The week was dominated by the mixed fortunes of two of the world’s largest companies, namely Meta, the holding company for Facebook, and Amazon.
Facebook parent company Meta has produced less than stellar results, and – according to UBS – is the TikTok for “old people”. Its results led to a historic plunge in the Meta stock price, which erased more than $230 billion in its market value, easily the biggest one-day loss in history for a US company.
Meta’s quarterly earnings report on Wednesday revealed a startling statistic: For the first time ever, the company’s growth is stagnating around the world.
Conversely, Amazon reported that its profit doubled to $14 billion in the crucial holiday quarter, giving a boost to jittery markets that expected less due to higher labour, sourcing, and delivery costs. The e-commerce colossus said its net sales climbed to $137 billion, and its profit benefited greatly from a return on investment in electric vehicle maker Rivian. Amazon is also steadily increasing its third-party retail sales, on which it enjoys a far greater margin compared to its direct sales, which incur related inventory and logistics costs.
Amazon shares climbed 14% in after-hours trading yesterday, attracting investors eager for some good news.
Notwithstanding these two tales of mixed fortune, the earnings for S&P 500 companies are seemingly on track for a fourth consecutive quarter of growth above 20%. Although the pace of earnings growth is expected to slow to single-digit percentages in the quarters ahead, analysts also expect many companies to gradually expand their margins, squeezing more profit from each dollar generated in revenue. As corporates adjust to a post-Covid environment, some analysts believe it is not improbable that the S&P index could rise 17% from its current sold off level, between now and the end of the year.
This comes as, almost halfway through the US earnings season, investors are scrutinising financial reports for direction after higher inflation, geopolitics, and other worries dragged markets sharply lower last month. However, generally robust earnings reports steadied nerves over the last few days as headline announcements from large companies have been mostly positive. At the time of writing, the S&P was 1% up for the week.
In this environment, it is interesting to note that job openings in the US have climbed, despite the Omicron surge. Employers posted 10.9 million open jobs in December, which was near July’s record. The December numbers equalled about 1.7 job openings for every unemployed worker, the highest level since the US started tracking this figure.
“Despite these short-term challenges, we continue to feel optimistic and excited about the business as we emerge from the pandemic.”
– Amazon CEO, Andy Jassy
“Weak liquidity leaves the potential for outsized market moves.”
– Rocky Fishman, Goldman Sachs strategist
Global News
- Amazon has been a big pandemic-era winner, but it is particularly exposed to the supply chain headaches, labour churn, and inflation that have come to weigh on people’s lives and business’ ability to make money. The company is poised to add nearly $200 billion in market value if the stock’s 14% gain in after-hours trading, following the fourth-quarter earnings report, holds to Friday’s close. That would be the biggest single-day gain in US stock market history.
- Facebook lost daily users for the first time in its 18-year history, falling by about half a million users in the last three months of 2021, to 1.93 billion logging in each day. The loss was greatest in Africa, Latin America and India, suggesting that the company’s product is saturated globally – and that its long quest to add as many users as possible has peaked. Nonetheless, Meta is investing in long-term initiatives such as augmented reality, which if properly monetised, will handsomely reward shareholders.
- The volatility in equities remains a cause for concern. Rate hike fears are part of the volatility, yet central banks are unlikely to push economic growth below trend, while policy normalisation should be construed as healthy. Wealth effects might have an impact, but US economic growth is likely to be driven by lower income households’ spending power who tend not to own any equities and therefore don’t feel the direct impact of equity market corrections.
- Google parent company Alphabet has reported that its fourth-quarter profits jumped 36% to $20.6 billion, leading to its shares gaining 10% in pre-market trading, a move worth nearly $200 billion in market cap. It also announced a 20-for-1 stock split, leading to speculation that it could join the Dow Jones industrial average.
- Meanwhile, propelled by higher energy prices, Exxon Mobil earned $8.9 billion in the last quarter of the year, which was a sharp reversal from its $20 billion loss a year ago. It is set to resume its stock buyback programme, spending $10 billion over the next two years.
- Starbucks also gained, reporting that quarterly profit jumped 31% at the end of last year, to $816 million. However, its shares have been under pressure as warnings about supply chain pressures continue to weigh on the company. In response, Starbucks said it would continue to raise coffee prices, a sign of the pricing power of powerful global brands.
- Tesla is initiating its ninth US vehicle recall in roughly three months, a spurt of safety-related fixes that coincide with regulators subjecting the carmaker to greater scrutiny. The latest recall relates to a software error that may prevent the federally mandated chime, which reminds drivers to buckle up, from going off. Tesla will remedy the issue with an over-the-air update to more than 817 000 vehicles.
- US President Joe Biden will deploy more than 3 000 US troops in Germany, Poland, and Romania as Russia continues to build up its forces around Ukraine, after talks between Washington and Moscow failed to ease tensions. This geopolitical threat will continue to weigh on financial markets.
- In the UK, a third Tory MP has become the latest to go public by submitting a vote of no confidence in prime minister Boris Johnson. Gary Streeter, the Conservative MP for South West Devon, also posted on his Facebook account that he “cannot reconcile the pain and sacrifice of the vast majority of the British Public during lockdown with the attitude and activities of those working in Downing Street”.
Local News
- Steinhoff’s 2021 annual report obtained an unqualified audit opinion, the first clean audit since accounting irregularities came to light at the back end of 2017. This, coupled with recent court approval on the R24 billion global settlement agreement, paves the way for Steinhoff to become a more viable investment, although these developments may already be baked into the share price.
- Supply chain constraints have hurt OneLogix, which delivered moderate half-year results, saying these were affected by global supply chain challenges, a freak hailstorm, and the July civil unrest. The company, which is preparing to delist after trading on the JSE for 22 years, said on Thursday it experienced anaemic demand for its vehicle storage facilities in the six months to end-November, highlighting the effect of the global supply crunch that has fuelled a surge in inflation worldwide. Global computer chip shortages are behind the bottlenecks, which have affected the delivery of passenger and commercial vehicles.
- The gain in industrial activity is benefitting Attacq’s retail centres, with turnover and foot count at some of its outlets improving in November and December 2021, with significant turnover growth recorded for retailers who invested in new store formats and upgrades over the past 12 months. Turnover at restaurants returned to more sustainable levels, while the electronics category achieved a marked increase in turnover.
- Local manufacturing seems to be on the rebound as Absa’s Managers’ Index recovered from December’s loss of momentum and rose to 57.1 index points in January, following a dip to 54.1 in December. This is in line with November’s reading, but above the average recorded in the fourth quarter of 2021, and reflects a strong start to the year for the sector.
- More good news can be found in SA tax numbers. After a bumper tax month in December, government finances are in better shape than National Treasury previously estimated. Thanks largely to strong profits in the mining sector, corporate income tax brought in R93.7 billion in December – compared to R65.9 billion in December 2020. There are still three months to go, yet corporate income tax already delivered almost R252 billion – compared to R202 billion for the full fiscal year of 2020.
- Meanwhile, former minister Jeff Radebe is the latest to launch a campaign for the deputy presidency amid political scurrying for nominations for top positions in the ANC. The lobby for Radebe to be the ANC’s next deputy president started in the Free State, with a push for Youth League structures to support his candidacy.
- Political economy expert, Dr Dale McKinley, said this week that while the findings contained in the Zondo Commission reports were important, it was important to highlight that state capture went beyond the Guptas. The inquiry investigating corruption and fraud in the public sector released part two of its three reports this week, exposing further details of how deep and well-orchestrated the looting bonanza in state-owned companies was. However, some commentators believe this is not even the tip of the iceberg.
- A sub-variant of the Omicron coronavirus strain, known as BA.2, is spreading rapidly in South Africa and may cause a second surge of infections in the current wave, according to Tulio de Oliveira, a bio-informatics professor who runs gene-sequencing institutions and advises the government on the pandemic. BA.2 is causing concern as studies show that it appears to be more transmissible than the original Omicron strain, the discovery of which was announced by South Africa and Botswana in November.
- This comes as Shabir Madhi, Dean of the Faculty of Health Sciences and Professor of Vaccinology at the University of the Witwatersrand, argues it’s time for the National Command Council to go. He is also co-founder and co-director of the African Leadership Initiative for Vaccinology Expertise (ALIVE). Read more here.
Sources: Dynasty, New York Times, Engineering News, BusinessLive, News24, BizNews, The Guardian, etc.
