By Julia Horowitz, CNN Business
Every quarter, Wall Street investors analyze earnings to get insights into a company’s earnings and the size of its profits.
But this season has served as a reminder of how traders who piled into fast-growing tech stocks have come to value another metric. They are obsessed with scale, measured by the number of users and subscribers.
What’s Happening: Parent Facebook Meta Shares increased 16% in pre-market trade Thursday after the company announced a mixed bag of first-quarter results.
This is partly due to lower expectations of the social media platform. Its previous batch of results was so disastrous that it sent the stock down 26%, leading to the biggest loss in market value ever for an S&P 500 company.
Yet there is also significant relief regarding Meta’s stagnating user count. Although they were slightly below Wall Street expectations, they rose in the first three months of the year.
“Meta’s results were very well received, all things considered,” Laura Hoy, equity analyst at Hargreaves Lansdown, told me. “A lot of that was based on the published user growth.”
Facebook’s monthly active users grew 3% year over year, while Facebook’s daily active users grew 4%. Monthly and daily active users on Meta’s family of apps, which includes Instagram and WhatsApp, each grew by 6%.
Facebook’s rebound is the reverse of what happened with Netflix last week.
Streaming service shares imploded after the company said it lost 200,000 subscribers in the first three months of the year, when it expected to add 2.5 million. It was the first time Netflix had lost subscribers in a quarter in more than a decade.
These numbers are important to both companies for slightly different reasons.
Since Netflix doesn’t run ads — at least not yet — subscription fees are its main source of revenue.
At Meta, meanwhile, its enormous combined user base of around 3 billion people gives it leverage as it competes for advertisers against TikTok, Snapchat and other social media sites.
But scale is also key to justifying the extremely rich valuations of these companies. A year ago, Facebook was trading at more than 30 times earnings over the past 12 months. As recently as October, Netflix was trading at nearly 70 times earnings.
One important factor: the promise that these companies would be able to leverage their huge user bases to make more money in the future. When growth slows significantly, it significantly undermines the investment proposition.
“Investors have gotten used to seeing huge user growth numbers,” Hoy said. “And as that calms down, it raises the question of whether those valuations that have become so large over the past few years are worth it.”
This is especially true given the current scrutiny of tech companies, which seem less attractive as interest rates start to rise. Wall Street has taken a good look at whether it got too excited about Big Tech names during the pandemic.
Watch this space: Meta didn’t bleed users last quarter like Netflix. But other numbers underscore its difficult road ahead as it battles rivals like TikTok, struggles to monetize popular video content and faces disruption to its core advertising business due to changes to privacy practices. from Apple.
Mark Zuckerberg’s company posted its slowest revenue growth in years and said its profit was down 21% from a year ago. But investors are ignoring these developments, at least for now.
Palm oil is in half your shopping. Its price could skyrocket
Indonesia is beginning to restrict palm oil exports, a move that could deepen the global food crisis and drive up the prices of hundreds of consumer products.
The country on Thursday suspended exports of cooking oil and the raw materials used to make it in a bid to secure local supplies, reports my CNN Business colleague Michelle Toh.
The Southeast Asian country is the world’s largest producer of palm oil, a common ingredient found in many foods, cosmetics and household items around the world. The WWF estimates that it is used in almost 50% of all packaged products in supermarkets.
Last week’s surprise announcement sent commodity prices soaring. Crude palm oil futures in Malaysia, a global benchmark, jumped nearly 7%.
Now the market is racing to digest the impact. The settlement, signed on Wednesday, is broad in scope, analysts at Goldman Sachs said. Although there has been speculation it could be more limited, but it will likely cover around 90% of all palm oil exports from Indonesia, they said.
Palm oil prices were already under pressure following Russia’s invasion of Ukraine, as markets scrambled to find alternatives to sunflower oil shipments stuck at Black Sea ports.
Indonesia’s export ban could aggravate the situation. James Fry, chairman of consultancy LMC International, said the price of items such as cooking oil, instant noodles, snacks, baked goods and margarine could rise as a result.
“We have the perfect storm,” he said. Droughts in South America and Canada have also limited supplies of soybean oil and canola oil, he added.
On the radar: A lingering question is how long Indonesia’s ban will last. It is in place “until further notice”.
Why the Japanese yen is at its lowest in 20 years
The Japanese yen hasn’t been this weak in 20 years, rattling currency markets as investors race to determine how far the currency could fall.
The latest: The Japanese yen fell sharply after Thursday’s Bank of Japan meeting. It last traded above 130 against the US dollar, its worst level since 2002. The currency has plunged more than 13% against the dollar since the start of the year.
The divergence was fueled by a difference in central bank strategy. The Federal Reserve is withdrawing support for the economy to fight the highest inflation in decades. But the Bank of Japan has a different plan.
When the BOJ met on Thursday, it “made it clear that it was not ready to end its easing policy as its inflation target is still a long way off,” according to Min Joo Kang, senior economist at ENG.
The bank intends to keep the money taps on until it sees sustained inflation close to 2%, Governor Haruhiko Kuroda said. Deflation, or falling prices, also poses problems for growth. Consumer price inflation in Japan rose 1.2% for the year ending March, compared to 8.5% in the United States.
But if the yen continues to lose ground, it could drive up the cost of living for people in the world’s third-largest economy by making it more expensive for businesses and consumers to buy imported goods. This could hamper Japan’s recovery from the coronavirus pandemic.
“Yen weakness at this point is a significant drag on economic activity, eroding disposable incomes and driving up costs for businesses,” Craig Botham of Pantheon Macroeconomics told clients.
Altria, Caterpillar, Domino’s Pizza, Hershey Foods, Mastercard, McDonald’s and Twitter release results before US markets open. Amazon, Apple, Intel and Roku follow after the close.
Also today: The first look at US GDP for the first three months of the year comes at 8:30 a.m. ET.
Coming tomorrow: The latest reading of the Federal Reserve’s favorite measure of inflation, the Personal Consumption Expenditures Price Index.
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