No. 21: Weekly listening & reading & more...
- In Oct 2022 Brad Gerstner’s published an Open Letter “Time to get fit”. Zuck took it to heart and implemented a year of efficiency.
- Meta’s stock took off increasing 5 fold in 18 months:
- Last week Meta reported astonishing March qtr numbers with Revenue increasing 27% to $36.5bn and net income 117% to $12.4bn, from the March 23 qtr. This was well above the market expectations.
- Daily active people (DAP) was up 7% yoy so more people using Meta’s suite, ad impressions were up 20% yoy, and average price per ad increased 6% yoy. Margins improved yoy as well across the board.
- The company bought back $15bn worth of stock and paid a $1.3bn dividend. They’re sitting on $58bn in cash and cut employees 10% in the past year.
- Operating cashflow increased 37% yoy to $19.2bn (from $14bn in March 2023) and Capex was down slightly yoy to $6.4bn so more efficient, and resulted in FCF jumping 79% to $12.5bn for the qtr.
- Ad rev increased in every geography, but Reality Labs (it’s AR/VR/Metaverse) burned nearly $4bn in the quarter, which was fairly flat yoy.
- But this was not enough for the market and Meta dropped 15% from nearly $500 a share to below $424. It has recovered slightly since.
- So what gives?
- The market blames the big expected increase in spend on AI taking Capex from $6bn to $10bn approx per quarter. But this is only part of the story. Two other issues are:
- 1. Meta’s CFO outlook indicated that their growth rates are slowing to sub 20%, indicating that the benefits from their “year of efficiency” are largely now maxed out. In other words profit margins have peaked.
- 2. Meta expects a toughing regulatory landscape in the EU and US.
- Conclusion - Meta stock has rallied 5x in 18 months and while it has reported amazing numbers there are some clouds coming in the form of higher Capex and lower profit margins. Investors were bound to react and take some profits. But at a Price to FCF of 23.6x it is below its 10 yr average of 32.9x, but well above the Nov 22 level of 9.6x.
Some of the videos that caught my eye last week. I download videos I like into my YouTube Downloads and listen when exercising, driving, walks and any other spare moments I have:
Some articles also catching my eye this week:
- Tesla is in deep trouble as it reported a profit fall of 55 % on a 9% fall in revenue. Cut prices, 10% staff axed, more competition, trouble with the cyber truck, lack of new vehicles and a vague robo taxi plan have all weighed on the stock. It is the worst performing in the S&P500 this year.
- Investments from Microsoft, Google and Amazon accounted for two-thirds of the $27 billion that AI-focused startups raised in 2023, according to PitchBook data reported by the Financial Times.
- Bird flu is a global pandemic in wildlife as it decimates wildlife around the world and has now spread to (and between) cows. Over half a billion farmed birds have been slaughted, wild-bird deaths are estimated in the millions, and at least 26 species of mammals have also been infected.
- Donald Trump’s allies are quietly drafting proposals that would attempt to erode the Federal Reserve’s independence if the former president wins a second term.
- AI investors are looking at utilities such as energy due to expected booming demand.
- China’s industrial companies’ profits fell in March as exports flagged and deflationary pressures persisted, suggesting the economy’s stronger-than-expected growth early this year might be tough to maintain.
- Southeast Asian nations are struggling to?push back on Beijing’s contested claims in the South China Seas, leaving vast energy reserves untapped as their energy needs become more desperate.?
- Investors have pulled a net $2.2 billion from ARK’s active funds this year, topping outflows from all of 2023. Total assets are now $11.1 billion—after peaking at $59 billion in early 2021.??(Cathy Woods is a masterful marketer but a poor stock picker with Tesla as her largest holding and missing Nvidia.)
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