U.S. GDP Slows, Enterprises Report Mixed Earnings, ByteDance Fights TikTok Ban, and Pfizer Gets FDA Approval for Gene Therapy

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By: Alex Nahigian , Ryen Fitzwater , and Cameron Morgan

In this week's rundown, we analyze major events from this past week, including taking a deeper look into staggered GDP growth, extensive earnings reports, ByteDance's plan to fight the TikTok ban, and Pfizer’s groundbreaking gene therapy approval.?

What You Should Know Going Into Your Week

• GDP increased at a 1.6% rate in the first quarter, less than expected*
• Key Fed inflation measure rose 2.8% in March from a year ago, more than expected*
• Tesla shares jumped 11% after Musk said the company aims to start production of affordable new EV by early 2025*
• Meta tumbled 11% on weak revenue forecast and Zuckerberg’s comments on spending*
• Alphabet soared most since 2015 on strong earnings, first dividend and $70 billion buyback*
• ByteDance, TikTok shelled out $7 million on lobbying and ads to combat potential U.S. ban*
• FDA approved Pfizer’s first gene therapy for rare inherited bleeding disorder*
• Mortgage demand dropped as interest rates soared over 7%
• Boeing reported a better-than-feared quarter, and said supply chain is stabilizing amid 737 Max crisis
• Chipotle continues to defy restaurant slump as earnings impress
• Merck beats earnings expectations, raises outlook on strong Keytruda and vaccine sales

• Walmart-backed fintech One introduces buy now, pay later as it prepares a bigger push into lending
• Honda to build $11 billion electric vehicle hub in Canada

• General Motors raises 2024 guidance after big first-quarter earnings beat
• Paramount and Skydance inch closer to a merger as key hurdle looms, sources say

*indicates topic will be discussed further

PCE Inflation Rises as GDP Growth Staggers

The U.S. economy continues to deal with inflationary pressures, in addition to a new setback in GDP growth, failing to meet expectations. The personal consumption expenditures (PCE) price index, excluding food and energy, sustained a notable 2.8% year-over-year increase, consistent with the figures reported for February. Furthermore, the all-item PCE price gauge, covering food and energy, showed a more prominent rise, registering a 2.7% year-over-year increase, surpassing initial estimates. Despite the persistent inflationary environment, consumers have continued to show remarkable resilience, with personal spending rising by 0.8% in March, surpassing projections.

However, the Commerce Department's report painted an opposing picture regarding GDP growth, revealing a slower-than-anticipated expansion rate of 1.6% annualized in the first quarter. Notably, consumer spending, a crucial driver of economic activity, expanded by 2.5% during the same period, falling short of both the previous quarter’s growth and Wall Street forecasts. While fixed investment and government spending contributed positively to GDP, declines in private inventory investment and increases in imports offset the gains, contributing to the overall subdued growth trajectory.

These economic indicators present foreseeable challenges for monetary policy as the Federal Reserve sets out to strike a balance between inflationary pressures and concerns surrounding economic growth. With inflation persisting above the Fed’s 2% target, policymakers may be compelled to maintain current interest rates to mitigate the risk of further price escalations. Consequently, market reactions to the data were characterized by caution, reflecting uncertainties regarding the economic outlook and potential shifts in monetary policy strategies.

Looking forward, analysts anticipate further economic deceleration in the upcoming quarters, which may positively alleviate inflationary pressures as consumer spending returns to normalcy. However, the path to achieving the Fed’s inflation target remains uncertain, with market expectations adjusting in response to evolving economic data. In summary, the persistence of inflationary pressures significantly impacts consumer behavior and policy-making decisions, highlighting the ongoing challenge of sustaining economic momentum amidst slower growth and evolving market dynamics.

Meta Slides, While Tesla, Alphabet Jump in Earnings Report

Earnings season 2.0 kicked off this past week as Big Tech reported its Q1 results, which consisted of mixed numbers across the board.

Meta

Despite better-than-expected earnings per share and revenue, Meta shares plunged 16% on Wednesday after ambiguous comments from CEO Mark Zuckerberg which focused on sectors of Meta’s business model where the company doesn’t make money.?

Before analyzing Zuckerberg’s comments, here is the breakdown per CNBC. Earnings per share came in at $4.71 per share, versus $4.32 per share expected. Meta reported revenue at $36.46 billion, versus $36.16 billion expected. Revenue increased 27% from $28.65 billion in the same period a year earlier, the fastest rate of expansion for any quarter since 2021. Net income more than doubled to $12.37 billion, or $4.71 per share, from $5.71 billion, or $2.20 per share, a year ago. The main catalyst for the pop in net income was that Meta’s sales and marketing costs dropped 16% from the year-earlier period.

On Meta’s earnings call, Zuckerberg talked about artificial intelligence, and went on to discuss the metaverse where he touted his company’s headsets, glasses and operating system. CNBC reported that Zuckerberg spent almost the entirety of his opening remarks focused on many ways Meta bleeds money, which in turn crushed investor optimism about the profitability of newer products in the near future, leading to a mass sell-off.

Tesla

Tesla was at the front of every newspaper last week, as shares surged 13% despite disappointing earnings.?

Tesla reported a 9% drop in first-quarter revenue on Tuesday, the biggest decline since 2012, and missed analysts’ estimates, as the electric vehicle company weathers the effect of ongoing price cuts. Revenue declined from $23.33 billion a year earlier and from $25.17 billion in the fourth quarter. Net income dropped 55% to $1.13 billion, or 34 cents a share, from $2.51 billion, or 73 cents a share, a year ago (CNBC).

The key driver behind Tesla’s uptick came from positive sentiment regarding CEO Elon Musk's comments on affordable EVs. Musk said on the company’s earnings call that they plan to start production of new models in “early 2025, if not late this year,” after previously expecting to begin in the second half of 2025.

The 13% jump comes as a breath of fresh air, as Tesla shares were down more than 40% this year before the increase, reaching their lowest since January 2023. Musk’s comments have finally given investors some optimism moving forward after a couple of demoralizing quarters.

Alphabet

Alphabet crushed earnings on Thursday, as the company reported results that topped analysts’ estimates, showed soaring profits in its cloud division, and announced its first dividend.

Earnings per share came in at $1.89 per share versus $1.51 expected, while Alphabet’s revenue over-performed at $80.54 billion versus $78.59 billion expected. Embedded in the report were key revenue metrics across Alphabet’s major sources of revenue. YouTube advertising revenue brought in $8.09 billion vs. $7.72 billion expected. Google Cloud produced $9.57 billion in revenue vs. $9.35 billion expected, while traffic acquisition costs (TAC) yielded $12.95 billion in revenue versus $12.74 billion expected.

The big news is that Alphabet said its board approved a cash dividend of 20 cents per share to be paid on June 17, to stockholders of record as of June 10. The company said it “intends to pay quarterly cash dividends in the future,” as Alphabet followed Meta, who just declared their first dividend. The company also said its board authorized the repurchase of an additional $70 billion in shares “in a manner deemed in the best interest of the company and its stockholders.”

ByteDance Rolls Out $7 Million in Lobbying to Fight TikTok Ban

TikTok and parent company ByteDance, have officially spent a combined $7 million so far this year on lobbying to prevent legislation from being passed that could ban these social media apps in the United States.

Recent disclosures regarding lobbying have revealed how TikTok officials lobbied against Congress and President Joe Biden’s executive office last quarter. According to the most recent lobbying disclosure reports, ByteDance, a China-based parent company, has alone spent $2.68 million on in-house TikTok lobbyists over the first three months of this year. Additionally, TikTok has spent $4.5 million on various ad campaigns in hopes of deterring legislation that would ban the app.

In addition to in-house expenditures, both companies have allocated resources to outside consultants. ByteDance has paid American lobbyist David Urban $80,000 in hopes of gaining support to sway Congress on their March bill. TikTok has spent five times that amount on various lobbying firms in Washington, D.C., none of the funded parties have commented on the matter.

With legislation advancing rapidly, ByteDance and TikTok are working tirelessly to combat these threats.

The most recent legislation was passed on Saturday, which, if enacted, would give ByteDance just nine months to dismantle before facing a ban in the United States. The latest TikTok bill is scheduled to be voted on by the Senate this Tuesday. With the Senate having previously passed a new foreign aid package containing TikTok legislation, final approval appears likely.

Pfizer Gets FDA Approval as Gene Therapy Competition Heats Up?

The Food and Drug Administration announced on Friday that the agency had approved Pfizer’s treatment for a rare genetic bleeding disorder, making it the company’s first gene therapy to win clearance in the U.S.?

The agency green-lighted the drug, which will be marketed as Beqvez, for adults with moderate to severe hemophilia B who meet certain requirements.

The treatment will be available by prescription to eligible patients this quarter, a Pfizer spokesperson told CNBC. It has a hefty $3.5 million price tag before insurance and other rebates, the spokesperson added, making it by far one of the most expensive drugs in the U.S.

Gene therapy continues to grow as Pfizer joins Vertex Pharmaceuticals in the latest gene therapy treatment. Competition among large-scale healthcare providers is heating up as companies look to monopolize certain gene-based therapies. Growth will be limitless for companies that can do so and sustain such dominance in the long term. For investors reading this publication, healthcare looks to be one of the most exciting industries worldwide, and there seems to be substantial opportunity in the space for massive gains.

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Weathering Wall Street references CNBC and Bloomberg for research.