If the market reaction to fourth-quarter earnings is any guide, Facebook parent
Meta
Platforms is in the midst of a miraculous turnaround.
Shares of the technology giant were surging in out-of-hours trading. They have risen more than 70% over the past three months, though the scars of a disastrous 2022 are still present. The stock trades 30% lower than it did a year ago.
Given the troubles of the entire tech sector since the Federal Reserve started raising interest rates in March, it’s worth asking whether whatever Meta is doing could be used as a template for other companies.
Apple,
Amazon,
and Google-parent
Alphabet
—all of which are also trading significantly below year-ago levels—are due to report on Thursday.
Meta was heavily criticized for investing so much in virtual-reality gadgets and platforms. CEO Mark Zuckerberg’s promises to be more disciplined with spending and to keep costs under control were warmly welcomed by investors.
Like many peers, Meta made sweeping job cuts, laying off 11,000 workers.
One area where Meta showed innovation was in taking the cost savings from those job cuts and immediately handing the cash back to shareholders. The board approved a new $40 billion share buyback plan, on top of the remaining $10 billion from its previous program.
During the Covid-19 pandemic, a rising tide seemed to lift all tech boats as interest rates were at rock bottom and everyone was investing in equipment in the shift to remote working.
Things will probably be different this time. With interest rates still on the rise and economic growth slowing, companies will have to try harder to set themselves apart. Meta is giving one example of how to do it.
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***
Meta
Stock Soars on Revenue Beat, Lower Expenses
Meta Platforms
shares jumped 18% after it beat fourth-quarter revenue expectations and said first-quarter revenue could reach $28.5 billion. That forecast would be higher than sales in the first quarter of 2021, before new privacy measures by Apple began to choke off revenue. It added $60 billion to its share buyback in 2023.
- Fourth-quarter revenue of $32.2 billion was toward the higher end of its guidance, but down 4.5% from a year ago and the third consecutive quarter of declining sales. Earnings of $1.76 per share were below the consensus. Daily and monthly active users rose.
- Meta, the parent of Facebook and Instagram, reduced its forecast for full-year expenses to between $85 billion and $95 billion, down from a previous range of $94 billion to $100 billion. Meta revised its capital spending target to $30 billion to $33 billion, also lower than earlier forecasts.
- A federal judge ruled Meta can acquire virtual reality start-up Within Unlimited, The Wall Street Journal reported, citing a person familiar with the ruling. U.S. District Judge Edward Davila in San Jose, Calif., denied the Federal Trade Commission’s request for an injunction to block the deal.
- The judge’s opinion, not yet public, is a boost to Meta’s virtual-reality ambitions and a setback for the FTC’s antitrust enforcers. The FTC could still try to prevent the merger via a separate lawsuit filed in its administrative court, in a trial set to begin on Feb. 13.
What’s Next: CEO Mark Zuckerberg said Meta is making progress on the adoption of Reels, its short-video platform that competes with TikTok. He also said text and visual generation tools backed by artificial intelligence such as ChatGPT are an “exciting area,” and Meta will launch some projects this year.
—Eric J. Savitz and Janet H. Cho
***
Jerome Powell Shifts Focus to Fed’s Ongoing Increases
The Federal Reserve may be slowing its pace of monetary-policy tightening, but it doesn’t see itself stopping soon. Fed Chairman Jerome Powell sought to focus not on the downshift in the size of its rate increases but on the “ongoing increases” that bank officials see on the horizon.
- Central bank officials voted unanimously Wednesday to lift interest rates another quarter of a percentage point, bringing the federal-funds rate target to a range of 4.5% to 4.75%. The widely expected move reflects the Fed’s progress in tackling price growth.
- Although encouraged by the recent moderation in price growth, Fed officials remain unconvinced that inflation is on a “sustained” downward path. Powell said it is premature to declare victory or “to think that we’ve really got this.” Instead, he said there is work left to do.
- In pushing for further rate increases, Powell argued the risk of doing too little to tackle inflation remains far greater than the risk of tightening too much. “If we feel like we’ve gone too far, and inflation is coming down faster than we expect, then we have tools that would work on that,” he said.
- Markets seemed to surge on his remarks about progress made. The Dow Jones Industrial Average, which had lost as much as 1.5%, recovered that ground to close flat. The S&P 500 gained 1.1%; and the Nasdaq Composite rose 2%.
What’s Next: Powell repeatedly highlighted where prices are still accelerating, but the market is taking away the message that “even with two more rate hikes left to go, this is a Fed that is approaching the end of the tightening cycle,” wrote Seema Shah, chief global strategist of Principal Asset Management.
—Megan Cassella and Janet H. Cho
***
Shell
Posts Record $40 Billion Annual Profit
Shell became the latest oil giant to post a record annual profit last year as it beat earnings estimates in the fourth quarter and launched a $4 billion stock buyback.
- The fourth quarter wrapped up a stellar 2022 for the world’s largest oil and gas companies, characterized by high energy prices as a result of Russia’s invasion of Ukraine. It was no different for Shell, which reported adjusted annual earnings of $39.9 billion, the highest in its 115-year history.
- The British energy giant reported adjusted earnings per share of $1.39 in the final three months of 2022, beating the analysts’ consensus of $1.15, according to FactSet data. Revenue rose 19% to $101.3 billion, topping estimates of $94.3 billion.
- The earnings beat came despite lower oil and gas prices in the fourth quarter, as natural gas trading results proved strong.
- U.S. oil major Exxon Mobil notched a record $56 billion profit in 2022, while Chevron’s $35.5 billion profit was also its highest ever. Exxon has pledged to return $35 billion of stock through 2024, while Chevron announced a $75 billion stock buyback.
What’s Next: Lower oil and gas prices mean 2023 is unlikely to be as good as last year for the sector. The focus will also be on renewables investment, but for now that doesn’t seem to be getting in the way of returning cash to investors.
***
Adani Enterprises Calls Off $2.4 Billion Equity Offering
Adani Enterprises
decided to call off its 200 billion rupee ($2.4 billion) stock offering, despite having said it had raised the full amount of money. Indian billionaire Gautam Adani’s flagship company cited an “unprecedented” market, noting that its stock price had fluctuated over the course of the day.
- “Given these extraordinary circumstances, the company’s board felt that going ahead with the issue would not be morally correct,” Adani said, assuring investors that its balance sheet is healthy, with strong cash flows and secure assets, and that it has “an impeccable record” of servicing its debt.
- Adani stock plunged 28% on Wednesday, to 2,128.70 rupees (about $26.03). Adani Enterprises had secured around $734 million in purchase commitments from more than 30 anchor investors, including international securities firms, the Abu Dhabi Investment Authority, and Life Insurance Corporation of India, The Wall Street Journal reported.
- Last week, the short-selling firm Hindenburg Research released a report that alleged Adani Group had engaged in fraud and malpractice. Adani said it was deeply disturbed by Hindenburg’s report, calling it “nothing but a lie” and issuing a more than 400-page rebuttal.
-
Adani-related company shares have been under pressure since the release of the report. Coal and power trader Adani Enterprise shares are down 22.9% over the past week, while ports operator
Adani Ports & Special Economic Zone Ltd.
is down 17.8%, according to FactSet.
What’s Next: Gautam Adani’s loss in net worth enabled fellow Indian businessman Mukesh Ambani, the 65-year-old chairman and patriarch of
Reliance Industries,
to surpass him as Asia’s richest person. Ambani is now No. 9 on Forbes’ global real-time billionaires list, while Adani is No. 15. The rout on Adani shares continued Thursday, which could further hit Gautam Adani’s wealth.
—Ben Levisohn and Janet H. Cho
***
McCarthy ‘Optimistic’ About Finding Common Ground on Debt Limit
- Biden has said the debt limit should be raised without conditions attached, but Republicans want to link spending cuts to the move. Biden was expected to press McCarthy to commit to avoiding a default, which is what could happen if the limit isn’t raised.
- McCarthy didn’t answer directly when asked by a reporter about avoiding default. The White House said both parties have a “shared duty” not to allow a default.
- The White House said the two men discussed a range of issues during the Oval Office meeting and that Biden underscored he is “eager to continue working across the aisle.” It also said the president is open to talking to congressional leaders about debt reduction.
- Chris Krueger, managing director of Cowen’s Washington Research Group, noted that during the 2011 debt ceiling saga, the debt was $14.7 trillion, or about 95% of gross domestic product. The current debt is $31.4 trillion, or about 120% of GDP.
What’s Next: Biden’s fiscal year 2024 budget is expected to be released on March 9. The House GOP is expected to release its own budget on April 15. The Treasury Department said it could pay debts until early June, but that could be pushed into summer, Krueger said.
—Liz Moyer and MarketWatch
***
I just started renting my house out on
Airbnb.
I started a limited liability company to keep the expenses separate from personal ones. I am trying to figure out what would be considered tax deductions in this scenario?
I had my own marketing research LLC for around 25 years, so I know a lot—just not with renting out my house. Can somebody count part of the mortgage as a deduction? What about utilities and cable?
—Andrew Keshner
***
—Newsletter edited by Liz Moyer, Patrick O’Donnell, Callum Keown
Credit: marketwatch.com