It's a Tech Day

In this issue of the Peel:

• Following the market’s close on Tuesday, Microsoft and Alphabet released reports for their latest quarterly earnings.
• Spotify and Verizon closed with an uptick in share price, whereas Barclays and PacWest Bancorp suffered a share price decline.
• Meta Platforms was sued on Tuesday by 42 state attorneys general, alleging violations of the COPPA, or Children's Online Privacy Protection Act.

Market Snapshot

Happy Wednesday, apes.

And happy tip-off to the NBA season. We’re officially at that wonderful part of the year where all four major American sporting leagues are currently running. Let’s enjoy it while it's here and hope the World Series goes to Game 7—it’s fun while it lasts.

Rising equity markets are fun while they last, too. Unfortunately, we haven’t gotten much of that privilege in recent weeks, but yesterday was a different vibe. Markets rose as mostly positive earnings dominated the discussion, and worrisome international economic reports may have global investors eyeing the U.S. even more.

We got some big reports yesterday, discussed below, but the big winner of the main session was the Nasdaq, with their 0.93% gain. Energy was the only loser sector on the day as well.

Over in the land of smart money, U.S. treasuries continued to reverse course and move lower on the longer end. The 10-year fell back below 4.85% and remained there for most of the day, while the 2-year and other, shorter tenor bills moved slightly higher. The 2-year crossed back above 5.1%, reminding us all again that apparently inverted curves only matter in your textbook.

Let’s get into it.

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Banana Bits

• Markets have no clue what to do with this stock after Snap reported an overall solid quarter, but for this firm, the future is never looking good.
• If we can say anything with certainty about Big Dawg Joey B, it’s that he really does not want you to have to pay back your student loans in full.
• Game respect game and, in this case, credit respect credit. One of three companies usually telling us our credit score sucks is now losing all credit with shareholders after last quarter’s earnings.
• GM had its driver’s license suspended in California, or at least, their robot driver sure did.

Macro Monkey Says

Big Tech’s Big Day

Even during weeks when you’re on vacation, Fridays and Saturdays are still going to be your favorite days of the week. Just like even if you’re a Dallas Cowboys fan (although I don’t know why anyone would be), you still have a favorite player on the team.

Similarly, during everyone’s favorite time of the year—earnings szn—markets absolutely have favorite days throughout the whole holiday season. It’s time to rip that line, apes, because finally, yesterday was one of those days.

Sure, bank earnings are fun, and seeing bullsh*t like unprofitable companies reporting gives us all a chance to point and laugh, but as always, it’s the big dawgs that matter.

Following the market’s close on Tuesday, Microsoft and Alphabet released reports for their latest quarterly earnings. It’s almost like they do it at the same time to take attention away from their own reports, but no, that can’t be. Wouldn’t that be collusion?

"... on Tuesday, Microsoft and Alphabet released reports for their latest quarterly earnings."

Anyway, to save you some time, let’s just say one firm convinced investors they were actually a McDonald's Happy Meal with how much they were Lovin’ It, while the other was more like a movie by Jordan Peele in telling investors to Get Out.

Microsoft: Wow. For the first time in years that probably feels more like decades to shareholders, Microsoft saw growth among all of its major segments last quarter.

But, as you likely know, the most important line there is the top—29% growth in Azure, Microsoft’s cloud services product—which contributed easily the most to the insane 27% profit growth the firm has seen in the last year.

Read that again—27% growth in net income. For a company like Microsoft that raked in $17.5bn for the same period last year, growing at that clip to $22.3bn is absurd. And for those somehow still wondering, that translated to a $2.99 EPS, smashing estimates for $2.65/sh.

Revenue grew as well, with much of that growth attributable to Azure and other Intelligent Cloud services. But, the return to growth for Windows OEM is huge and a good signal for the economy as well, suggesting consumers are buying laptops again.

Lastly, the unit containing LinkedIn and Microsoft 365 surged as well, growing 13%, which is a good sign for businesses, labor markets, and the digital ad market.

Satya and the team are firing on all cylinders, something the team below could use some help with…

"... the team below could use some help …"

Alphabet: Wow. After-hours traders were giving Google-parent Alphabet absolutely no slack after its numbers dropped yesterday. For the first time in years here, the firm returned to double-digit revenue growth. But as has been the case at least since the pandemic days, it’s all about the cloud in Big Tech.

These companies have already reached the skies, so the only way left to go is through the clouds. What was fortunate for Azure above was terrible for Alphabet as Google Cloud’s measly, pathetic, embarrassing 22% growth was ~$20mn short of Street expectations.

Aside from that, the report was pretty damn good. 11% sales growth kicked us off to a good start, with YouTube’s $7.95bn in ad revenue beating expectations handily and traffic acquisition costs coming just in line with estimates. Overall, Alphabet delivered $1.55/sh on $76bn in revenue vs estimates for $1.45/sh on… $76bn.

Lastly, losses in the “Other Bets”—essentially Google’s in-house moonshot factory, its VC arm—narrowed while revenue increased as well, including growth from units like Waymo and Verily.

Notably, neither company spent too much time on AI in their filings. Discussed at length during both calls, the reports focused more on cost-cutting initiatives, once again giving us a sign of the times that investors are still more concerned with actual, current performance as opposed to high-duration growth areas that might’ve taken center stage in 2020/2021.

What's Ripe

Spotify (SPOT) ↑ 10.36% ↑

• Listen up, apes. Spotify is here to save you and your portfolio. The only catch is—you had to be holding yesterday when the audio streaming firm’s quarterly numbers dropped.
• But in fact, drop was the exact opposite of what Spotify’s profits did. For the first time in roughly a year and a half, the Swedish music, podcast, audiobook, and other kind of noise streamers posted an actual profit. A bold idea, I know, but the firm’s €0.33/sh earned vs the expected €0.22/sh had Wall Street loving it.
• Revenue came just about in line with expectations, clocking in just under $3.4bn, while premium subscribers jumped to 226mn vs the 224mn estimated. Considering the firm’s price increases earlier this year, odds are what Mr. Market is actually excited about is that premium subs didn’t dip out.
• Ad-supported revenue didn’t do half bad itself either, jumping 16% annually as total MAUs ballooned to 574mn, about 1.7x the U.S. population. Shares obviously ripped as Wall Street heard the news, and although we can’t confirm, we’re sure that sounds good to CEO Daniel Ek in his Swedish sauna.

Verizon (VZ) ↑ 9.24% ↑

• One of the most hated companies in the United States, as is true with most mobile and broadband carriers, Verizon was one of the most beloved by investors on Tuesday. Shoutout to earnings szn for the big w.
• Yesterday, the stock saw its best performance in almost 15 years. Wall Street was enthralled with the firm’s relatively minor beats on the top and bottom lines, but guiding for an additional billion in free cash flow (up to $18bn) in FY’2023 seemed like the most exciting part.
• EPS came in at $1.22/sh on $33.3bn in sales vs estimates for $1.18/sh on $33.2bn. Clearly, it is a beat, but arguably not one worthy of a decade-and-a-half record-setting up day.
• In fact, shares last rose this much in a day in… October of 2008, just a month following the collapse of Lehman Brothers. So, just take that information as you will, I guess…

What's Rotten

Barclays (BCS) ↓ 6.98% ↓

• Much like back in 1776, the U.S. might not be doing objectively great, but they’re damn well doing better than the U.K. The same goes for our post-pandemic financial markets.
• If the gilt markets didn’t suffer enough after the ousting of Liz Truss as PM after just 49 days in office, maybe this Barclays earnings report will. The firm saw net income growth, beating the bottom line with earnings of $0.42/sh vs $0.37/sh expected.
• But that was about all the good news there was. Lowering guidance for the full year was arguably the worst of it, but the reduction in net interest margin (NIM) estimates from “less than 3.20%” to a range of 3.05% to 3.10% almost re-launched the Revolutionary War right from Wall Street.
• Loan losses increased, and return on equity dropped. It was a sh*tshow, to say the least. Send up a prayer and pour one out for ‘em, or just point and laugh, I guess.

PacWest Bancorp (PACW) ↓ 5.21% ↓

• After markets nearly buried PacWest alive back in March of this year amid the SVB collapse, you’d think they might try to show some love now following the firm’s latest earnings report.
• But that’s tough to do when the results are this off-putting. PacWest missed on the bottom line with a $0.28/sh loss vs an estimated $0.05/ earned, and the good news was hard to find.
• Deposits also continued to fall slightly in aggregate, but the more important line of Community Bank deposits increased by a tiny 2%. But, investors now are left to wonder if this even matters as just a day prior to the release, the firm’s planned merger with Banc of California was approved by Fed regulators.

Data Peel

Thought Banana

Meta Lawsuit

You really gotta hand it to Mark Zuckerberg. We thought the only thing that Democrats and Republicans could agree on was that the other one is a bunch of spineless morons hellbent on destroying America. Well, turns out their hatred for Zuck is shared, too.

I guess it’s true that the strongest way to unite disparate groups is through a common enemy. Maybe we should be thanking Zucks for this, but then again, it is entirely his and his company’s fault.

Meta Platforms was sued on Tuesday by 42 state attorneys general. Why the plural of that isn’t “attorney generals,” I have no idea, but regardless, 33 states filed together in the northern district of California, and nine independently filed alleging that Meta uses illicit and mendacious tactics to addict children and teenagers to their products.

The professional scumbags over at Meta weren’t too worried in the immediate aftermath, however, especially since shares only sold off by 0.46% on the day.

"... this isn’t the first time the AGs have teamed up against Meta ..."

But that could be attributable to the gray legal basis for the suit. Moreover, this isn’t the first time the AGs have teamed up against Meta—they even did so alongside a separate filing from the FTC that ultimately went basically nowhere.

That suit alleged antitrust practices, but this time around, the key claim appears to rest on violations of the COPPA, or Children’s Online Privacy Protection Act, which seeks to ban data collection on children under age 13 when there is no parental consent in place.

We’re not legal analysts here, but to seek the remedies they desire, the AGs might have to load up the cannon again with some higher-caliber munitions.

"We just hope it’s enough to actually cause a change in long-term behavior."

That said, depending on the prevalence and nature of the (alleged) sub-age-13 data collection, the courts may determine that penalties are warranted. We just hope it’s enough to actually cause a change in long-term behavior.

At this point, we all know Zuck and his team would’ve collected data from Anne Frank’s diary if they could. We’ll see how it plays out, but given this suit has been filed without corresponding complaints from the FTC—which specializes in losing cases against Big Tech—maybe something will actually change.

The big question: Will this lawsuit from 42 state AGs be enough to change Meta’s business practices for children and teenagers? What will any kind of punishment or ramifications be? Does Zuck let his kids use any one of Meta’s apps at all?

Banana Brain Teaser

Yesterday —

The more you make of me, the more you leave behind.

What am I?

Answer

Footprints

Today —

I have a deck of cards from which some are missing. If I deal them equally among nine people, I have two cards to spare. If I deal them equally among four people, I have three cards to spare. If I deal them among seven people, I have five cards to spare. There are normally 52 cards in the deck.

How many cards are missing?

Shoot us your guesses at [email protected]

Wise Investor Says

“Excuse me. Next. Boring, bonehead questions are not cool. Next?” — Elon Musk, responding to a question during a 2018 Tesla earnings call

How would you rate today’s Peel?

All the bananas

Decent

Rotten AF

Happy Investing,

Patrick & The Daily Peel Team