Market Snapshot
briefing.com
| Dow | 31845.08 | -310.23 | (-0.96%) | | Nasdaq | 11442.52 | +14.37 | (0.13%) | | SP 500 | 3893.08 | -27.48 | (-0.70%) | | 10-yr Note | +60/32 | 3.49 |
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| | NYSE | Adv 641 | Dec 2197 | Vol 147 mln | | Nasdaq | Adv 1320 | Dec 3102 | Vol 5.8 bln |
Industry Watch
| Strong: Utilities, Consumer Staples, Communication Services |
| | Weak: Energy, Financials, Materials, Industrials, Consumer Discretionary |
Moving the Market
-- Issues at Credit Suisse (CS) reignite selling efforts in the financial sector and sent European bank stocks sharply lower
-- Flight to safety bid sending Treasury yields lower
-- Help from the mega cap space
-- Swiss National Bank releasing statement about Credit Suisse
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Closing Summary
15-Mar-23 16:35 ET
Dow -280.83 at 31874.48, Nasdaq +5.90 at 11434.05, S&P -27.36 at 3893.20
[BRIEFING.COM] Risk-off trading, driven by worries about the banking sector, was back in play today. Selling interest in the financial sector picked up after Credit Suisse's (CS 2.16, -0.35, -13.9%) largest shareholder, Saudi National Bank, said it cannot provide further financial help because of regulatory constraints.
The sticking point for market participants was that the aforementioned news brought worries about banks being more risk-averse, tightening lending standards and managing their balance sheets more conservatively, to the forefront. Those measures would slow economic growth and lead to further downward revisions to earnings estimates. So, it was not surprising today that cyclical areas of the market were under the most pressure.
Market participants also received some weaker-than-expected retail sales and producer price data for February, which added to the worries about growth prospects.
By the close, however, things had changed noticeably in the market. Some nice gains in the mega cap space had the main indices close near their best levels of the day. The Vanguard Mega Cap Growth ETF (MGK) rose 0.3%. The S&P 500, which hit 3,838 at the low for the day, brushed up against the 3,900 level in the afternoon trade. The Nasdaq for its part was able to squeeze out a slim gain.
The upside moves were also helped along by the Swiss National Bank saying "Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks. If necessary, the SNB will provide CS with liquidity."
The risk-off mentality had not totally abated by the close, though, and there was notable weakness under the surface. The Invesco S&P 500 Equal Weight ETF (RSP) fell 1.4%. Even JPMorgan Chase (JPM 128.26, -6.36, -4.7%), which outperformed in recent sessions due to a belief that it may benefit from fallout at other banks, fell nearly 5.0% today. The SPDR S&P Bank ETF (KBE) fell 2.0% and the SPDR S&P Regional Banking ETF (KRE) fell 1.6%.
Treasury yields declined today in a continued safe-haven bid, but buying dissipated somewhat at the same time that the stock market was improving. The 2-yr note yield fell 25 basis points to 3.83% after scraping 3.71% shortly before the stock market opened. The 10-yr note yield fell 15 basis points to 3.49%, having hit 3.40% a few hours ago.
The S&P 500 energy sector (-5.4%) was the worst performer by a wide margin as oil prices plunged. WTI crude oil futures fell 4.4% to $68.11/bbl. The S&P 500 materials sector fell 3.3%, the S&P 500 financial sector fell 2.8%, and the S&P 500 industrial sector fell 2.5%.
Meanwhile, the communication services (+1.5%) and utilities (+1.3%) sectors were the top performers today.
- Nasdaq Composite: +9.2% YTD
- S&P 500: +1.4% YTD
- S&P Midcap 400: -1.4% YTD
- Russell 2000: -0.9% YTD
- Dow Jones Industrial Average: -3.8% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 6.5%; Prior 7.4%
- March Empire State Manufacturing -24.6 (Briefing.com consensus -8.0); Prior -5.8
- February Retail Sales -0.4% (Briefing.com consensus 0.2%); Prior was revised to 3.2% from 3.0%; February Retail Sales ex-auto -0.1% (Briefing.com consensus -0.1%); Prior was revised to 2.4% from 2.3%
- The key takeaway from the report is that there were declines in most retail sales categories following large gains in January, suggesting consumers were more cognizant about crimping their spending on goods.
- February PPI -0.1% (Briefing.com consensus 0.3%); Prior was revised to 0.3% from 0.7%; February Core PPI 0.0% (Briefing.com consensus 0.4%); Prior was revised to 0.1% from 0.5%
- The key takeaway is that this should be seen by the Fed as a pleasing inflation report, as it also featured month-over-month declines in pipeline measures that include the index for processed goods for intermediate demand (-0.4%) and the index for unprocessed goods for intermediate demand (-3.8%).
- January Business Inventories -0.1% (Briefing.com consensus 0.0%); Prior 0.3%
- March NAHB Housing Market Index 44 (Briefing.com consensus 42); Prior 42
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: Weekly Initial Claims (Brieifng.com consensus 215,000; prior 211,000), Continuing Claims (prior 1.718 mln), February Housing Starts (Briefing.com consensus 1.313 mln; prior 1.309 mln), Building Permits (Briefing.com consensus 1.345 mln; prior 1.339 mln), March Philadelphia Fed survey (Briefing.com consensus -13.0; prior -24.3), February Import Prices (prior -0.2%), Import Prices ex-oil (prior 0.3%), Export Prices (prior 0.8%), and Export Prices ex-agriculture (prior 0.8%)
- 10:30 ET: Weekly natural gas inventories (prior -84 bcf)
Swiss national bank issues statement
15-Mar-23 15:30 ET
Dow -338.59 at 31816.72, Nasdaq +3.26 at 11431.41, S&P -30.46 at 3890.10
[BRIEFING.COM] The S&P 500 tested, but failed to breakthrough, the 3,900 level.
A short time ago, Swiss National Bank said "Credit Suisse (CS 1.99, -0.51, -20.2%) meets the capital and liquidity requirements imposed on systemically important banks. If necessary, the SNB will provide CS with liquidity."
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: Weekly Initial Claims (Brieifng.com consensus 215,000; prior 211,000), Continuing Claims (prior 1.718 mln), February Housing Starts (Briefing.com consensus 1.313 mln; prior 1.309 mln), Building Permits (Briefing.com consensus 1.345 mln; prior 1.339 mln), March Philadelphia Fed survey (Briefing.com consensus -13.0; prior -24.3), February Import Prices (prior -0.2%), Import Prices ex-oil (prior 0.3%), Export Prices (prior 0.8%), and Export Prices ex-agriculture (prior 0.8%)
- 10:30 ET: Weekly natural gas inventories (prior -84 bcf)
Nasdaq tips into the green
15-Mar-23 15:05 ET
Dow -310.23 at 31845.08, Nasdaq +14.37 at 11442.52, S&P -27.48 at 3893.08
[BRIEFING.COM] The stock market continued to chop around near the best levels of the day. The Nasdaq is flirting with positive territory.
A short time ago, Bloomberg reported that Swiss government officials are discussing releasing a public statement of support and a potential liquidity backstop for Credit Suisse (CS 2.07, -0.49, -19.5%). CS has lifted noticeably off its session low.
Energy complex futures settled the session lower, fueled by growth concerns. WTI crude oil futures are fell 4.4% to $68.11/bbl and natural gas futures fell 4.9% to $2.56/mmbtu.
Steel Dynamics falls as downgrade overshadows guidance, Charles Schwab catches upgrade
15-Mar-23 14:30 ET
Dow -356.91 at 31798.40, Nasdaq -35.20 at 11392.95, S&P -37.84 at 3882.72
[BRIEFING.COM] The market has moved slightly higher in the last 10 minutes, the S&P 500 (-0.97%) still in second place.
S&P 500 constituents Steel Dynamics (STLD 101.50, -14.79, -12.72%), Freeport-McMoRan (FCX 35.43, -2.61, -6.86%), and Delta Air Lines (DAL 33.08, -2.39, -6.74%) are a few of the non-banking names that show solid losses on Wednesday. STLD weighs as a morning downgrade out of Citigroup overshadows upside Q1 guidance, while FCX mirrors losses in copper futures, and DAL falls in part owing to concerns about economic growth and consumer spending, continuing losses stemming from the airline group's mostly cautious guidance yesterday.
Meanwhile, Charles Schwab (SCHW 59.15, +2.47, +4.36%) is today's best performer, having caught an upgrade to Outperform by analysts at Credit Suisse.
Gold ends higher at midweek
15-Mar-23 14:05 ET
Dow -532.37 at 31622.94, Nasdaq -96.40 at 11331.75, S&P -58.99 at 3861.57
[BRIEFING.COM] With about two hours to go on Wednesday the tech-heavy Nasdaq Composite (-0.84%) is the best-performing major average, albeit on losses of 96 points.
Gold futures settled $20.40 higher (+1.1%) to $1,931.30/oz, propped up once more as a safe-haven asset owing in part to cautious sentiment in the banking sector.
Meanwhile, the U.S. Dollar Index is up about +1.2% to $104.87.
The bogeyman is back for banks and investor sentiment
It looked yesterday like it might be safe to come out from under the covers, but the bogeyman is back today for the bank stocks and investor sentiment in general. He is spooking major European bourses, which are down 3-4% following the news that Credit Suisse's (CS) largest shareholder, Saudi National Bank, said it cannot provide Credit Suisse with further financial help due to regulatory constraints.
The inference for many, in the wake of yesterday's disclosure by Credit Suisse that it found "material weaknesses" in its financial reporting processes for 2021 and 2022, is that Credit Suisse has bigger problems than meets the headline eye. Shares of Credit Suisse are down 26%.
Accordingly, a risk aversion mindset has taken root in European markets and that has spilled over to the U.S.
The S&P 500 futures are down 82 points and are trading 2.1% below fair value, the Nasdaq 100 futures are down 203 points and are trading 1.6% below fair value, and the Dow Jones Industrial Average futures are down 645 points and are trading 2.0% below fair value.
In turn, the 2-yr note yield is down 32 bps to 3.88% and the 10-yr note yield is down 17 bps to 3.47%. The U.S. Dollar Index is up 1.0% to 104.63; and the CBOE Volatility Index is up 18.4% to 28.09.
The spillover effect from Credit Suisse's problems and worries about counterparty risks are evident in the bank stocks and not just the smaller/medium-sized bank stocks. JPMorgan Chase (JPM) is down 3.4%, Goldman Sachs (GS) is down 3.5%, and Citigroup (C) is down 5.1%. The SPDR S&P Bank ETF (KBE) is down 4.6% and the SPDR S&P Regional Banking ETF (KRE) is down 4.8%.
The banking issues are looming large over the market, fueling concerns about a spillover -- and restrictive effect -- on the global economy, as banks are apt to tighten the rein on lending standards and risk taking.
That thinking, arguably, is why the equity futures market didn't respond more enthusiastically to the weaker-than-expected economic data out of the U.S. this morning.
- The March Empire State Manufacturing Survey fell to -24.6 (Briefing.com consensus -8.0) from -5.8 in February. A number below 0.0 is indicative of contraction.
- The key takeaway from the report is that the pace of contraction in manufacturing activity accelerated in March.
- The Producer Price Index for Final Demand declined 0.1% month-over-month in February (Briefing.com consensus +0.3%) following a downwardly revised 0.3% increase (from 0.7%) in January. On a year-over-year basis, the index for final demand was up 4.6%. Excluding food and energy, the index for final demand was flat month-over-month (Briefing.com consensus +0.4%) following a downwardly revised 0.1% increase (from 0.5%) in January. On a year-over-year basis, this index was up 4.4%.
- The key takeaway is that this should be seen by the Fed as a pleasing inflation report, as it also featured month-over-month declines in pipeline measures that include the index for processed goods for intermediate demand (-0.4%) and the index for unprocessed goods for intermediate demand (-3.8%).
- Total retail sales for February declined 0.4% month-over-month (Briefing.com consensus +0.2%) following an upwardly revised 3.2% increase (from 3.0%) in January. Excluding autos, retail sales were down 0.1% month-over-month, as expected, following an upwardly revised 2.4% increase (from 2.3%) in January.
- The key takeaway from the report is that there were declines in most retail sales categories following large gains in January, suggesting consumers were more cognizant about crimping their spending on goods.
The weak data compounded this morning's buying interest in Treasuries and it has tempered expectations for a 25 basis points rate hike at the March meeting. The CME FedWatch Tool shows a 55.4% probability of a 25 basis points rate hike now versus 69.4% yesterday.
As noted above, there wasn't a "bad news is good news" reaction to the data in the equity futures market. Presumably, that is owed to an understanding that bad news for banks is bad news for the economy that will ultimately translate into reduced earnings prospects.
-- Patrick J. O'Hare, Briefing.com
Lennar turns negative despite upbeat FebQ results as economic troubles keeps uncertainty high (LEN)
Shares of Lennar (LEN) quickly reversed course during its Q1 (Feb) earnings call, which started at 11:00 am ET, sliding from intra-day highs of +3% into negative territory. The homebuilder posted solid results during Q1, crushing earnings and sales estimates while delivering over 13,600 homes, surpassing its prior range of 12,000-13,500. LEN also topped its new orders forecast of 12,00-13,500, boasting new orders of 14,194 in Q1. Meanwhile, LEN raised its FY23 (Nov) deliveries outlook to 62,000-66,000 from 60,000-65,000.
So why did shares turn lower? We think investors may have been looking for a shift in tone or commentary surrounding when the current unfavorable environment may begin to clear up. Uncertainty regarding interest rate hikes, inflationary pressures, and, most recently, shakiness in the banking sector continue to hang over homebuilders like LEN. Its Q2 (May) earnings forecast of $2.10-2.55 was also just in-line with analyst expectations.
- Still, nothing glaring stood out during LEN's earnings call. The company added a few more details regarding the current environment; however, not much changed from Q4 (Nov). As expected, industry-wide starts and permit activity over the past three months continued to worsen, with starts slowing and permits falling at an accelerating pace.
- LEN also reiterated its bullish view on longer-term dynamics, stating that limited multifamily production combined with a housing production shortfall over the past decade leaves the industry with a short-duration correction without inventory overhang. As the correction develops, these factors should extend the runway for longer-term housing growth.
- LEN is already seeing a two-week reduction in cycle times, which it expects will only improve over upcoming quarters. As cycle time improves, so will LEN's inventory turnover ratio, which stands at 1.2x.
- However, gross margins on home sales contracting by 570 bps yr/yr and 360 bps sequentially to 21.2% is likely weighing on the stock today. The declining margins reflected LEN's use of price reductions and incentives to help offset volatile interest rates and market shifts, helping sell homes and protect the company's backlog to ensure closings.
- LEN is leaning on cost-reduction strategies to keep margins from declining significantly in the future. For example, LEN collaborates with its trade partners to reduce costs and keep production up.
Overall, LEN's Q1 results were sturdy, but the uneasiness in the economy can quickly spur selling pressure. If rates continue to rise, monthly mortgage payments may become too pricey, keeping potential homebuyers on the sidelines. Although LEN is making the necessary adjustments to buoy its margins and is focused on maintaining strong cash flows and profitability, the near term is too uncertain. As such, we think it is better to wait for a meaningful pullback before entering, as it could take some time for the market backdrop to become less challenging.
On a final note, LEN's quick reversal today is not a good sign ahead of KB Homes' (KBH) FebQ earnings report on March 22.
SentinelOne puts cybersecurity resiliency back under the spotlight with solid earnings report (S)
Last night, SentinelOne (S) became the latest cybersecurity company to report solid quarterly results, further highlighting the resiliency and mission-critical nature of the industry. Prior to SentinelOne's upside 4Q23 results, larger competitors Crowdstrike (CRWD) and Palo Alto Networks (PANW) issued their own beat-and-raise quarterly reports, indicating that cybersecurity spending was still at the top of most enterprises' IT budgets.
- During SentinelOne's earnings call, CEO Tomer Weingarten noted that global economic conditions haven't improved much since last quarter. Consequently, like its peers, the company is still seeing longer sales cycles, more scrutiny around IT spending, and some deal rightsizing. However, SentinelOne still ended its fiscal year on a strong note, exceeding expectations across a number of metrics, including revenue, annual recurring revenue (ARR), gross margin, and EPS.
- ARR, which is perhaps the most important demand metric for SentinelOne since it's a gauge for future revenue generation, increased by a robust 88% yr/yr to $548.7 mln. Dollar-based net revenue retention rate was another standout metric, remaining above 130%, indicating that the company is experiencing high retention and expansion rates from customers. Clearly, the areas that SentinelOne specializes in within the cybersecurity space -- namely, endpoint security and malware detection -- are top priorities for IT departments.
That's only part of the equation, though.
- Similar to CRWD, SentinelOne credits the breadth of its offerings, which span across endpoint, cloud, identity, and data, as a key difference maker in this challenging business climate. The platform's ability to provide more wide-ranging protection allows customers to trim their vendor list, reduce complexity, and provide cost efficiency.
- Additionally, the company's go-to-market strategy takes advantage of a deep partner ecosystem, helping it to build its pipeline.
Relatedly, the company's pipeline nearly doubled on a yr/yr basis.
- That bodes well for its business in FY24, although the company is taking a cautious and conservative approach with its outlook. For 1Q24, its revenue guidance of $137 mln was merely inline with expectations, while its forecast of $631-$640 mln fell short of estimates.
- While SentinelOne didn't provide EPS guidance for FY24, it did reiterate its target of achieving profitability in FY25.
- With the company making significant progress in terms of margin expansion, there's good reason to believe that it will reach that goal. For instance, in Q4, non-GAAP gross margin expanded by nine percentage points on a yr/yr basis to a record of 75%. A key component of this margin improvement was the migration of SentinelOne's back end into data sets a couple of quarters ago, providing it with data-enabled efficiencies.
The main takeaway is that the cybersecurity space remains one of the few areas of strength as enterprises cut back on IT spending. Many in the field are benefitting from the prioritization of spending on cybersecurity products, but those with scale and a more all-encompassing platform, such as SentinelOne and CRWD, are jumping to the head of the pack.
Guess? is not looking too fashionable as stock falls on weak guidance (GES)
Guess? (GES -5%) is under some pressure today following its Q4 (Jan) report last night. The holiday quarter is typically its biggest sales quarter each year, so this was an important report. There is little analyst coverage, but this fashion apparel retailer reported solid upside for Q4. The problem was pretty significant downside guidance for Q1 (Apr) and FY24, including a sizeable loss in Q1 when a profit was expected.
- Let's start with the good news. Revenue in Q4 rose 2.2% and 8% in constant currency (CC), nicely ahead of prior guidance of -3.5% and +3.5% CC. The upside was primarily driven by strong results in Europe. Its Americas Retail business posted a marginal decrease in revs and a more significant reduction in margins due to increased markdowns. Its Americas Wholesale segment saw revenue decrease meaningfully due to lower orders and cancellations as customers tightly managed their inventory levels. Asia is small for GES, but revs fell there.
- The company says its strongest categories were accessories led by handbags, small leather goods, travel products etc. GES also saw strong results from its Marciano brand, activewear, dresses, and kids. More dressy products outperformed due to customers dressing up for holiday events. Conversely, the more casual part of the assortment saw a deceleration in line with its Q3 trend.
- Turning to the elephant in the room, the guidance was pretty rough. The good news is that supply chains have largely recovered and freight costs have improved significantly. GES does a lot of sales in Europe, so FX has been a big headwind, but at least for now, the US dollar has weakened somewhat from its most recent high. However, inflation remains high throughout the world. That, plus rising rates, are weighing on consumer spending. GES also cited the Ukraine war, the US debt ceiling and instability in the banking system as posing significant risks.
- As such, GES expects the consumer to remain prudent in their spending, wanting to shop but continuing to be very focused on price. GES also has some concerns about how the European consumer will behave now that they are in their second year of more normalized post-pandemic shopping. Also, GES expects retailers will prioritize maintaining tighter inventories this year.
Overall, we applaud GES for elevating its brand in recent years and improving quality among taste, styling, and fabrics. However, the near term results look to be pretty rough. We recently profiled Guess? in our YIELD rankings as management has used the downturn to aggressively repurchase shares. GES bought back $187 mln of shares in the last 12 months, that computes as well above 10% of the current market cap. Plus GES pays a 4.5% dividend yield. However, the turnaround will take time, so expect weak results in the near term.
Smartsheet gaps up after delivering its first quarter of profitability (SMAR)
Smartsheet (SMAR +15%) is gapping up nicely today after achieving its first quarter of profitability since going public in 2018, proving the work management firm's recent cost-saving initiatives and efficiency improvements were intelligent moves. SMAR toppled analyst expectations and prior guidance handily in Q4 (Jan). The company also guided Q1 (Apr) and FY24 adjusted EPS well above consensus, reflecting significant success in reducing expenses and streamlining operations. SMAR also named a new Board Chair.
- SMAR's adjusted EPS of $0.07 crushed its forecast of $(0.02)-0.00, while sales growth of 34.9% yr/yr to $212.34 mln edged past its $205-207 mln projection. SMAR's response to a rapidly shifting macroeconomic environment in FY23, eliminating lower-value activities, while maintaining sales capacity, was a major factor in reaching the milestone of profitability.
- Strength during Q4 primarily stemmed from SMAR's largest customers, who continued exhibiting expansion rates above the company's overall net dollar retention rate. SMAR boasted 311 customers expanding by $50K or more and 118 expanding by $100K or more. Although SMAR experienced similar expansion drag as Monday.com (MNDY), which noted that existing customer expansion was an area of weakness in JanQ, it still enjoyed enterprise customers exhibiting the fastest growth rates during the quarter.
- Looking ahead, alongside SMAR's FY24 adjusted EPS guidance of $0.31-0.38, stemming from efficiency enhancements, SMAR is pouring capital into keeping its biggest customers continually growing at a swift pace in FY24. Part of its investment strategy is leaning on AI, which SMAR noted began in 2018 with its acquisition of Converse.AI. It is now setting its sites on degenerative AI, which SMAR believes will serve as a catalyst for growth in FY25 and beyond.
However, not everything shined in Q4. Billings growth slowed again in the quarter, expanding by just 28% yr/yr to $286.7 mln, down from the +36% posted in Q3 (Oct) and +44% in Q2 (Jul). Meanwhile, SMAR's Q1 and FY24 revenue guidance was light. The company expects Q1 revs of $213-215 mln, or 27% growth yr/yr at the midpoint, and FY24 revs of $943-948 mln, or 23% growth, both missing analyst estimates.
Each weak point branched from a worsening macroeconomic environment. Similar to past quarters, SMAR noticed these pressures manifest as smaller deals and elongated sales cycles, resulting in lower expansion rates amongst customers. However, these remarks resemble those made by many of SMAR's peers in recent weeks, including Asana (ASAN) and Salesforce (CRM), so the market was likely pricing this in ahead of SMAR's Q4 report. Furthermore, management noted it is building in worsening economic conditions this year. Therefore, if the economy stabilizes, SMAR is positioned to exceed its conservative FY24 sales forecast.
Bottom line, SMAR's first quarter of profitability is a welcoming surprise, especially given the challenging macroeconomic environment. However, we caution chasing SMAR at current levels as shares are hitting resistance around the $45-46 mark.
Meta Platforms cost-cutting efforts receiving more likes as shares continue to rally (META)
In the span of about six months, Meta Platforms (META) went from full speed ahead on its metaverse aspirations, ready to invest whatever it took to support that transition, to one that's cutting costs more aggressively than virtually any other tech company. This morning, META published a Newsroom post that provided more details about its "year of efficiency", including a plan to lay off about 10,000 more employees, while also closing around 5,000 additional roles that META hasn't yet filled.
- These layoffs are on top of the 11,000 positions that were eliminated late last year as META and other social media companies like Snap (SNAP), Pinterest (PINS), and Twitter contended with a sharp slowdown in digital advertising spending and rising competition from TikTok.
- As difficult as the business climate has been, it has forced META and CEO Mark Zuckerberg to refocus and prioritize the company's bottom-line, and, by extension, the profitable Family of Apps (Facebook, Instagram, WhatsApp) segment.
- Rewinding to META's disappointing 3Q22 earnings report on October 26, in which it missed EPS expectations for the third time in four quarters, the company guided for FY23 total expenses of $96-$101 bln. At the midpoint, this outlook reflected a yr/yr increase of 15% and seemed a bit tone-deaf given the rough business conditions. Not surprisingly, the stock was crushed the following day to the tune of a 25% drop.
Since then, though, it's been a completely different story for META and the stock.
- A couple weeks after that dreadful earnings report, the company lowered its FY23 expense guidance to $94-$100 bln due to slower anticipated growth in payroll expenses and cost of revenue. Then, when META reported Q4 earnings in early February, it cut its FY23 expense guidance again, this time to $89-$95 bln. Now, after taking into account these latest layoffs, META is forecasting total expenses to be in a range of $86-$92 bln, representing an increase of just 1.5% at the mid-point.
- Job cuts are only part of the solution. META is also looking to "flatten the organization" by removing multiple layers of management, while asking some managers to also be contributors.
- Additionally, instead of sinking billions of dollars into the money-losing Reality Labs division (Metaverse, VR equipment), spending will be almost entirely allocated to tools that enhance META's applications, making them more competitive and attractive to advertisers. Most notably, this will include expanding its AI capabilities to improve monetization and to increase ROI for advertisers.
All of this has been music to investors ears, as illustrated by the stock's near 100% gain since that Q3 earnings report. The bottom line is that while advertising demand is still shaky at best, META's earnings expectations are on the rise, thanks to a dramatic U-turn on spending that's still playing out.
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