the government tries to claw back its money.
US – Big Tech
US Big Tech stocks have made headlines recently for massive layoffs and missed earnings calls, such as the above information on Meta. Layoffs in the tech industry have reportedly exceeded 106,000 in 2022 due to reduced revenue and spending cuts. Many of their share prices took a turn for the worst after recession fears were sparked globally, causing many investors to sell off their riskier bets and opt out of investing in the tech industry, with some of the biggest gloomy results being those of Alphabet and Microsoft.
On November 10th the market saw a massive U-turn in investor confidence in Big Tech stocks, with huge >5% share price increases among Apple, Microsoft, Alphabet, Meta, and Netflix, along with many more of their tech peers. This is likely just short-term volatility, merely traders looking to buy cheap companies, which is a fair reason since these companies seem cheap when compared to their prices over the previous two years. That said, most of these companies (such as Meta and Twitter) are subject to fast-paced fundamental changes, as is the nature of the tech industry, so volatile share prices are to be expected.
Only time will tell how the market will react in times of recession regarding Big Tech, especially given the fundamental changes of certain companies and the weak earnings of others.