Head of Saxo Strats
Summary: Meta did not do well with investors during and after the Q3 earnings release with large institutional investors concluding that Zuckerberg is not listening to investor concerns over its capital expenditure plans for next year and ballooning operating expenses. But the Wall Street Journal is writing that Meta is planning a large layoff to regain credibility with investors sending shares up 3% in pre-market trading. Apple is announcing a cut to iPhone production of 3 mn units as demand is declining due to inflationary pressures. Apple shares are down 1% in pre-market trading.
Is Mark Zuckerberg finally listening to investors?
Institutional investors were disappointed by Meta’s Q3 earnings but even more disappointed during the investor talks after the Q3 release as the key takeaway was that CEO Mark Zuckerberg is acting like a absolute monarch listening to no one. As result Meta’s slide continued last week below $100 and ending just above $90 on Friday. The Wall Street Journal reported yesterday that Meta is planning to lay off thousands of employees to send the signal to investors that it is serious about preserving profitability while maintaining its aggressive bet on the metaverse. Investors are reacting to this unconfirmed news sending the shares 3% higher in pre-market trading.
Zuckerberg is clearly getting to the conclusion that something has to happen with Meta’s share price down 76% from the peak and the 12-month P/E ratio plunging to around 10 which 40% below the S&P 500. If Meta can prove that it can stabilize operating income through layoffs while maintaining growth in its core business and show more promising progress on its metaverse bet, then the P/E ratio could recover back to the S&P 500 average. In this event, the stock has a 60% gain potential, but such a move is not risk-free for investors. The key risks for Meta is the competition from TikTok, lack of monetization of WhatsApp, higher energy costs running datacenters, cash compensation pressures due to employee stock options losing value, and institutional investors continuing selling their shares.
Apple’s services will shield the worst from hardware demand fall
Another US technology company in focus today is Apple announcing that it is cutting its iPhone production target by 3mn units which is roughly 1.5% of its annual volume. While this is a small figure it is still a big change for Apple that is used to see volume grow and the company has recently hiked prices on its services to offset the weakness in its hardware division. The Services segment has recently seen its gross profit decline for two straight quarters which is the first time for Apple and part of the explanation is higher energy costs running its datacenters. This explains the recent price hikes on its services such as TV streaming, music etc., and the move will help Apple to offset the downturn in hardware, and because its strong market position Apple is in a good place to preserve margins by hiking prices.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
