Facebook shares dive, Google proves resilient to privacy changes, and Pfizer to report this week

With the last of the big tech names reporting last week, the stories coming out of it certainly didn’t disappoint!

Before we get into the nitty gritty of it, here’s a summary of the revenue results below:

- Meta: $33.67 billion vs $33.4 billion expected

- Alphabet: $75.33 billion vs $72.17 billion expected

- Amazon: $137.4 billion vs $137.6 billion expected

Stealing the headlines was Facebook, but not for the reasons it would have wanted. Shares of Facebook parent Meta (NASDAQ: FB) dived 26% last Thursday, wiping $230 billion off its market value. To put this into perspective, Meta lost more than the total market capitalisation of McDonald’s (NYSE: MCD) or Netflix (NASDAQ: NFLX) from its value, who are by no means small companies. This will also double up as my interesting finance fact of the week.

Meta missed on earnings, revenue and active users, as well as issuing guidance that they are actually expecting a decline in daily active users next quarter. This will be its first decline ever. With Facebook reaching a level of saturation with users, this is why Mark Zuckerberg is making a big play with the metaverse, seeing it as the new avenue for the future growth of the company.

Meta said it’s being hit by changes to Apple’s iOS privacy settings, as well as supply chain challenges. These privacy changes make it more difficult for advertisers to access data to analyse the Return on Investment (ROI) on their ads, which would have allowed them to improve and better target their ads. These changes made them pull back their advertising on platforms like Facebook.

We at Kauri Asset Management were concerned with these changes affecting their advertising business (which makes up nearly all of their revenue), so we made the call to trim our holding of Meta from 4% down to just 1% back in October last year. This earnings report gives great justification to our call.

Given the Apple iOS headwinds Facebook experienced, you will be forgiven that Google would face these headwinds equally. However, we did not trim our holding in Google’s parent company Alphabet (NASDAQ: GOOGL) as we were reassured with the sheer amount of data Google collects which benefits their advertiser customers. Although Facebook’s database is one of the largest in the world, it is still no match for the scale of Google’s, which really highlights how pervasive Google is.

We were pleased to see this play out, with Alphabet reporting advertising revenue growth of 33% to $61.24 billion. This was significantly more growth than Facebook’s advertising. By recording a 12% earnings beat and 4% revenue beat, Alphabet’s shares soared 10% following the earnings announcement. Investors were clearly impressed by their ability to withstand the iOS headwinds.

At first glance, Amazon posted some eye-popping results. GAAP earnings per share (EPS) was $27.75, compared to $3.61 expected. This is a 669% beat. Before we get too excited, this was due to an $11.8 billion gain from a private investment in electric vehicle company Rivian (NASDAQ: RIVN) which went public via an IPO in the fourth quarter. Although this was a very impressive investment, this was a one off earnings bump. Going off normal operations which excludes this, Amazon still reported an impressive adjusted EPS of $5.90.

With its e-commerce business slowing due to reaching a very large scale, investors are excited by the growth offered by its cloud business, Amazon Web Services (AWS), and its advertising business. They were up 40% and 32%, respectively. As AWS and advertising becomes a larger share of the revenue pie, Amazon’s revenue growth as a whole will pick up. Although still well behind Google and Facebook’s advertising revenue, Amazon already has the third largest advertising revenue in the US at $9.7 billion.

Amazon’s share price surged 15% immediately following the earnings announcement, with investors happy about their growth in AWS and advertising, as well as the decision to bump up the price of Amazon Prime. This will boost their margins without affecting customer retention too much. With some of our readers probably being Prime members, you would know there is just no comparable alternative to the services offered in terms of speedy shipping, exclusive deals and unlimited streaming of Amazon Prime Video.

After the past fortnight of big names reporting, this week will be a quieter week on the earnings front. We will be keeping a close eye on some of our holdings reporting, including COVID-19 vaccine producer Pfizer (NYSE: PFE) and financial derivatives exchange CME Group (NASDAQ: CME). We will be interested to see how Pfizer performs given the booster roll out around the world.

In economic news, the US added 467,000 nonfarm payroll jobs, smashing expectations of just 150,000 more jobs. This was a surprise given the White House issued warnings that these numbers might be very low due to disruptions from the Omicron variant. The unemployment rate came in at 4%. In further positive news, there were 10.925 million job openings in December, beating forecast of 10.3 million. It’s always a good sign to see businesses hiring more than expected, which shows that they require more employees to handle a pickup in economic activity.

Back in Australia, RBA Governor Phillip Lowe walked back against his previous hard-line stance of ruling out a rate rise in 2022. He noted that it is “a plausible scenario” that the cash rate will be increased in 2022, but was quick to follow up by saying the RBA were prepared to be patient. However, bond markets have priced in a rate rise for August of this year.

The focus for this week will the CPI figures for the US, which is expected to come in at 7.2% year-on-year. The core CPI figure, which excludes volatile items of food and energy, is expected to grow 5.9%.

Have a great week,

Sam Waldron - Research Analyst

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