Big Tech Earnings Are Being Punished. Will the Bad Mood Spread to Amazon?

It looks to be a similar story for Meta Platforms, as the stock fell in after-hours trading despite better-than-expected earnings. There are reasons behind both–Meta warned of weakening advertising demand, and Alphabet’s cloud business fell short of expectations. But the market doesn’t seem to need much to sell at the moment.

Tech earnings haven’t been that bad really, yet the Nasdaq Composite entered correction territory Wednesday, its worst day since February.

It’s not just Big Tech. Companies reporting positive earnings surprises in the third quarter have seen their shares fall an average of 1% in the period from two days before earnings through two days after, according to FactSet’s latest scorecard. That data doesn’t even include Alphabet’s post earnings stock performance.

The five-year average stock price reaction after a beat is for a 0.9% jump.

Another area of the tech sector, the payments space, sold off Wednesday, highlighting the current mood. It came after French company Worldline cut guidance citing a slowdown, particularly in Germany. That shouldn’t normally trigger such a reaction for U.S. payments companies.

Unless, of course, investors are already nervous and ultimately awaiting any negative catalyst.

Stocks were under further pressure as bond yields rose again. The 10-year Treasury yield jumped back up to 4.96% as new home sales pointed to more resilience in the U.S. economy. On GDP day, investors remain wary of strong data suggesting higher-for-longer interest rates.

The stock market is running out of potential Big Tech saviors.
Amazon
is up next after the market closes Thursday but it faces a tough crowd.

—Callum Keown

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***

Meta Platforms Notches Revenue Bump on Ad Rebound

Facebook and Instagram parent
Meta Platforms
reported a 23% jump in quarterly revenue, its third consecutive quarter of rising revenue in a turn around from 2022. Demand for advertising grew and its cost-cutting and artificial intelligence technology development efforts helped boost results.

• Revenue in the quarter was $34 billion, beating expectations and its largest growth in revenue from the year-ago period since the third quarter of 2021. Operating margin doubled from a year ago to 40%, reflecting CEO Mark Zuckerberg’s “year of efficiency.”

• Facebook’s base of daily active users rose to 2.09 billion, from 2.06 billion the previous quarter. Analysts were expecting a daily-user base of 2.07 billion for the quarter. Overall, Meta said “daily active people” rose 7% from a year ago, to 3.14 billion.

• A rebound in advertising, revenue from Instagram and Reels, and AI-fueled ad targeting contributed to results. Advertising revenue of $33.6 billion made up 98.5% of Meta’s quarterly revenue. The average ad price fell 6%.

• Losses in Reality Labs, the division building the metaverse, continue. Sales fell 26%, and Meta said it had an operating loss of $3.7 billion. It added that operating losses will increase “meaningfully” on an annualized basis because of product-development.

What’s Next: Costs and expenses were down 7%. Meta said it expects its 2023 total expenses to be in the range of $87 billion to $89 billion, slightly lower than an earlier forecast. It also estimates its 2024 total expenses to be between $94 billion and $99 billion.

—Liz Moyer and Eric J. Savitz

***

Newly Elected House Speaker Faces Some Pressing Priorities

House Republicans agreed to elect a lesser-known Louisiana conservative, Rep. Mike Johnson, as speaker, ending a three-week stalemate that had left lawmakers with no option to pass legislation with barely three weeks until another government funding deadline.

• After deliberating four candidates and casting multiple unsuccessful ballots in the past two weeks, Johnson won the backing of Republicans by a vote of 220 to 209 for House Minority Leader Hakeem Jeffries (D., N.Y.), who was supported by all Democrats voting.

• An urgent priority is a Nov. 17 deadline for the stopgap funding bill passed in October that led to the ouster of former Speaker Kevin McCarthy. Johnson has said he could support another short-term funding bill to keep the government functioning into January or April.

• Lawmakers also face a Biden administration request for $106 billion in aid for Ukraine, Israel, Taiwan, and the U.S. border. Last month, 117 House GOP lawmakers, including Johnson, voted against $300 million in aid for Ukraine.

• President Joe Biden said after Johnson was elected Speaker that “We need to move swiftly to address our national security needs and to avoid a shutdown in 22 days.” He added that the aid for Ukraine and Israel has support in both parties.

What’s Next: The Senate Foreign Relations Committee backed the nomination of former Treasury Secretary Jack Lew to be ambassador to Israel in a 12-9 vote mostly on party lines. It paves the way for his expected confirmation by the full Senate.

—Liz Moyer

***

Ford Nears Deal with UAW to End Strikes

The United Auto Workers and Ford announced a tentative agreement late Wednesday to put an end to strikes at the auto maker’s facilities.

• The labor agreement contains a 25% wage increase over the four-year lifetime of the contract, according to Chuck Browning, the UAW’s lead negotiator with Ford. Workers will also receive cost-of-living adjustments, which were suspended in 2009.

• The deal covers 57,000 UAW-represented workers at Ford’s U.S. operations. However, it still needs to be ratified by union members, and wrapping up the entire agreement could take until mid-November.

• General Motors and
  Stellantis
  are still facing strikes, with the UAW action now having lasted for 40 days. GM and Stellantis said they are working with the UAW to reach a tentative agreement as soon as possible.

What’s Next: An agreement with Ford could put pressure on GM and Stellantis to also reach deals. A 25% wage increase over four years replicated across the industry could raise costs for the Detroit Three manufacturers by a cumulative $4 billion a year by the end of the contract.

—Al Root and Adam Clark

***

Barbie Dolls Boost Mattel After Movie Success

The Barbie doll and her eponymous Warner Bros. blockbuster summer movie continue to pay off for toy maker
Mattel,
which beat expectations for third quarter revenue and profit and raised its full-year profit outlook after sales took off.

• Third quarter sales jumped 9%. What Mattel calls “gross billings” rose 10% in North America, boosted by dolls and Hot Wheels toy cars, offsetting a drop in action figure sales.

• Gross billings for Barbie toys, reflecting sales to retailers before any adjustments, rose 16% from the same time last year, and the doll category overall rose 27%. Mattel has said before that it expects Barbie movie-linked revenue of about $125 million, including its box-office cut and toy sales.

• CEO Ynon Kreiz said the performance reflects the successful execution of a plan to build Mattel’s intellectual property-driven toy business and expand its entertainment offerings. He added they expect a strong holiday season, with greater retailer support and plans to advertise more.

• The company said the Barbie movie, which has sold $1.4 billion worldwide, expanded the Barbie brand’s fan base and is an example of the company’s potential to capture the full value of its intellectual property. Its animated series Hot Wheels Let’s Race premieres on
  Netflix
  early next year.

What’s Next: Mattel raised its full year 2023 guidance for adjusted earnings per share by a nickel to a range of $1.15 to $1.25 and for adjusted earnings before interest, taxes, depreciation, and amortization in a range of $925 million to $975 million.

—Liz Moyer

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Warning of Slower Consumer Spending Spooks Payment Fintechs

Fintech stocks fell sharply after a warning by a European payments company about a slowdown in consumer discretionary spending, especially in Germany. U.S. payments fintechs don’t have much exposure to Europe, but they do face heightened competition from
Apple
and
Alphabet.

• French payments company
  Worldline
  made the warning, slashing its outlook and sending its shares plunging 60%. That pressured shares of U.S. fintechs such as
  PayPal,

  Affirm,
  and
  Block.
  PayPal generated 18% of its revenue from Europe last year, compared with 3.3% at Block.

• Worldline’s warning contrasted with
  Visa
  earnings late Tuesday. Visa’s payment volumes rose 9% in the quarter and cross-border volume up 21% largely because customers are traveling and using their cards abroad.

• But a new survey by Bankrate found that Americans have less money saved for an emergency than at the start of the year. About 81% of those who responded said they haven’t added any money to their rainy day funds this year.

• The Federal Reserve proposed cutting the fees merchants pay banks for debit transactions by about 30%, which is sure to ignite a fight with the banking industry. The Fed set the current fee levels in 2011 and proposes to adjust fees every other year.

What’s Next: The Fed will open the proposal to public comments, and it can’t be implemented without a vote by its governors. Fed Gov. Michelle Bowman dissented on the vote Wednesday, saying lower debit fees coupled with higher capital requirements could be a risk to the banking system.

—Liz Moyer

***

Rising Treasury yields are making risky investments less attractive. Yields on fixed income instruments are exceeding the yield on S&P 500 index company earnings by an increasingly wider margin. “It just doesn’t make sense to own equities at elevated prices with the 10-year Treasury yielding near 5%,” according to Jose Torres, senior economist at Interactive Brokers.

MarketWatch talked to some investing pros to find out what stock investors should watch out for next.

For more, read here.

—Frances Yue

***

—Newsletter edited by Liz Moyer, Rupert Steiner, Callum Keown