By the time the closing bell sounded on Wall Street Thursday, Facebook suffered a decline even deeper than its post-earnings, after hours plunge on Wednesday evening.
The shares dropped an astounding 27%, vaporizing $230 billion in market value in the process. Mark Zuckerberg lost more than $30 billion on paper in six hours.
As Bloomberg’s Kurt Wagner put it, the sheer scope of Thursday’s rout was “unlike anything Wall Street or Silicon Valley has ever seen.” The figure (below) is a testament to the idea that Facebook, just a few months removed from a rebranding effort that some critics derided as farcical, may be staring down “the beginning of the end,” as one analyst put it.
Prior to the open, I suggested Facebook’s Thursday plunge would be remembered as “a historic one-day value destruction event.” Somehow, it ended up worse than I imagined, despite my best efforts at gratuitous hyperbole.
Meta’s historic plunge stopped big-cap tech’s $870 billion rebound from the January lows in its tracks. “The index-level impact of the FB debacle is very significant for the broad equities recovery,” Nomura’s Charlie McElligott said, adding that Meta’s miss put “incredible pressure” on Amazon to deliver.
Well, guess what? Amazon did, in fact, deliver. Although not necessarily on the guidance front. The company sees Q1 net sales of $112 billion to $117 billion, below consensus ($120.51 billion). But markets were pleased with a planned Prime price hike. Memberships will cost $139 per year versus $119 previously. The new price will apply starting March 26 for current members. Shares surged some 18% after hours.
Running through the rest of the numbers, Q4 net sales of $137.41 billion were short of estimates. Online sales fell 0.6% YoY. But AWS beat. Net sales of $17.78 billion exceeded the $17.23 billion the Street expected, rising 40% YoY. Ostensibly, EPS was a huge upside “surprise,” but it’s never clear whether the reported figures are comparable. Operating income of $3.46 billion was more than a billion better than expected. Margins easily beat.
Assuming Amazon’s after hours gains hold, it sets up yet another painful reversal. Nomura’s McElligott mapped out a possible scenario for Thursday and Friday. “Funds sell Delta and grab back into Vol / Gamma as a reaction to Facebook just as funds had begun re-risking,” he wrote, noting that many feared funds would “‘take an L’ on the sheer magnitude of the $drawdown… caus[ing] liquidation that spills over into other liquid Growth names.” Then, he continued, “AMZN releases blow-out numbers later, forcing yet another ‘lunge to the other side of the boat’ as the aforementioned flows reverse.”
So, that’s your setup for Friday. And it may be exacerbated (or amplified) by Snapchat, which jumped a truly incredible 54% after guiding ahead of consensus for Q1. Sales will be $1.03 billion to $1.08 billion this quarter, the company said. That puts consensus below the low-end of the guidance range. Revenue in Q4 was $1.3 billion, also better than expected, and up 42% YoY. Adjusted EPS was double estimates, and daily active users beat too. Adjusted Ebitda nearly doubled.
While it was far too early to sound the all clear, QQQ’s after hours gain was large enough to negate half of Thursday’s Facebook-inspired plunge.
Never a dull moment.
Incredible moves, up and down. Did someone say market structure? All the hallmarks of a system about to shake itself apart.
Amid the tocsins blaring and red lights flashing, the Zuck is instructing his minions to dial up the anger knob to 11 on the algorithm monster in a desperate bid to remain relevant no matter who/what gets hurt as a result.
No, there won’t be any need for that. He’s just going to un-ban Trump. Unlike Twitter, which gave him a lifetime ban, Facebook only banned him for 2 years. As soon as he gets desperate for “ratings,” Zuck will just let the ban lapse and boom, only major social network that carries Trump!
Calling it here first: Facebook will unban Trump.
I am mentally prepared to hold through a “normal” amount of volatility- but this is getting insane. It feels like I am living in the vicinity of a gaseous volcano that is about ready to spew magma over everything.
Such massive moves feel like indicia of an unhealthy market with poor liquidity and low conviction. Maybe this is just modern options-and-vol-driven markets functioning smoothly, I don’t know. But when the biggest names in the SP50 are so volatile, doesn’t that drive some derisking behavior? If you’re watching the incremental risk vs incremental reward added by each portfolio name, for example.
On another angle – after the drawdowns, some of the MFAANG group look reasonably valued. In the ballpark anyway.
I’m expecting the poor liquidity and low conviction to remain the ethos du jour at least through Feb OpEx, and possibly even through March Fed meeting/ Op Ex.
With slowing growth it is unlikely that private bank credit creation (the classic money multiplier) will grow enough to offset liquidity taken out of the system via the Fed’s stealth taper and US Treasury.
Also, there hasn’t been much noise about it, but the Federal Gov/Treasury is facing budget limits again with I believe a deadline of Feb 18 (also date of Op Ex). With such fragile markets, a little noise about the government not spending/paying bills will probably cause some serious problems for risk assets and a flight to safety (bonds).
As H has pointed out, buyback blackouts are rolling off, maybe that is a demand source, but I’m trying to find research on what buyback desks are doing post blackout. Essentially, their shares are likely cheaper than before the blackout. If they jump back in, the they are a demand source. Conversely, if they don’t, not only does it mean the primary demand for shares is on hold, it also tells you they think (know?) they will be able to buy their shares cheaper in a month or two.
The next few months will be interesting of nothing else. By summer, everyone will feel better as the rush back into tech pushes the markets to new ATHs. At least that is what my tea leaves said this morning.
And when economy slows and growth becomes scarce, the tech names that are still powering steady growth will get popular quick – the ones that are struggling to maintain high growth, and those that turn out to have no clothes after all, will become footnotes. Who remembers ITWO anymore?
“Somehow, it ended up worse than I imagined, despite my best efforts at gratuitous hyperbole.” Well, at least you tried!
H-Man, the storm will pass after the numbers in the morning. Those look to be very ugly. It could be a really bad puke day tomorrow.