Meta... more like Beta

February 3, 2022 Good morning traders! Welcome back to The Daily Setup. Markets were up again yesterday. Here’s what’s on the docket today: - PayPal, AMD, and Meta all report earnings - FTX acquires crypto exchange Liquid - Nestle buys Orgain Let’s make today a good one. Nick How’d the markets look? Market Outlook 👀 DOW 35,629.33 +0.63% S&P 500 4,589.38 +0.94% NASDAQ 14,417.55 +0.50% BITCOIN $37,600.90 -3.09% PayPal, AMD, and Meta BIGGEST MOVER Look Out Beloooooow! The only thing worse than Paypal’s (PYPL) earnings report is probably the new name of the Washington football team. Shares of the company plummeted [24.57%]( on weak guidance despite topping sales expectations and narrowly missing on the bottom line. The company’s forward guidance however, is what really set off alarms and had investors running for the exits. - [Paypal reported]( Q4 EPS of $1.11/share on $6.92B in revenue vs. expectations of $1.12/share on $6.87B in revenue. Not impressive, but not terrible. - What had multiple analysts slashing price targets was the company’s [earnings expectations for FY2022.]( Paypal is projecting $4.60-$4.75/share on revenue growth of 15%-17%. Previous forecasts had the company earning $5.25/share on an 18% growth in revenue. - But wait, there’s more. [CFO John Rainey]( said that the company had to close 4.5M illegitimate accounts or âbad actorsâ (looking at you, Owen Wilson) who were taking advantage of their incentive programs. He also said that the company would be pivoting their marketing strategy and no longer expects to reach their previously stated goal of 750M active accounts by 2025. Oh, and let’s not forget good old inflation, which was factored into the lackluster report. - In what could be a harbinger of things to come, Block (SQ), the artist formerly known as Square, was dragged down [10.66%]( by Paypal’s earnings. PYPL saw significant resistance in the latter half of 2019 and early 2020 at $120, which now becomes an interesting level of support. That was before Uncle Jerome fired up the money printer and shares of Paypal and seemingly every other stock skyrocketed. Thanks to the market sell off and disappointing earnings, PYPL is now [9.5%]( off that support area as of Tuesday’s close. I plan to keep Paypal on my watchlist (and prayers) as a move lower into the $120 range may be an excellent way to build a position in a company that will still be printing money moving forward. There’s nothing micro about these earnings Advanced Micro Devices, which sounds like a support group for men who work in tech with small members, reported a big earnings beat yesterday. [AMD]( crushed analysts’ expectations on both the top and bottom lines as well as provided positive guidance for FY2022. The semiconductor industry as a whole rallied on the news with SMH, the Semiconductor ETF, and Nvidia gaining [2.55%]( and 2.45% respectively. Analysts at KeyBanc raised their price target for AMD from $155/share to $165/share, while [Nvidia was added]( to "Raymond James’ list of Analyst Current Favorites." I bet they paid the bouncer to let them into such an exclusive group. - [AMD reported]( EPS of $0.92/share on $4.8B in revenue vs. Wall Street’s forecast of $0.72/share on $4.5B in revenue. - [The company also said](, "it expected $21.5 billion in sales in 2022, ahead of analyst expectations of $19.26 billion," which would represent a 31% growth in revenue. - Nvidia, meanwhile, said "hold my beer", and had analysts fawning over the company’s predicted 60% increase in their FY2022 revenue growth. Take that with a grain of salt as Nvidia’s [market cap]( is $621B compared to $149B for AMD. Shares of other major semiconductor companies, Qualcomm ([QCOM]() and Micron Technology ([MU]() also rallied to the tune of 6.25% and 3.76% respectively. With the semiconductor industry expecting to remain strong due to the global chip shortage, in my view it would be prudent to keep a watchlist full of the industry’s top names as volatility is sure to abound. If I’m looking for exposure to the sector without single stock risk, I’ll be keeping SMH in my crosshairs. Meta... more like Beta If a stock falls in the Metaverse and no one’s logged on to hear it, did it ever really fall? Answer: Yes, by [21.76%]( in extended trading. The artist formerly known as Facebook beat revenue expectations ([$33.67B to an estimated $33.44B]() but missed on EPS ([$3.67 to $3.83]() and reported that Q1 2022 would be [even more disappointing](. - It wasn’t all bad-- in fact, most of it wasn’t. Meta made $40B in income in 2021-- about a 35% YoY increase-- and daily and monthly users for Facebook were up [5% and 4%](. But all these numbers fell short of expectations. - And oof the metaverse did not farewell. Obviously building a virtual hell will take a lot of time and money before anyone can be condemned to it, but Reality Labs’ operating loss of [$3.3B]( still hurts a lot. But there will be NFTs there! - Meta blamed some of its poor performance on [changes Apple made]( to its iOS mobile software that made ad tracking harder. Surprisingly, no mention was made of [this photograph’s]( effect on share value. - Snap, which reports earnings today, was also dragged down after the bell, falling 17%. Meta will do just fine for a while, as this disappointment doesn’t change the fact that Facebook is a huge part of the world. Just ask your aunt. Less certain is whether the metaverse will actually work, and there’s just no way to tell right now. But it seems like everyone has pretty much clocked Facebook’s rebranding effort as exactly that-- a way to avoid scrutiny and start over-- and that means the attempt failed. I personally will stay the hell away. FTX goes Liquid Token Talk ^ This is a great business strategy when you are already valued at $32B FTX, one of the fastest-growing crypto exchanges, announced on Wednesday that it would [acquire]( rival Liquid for an undisclosed amount. Liquid is currently one of the world’s biggest crypto exchanges by volume, with [~$72M]( changing hands on Tuesday alone. If approved-- and that’s a fat if-- the deal will go through sometime this March. - CEO Bankman-Fried has said that this deal is part of FTX’s big push to get licensed in as many countries as possible. Liquid’s Quoine was the [first trading platform]( to be licensed by Japan’s regulators, so buying Liquid should help FTX get its foot in the regulatory door. - If now seems like a bad time for a crypto exchange to negotiate with governments, it is-- unless you’re FTX. Despite the most recent [crypto winter](, FTX raised $400M and fetched [a $32B valuation]( just this week. And last week FTX’s U.S. branch, FTX U.S. (duh), raised an unrelated $400M in a funding round that valued it at [$8B](. So FTX can put its money where its mouth is, and Asian tech hubs like Singapore and Japan seem like pretty good bets. - Other nations are less impressed. South Africa’s financial regulator[just warned investors]( against using FTX, emphasizing that the company was not authorized (read: licensed) to give financial advice or perform financial services for anyone. Although that may have less to do with FTX’s fundamentals than the fact that [two of the largest crypto frauds in history]( have occurred in South Africa. It’s a bad time for crypto. But it’s a good time for FTX, and crypto speculators will find someone to pin their dreams on. FTX is one of their best options, attracting the kind of capital that’s gotten entire nations interested, even while BTC’s price continues to tank. FTX’s apparent sturdiness in this shaky time makes it seem pretty reliable, but there’s no question that some of FTX’s wealth comes from the deluded optimism that suffuses the cryptosphere. In my opinion, I see FTX doing well in the short term if this deal goes through, but I plan to hold off on using the platform while so much suspicion surrounds it. Nestlé makes gains Deals and Rumors ^This guy doesn’t even lift. It’s all cashew milk. The world’s largest food and beverage company just got larger. Yesterday Nestlé’s wet blanket subsidiary, Nestlé Health Science, [acquired]( a majority stake in Orgain, the plant-based nutrition retailer. Get ready for some superfood Crunch bars. Minority shareholders will stay the same, but Nestlé’s will replace Butterfly Equity and become Orgain’s majority shareholder. - The price Nestlé paid isn’t public record, but we do know that when Butterfly started shopping Orgain around in 2021 it valued the company at [roughly $2B.]( - Nestlé’s been on something of a restructuring tear lately. It snapped up [Nuun]( last May and [The Bountiful Company]( in August, but also shed some unprofitable companies like [its water business]( and [$10B of those L’Oreal shares]( it owned for some reason. - Nestlé’s stock was up [1.15%]( by markets’ close. In general, analysts approve of Nestlé’s recent round of drops and pickups, which have all taken place under the guidance of respected CEO Ulf Mark Schneider (isn’t that hilarious?). Ulf seems to have a good nose for profit and cost minimization, and the fact that the acquiring company’s stock rose on news of a deal augurs well. I think Nestlé is a fairly safe buy that will see modest long-term returns. Link Roundup 📿 Other News Other News Link Roundup - ADP Calls Private Sector a Loser – Private Sector Sheds 301K Jobs in January ([link]() - It’s Like An A+ But for Oil Producers – OPEC+ Sticks to Planned Output ([link]() - Wait, SeaWorld is Still Around? – SeaWorld Makes Takeover Bid for Cedar Fair ([link]() - Ford Should Hire Marie Kondo – Ford to Spend Billions to Reorganize in Shift to Electric ([link]() - Red Dawn for Hedge Funds – Equity Focused Hedge Funds End January in the Red ([link]() This is art, [via @RampCapitalLLC]( Questions or concerns about our products? 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