🙅‍♂️Meta succeeds yet crashes

Good morning investors! Earnings season is in full swing and it’s continuing to throw curve balls.

Today we cover:

• Food to get cheaper?

• Meta earnings report.

• International companies are announcing earnings too.

📊 Economy and News 

Food to get cheaper?

Oxford Economics has predicted that food prices worldwide will decrease and reach a low point this year, providing some relief for consumers' budgets.

Why? The primary factor behind the drop in food commodity prices is the ample supply of key crops, notably wheat and maize.

Wheat futures have dropped nearly 10% year-to-date, while maize futures have declined by about 6% over the same period.

Farmers ramped up production of both wheat and corn grains following higher prices after Russia began its invasion of Ukraine in 2022.

As a result, global maize harvests for the marketing year ending August this year are likely to come in at record levels.

What does it mean? It means you have to be careful if you invest in commodities and also prepare for lower inflation.

Global hits:

• Klarna and Uber have announced a global partnership that will integrate the Swedish fintech firm as a payment option on the Uber and Uber Eats apps in the U.S., Germany, and Sweden. This deal with Uber is seen as one of Klarna's most significant merchant partnerships in recent times, coinciding with rumors of the firm preparing for a major IPO.

• A recent S&P Global Ratings report suggests that China's state-directed economy might be setting the stage for a fresh wave of bond defaults, potentially occurring as early as next year.

• Starbucks has resumed negotiations with a union after both sides have shown signs of thawing their relationship.

📈 Stocks

S&P 500 5,071.63 (+0.021%)
DJIA 38,460.92 (-0.11%)
NASDAQ 17,526.80 (+0.32%)
BRENT CRUDE 87.33 (-0.07%)
* Prices as of Apr 25th, 12:20 AM UTC

Meta beats earnings but crashes

Meta issued better-than-expected results for the first quarter, but the stock sank on a light revenue forecast plunging -16% after the bell.

Here are the numbers:

• Earnings per share: $4.71 per share vs. $4.32 per share expected by LSEG

• Revenue: $36.46 billion vs. $36.16 billion expected by LSEG

In comparison to the same period a year ago, revenue surged by 27% to $28.65 billion, marking the fastest rate of expansion for any quarter since 2021. Net income also more than doubled, reaching $12.37 billion, or $4.71 per share, up from $5.71 billion, or $2.20 per share, in the previous year.

Why did the stock crash? Meta announced that it anticipates second-quarter sales to range between $36.5 billion and $39 billion. The midpoint of this range, $37.75 billion, would reflect an 18% year-over-year increase, falling short of analysts' average projection of $38.3 billion.

Also, Meta boosted its capital-expenditure outlook for the full year as it increases spending on areas like artificial-intelligence infrastructure.

Meta now expects to shell out $35 billion to $40 billion on capital expenses, up from a prior outlook of $30 billion to $37 billion. It also narrowed the range of its total expense forecast for 2024. That's now $96 billion to $99 billion, whereas it was $94 billion to $99 billion before.

Users: The Facebook parent no longer reports daily active users and monthly active users. It now gives a figure for what it calls “family daily active people.” That number was 3.24 billion for March 2024, a 7% increase from a year earlier.

What’s changing: The company is serious about getting rid of ‘unnecessary’ projects. In fact, headcount has declined by 10% from a year earlier to 69,329.

Reality Labs: Meta disclosed that its Reality Labs unit recorded a $3.85 billion operating loss. Revenue in the metaverse division was $440 million, up about 30% from $339 million a year ago and representing only around 1% of Meta’s total sales for the quarter.

Some more earnings:

• Swedish automaker Volvo Cars on Wednesday reported an uptick in first-quarter core operating profits driven by strong retail sales. First-quarter core operating profit was 6.8 billion ($629 million), an 8% increase year-on-year. The figure excludes joint ventures and associates. Revenue was 93.9 billion, down 2% from the first quarter 2023. The report sent stocks down -8%.

• Shares of French luxury group Kering sank more than -9% at open on Wednesday. The company cautioned that it foresees a significant decline in first-half profits due to decreasing demand for its Gucci brand. Chairman and CEO François-Henri Pinault noted that this warning follows a substantial deterioration in the company's performance during the first quarter.

• Chipotle Mexican Grill exceeded Wall Street's expectations for its quarterly earnings, revenue, and same-store sales growth. The burrito chain reported a 5.4% increase in traffic for the first quarter. In March, Chipotle's board approved a 50-for-1 stock split, which is one of the largest in the history of the New York Stock Exchange.

• IBM exceeded expectations for its first-quarter results in terms of profits but fell short on revenue. The company, known for its software, hardware, and consulting services, announced its acquisition of cloud software maker HashiCorp for $35 per share in cash. The deal has an enterprise value of $6.4 billion. Additionally, IBM committed to deploying artificial intelligence assistants to its 160,000 consultants during the quarter.

• Ford Motor surpassed Wall Street's earnings estimates for the first quarter, which helped offset losses from its electric vehicles. The automaker slightly reduced its capital expenditure expectations but raised its outlook for adjusted free cash flow for the year. Ford's traditional business, referred to as Ford Blue, reported adjusted earnings that were 66% lower compared to the previous year.

• Biogen announced first-quarter profits that exceeded expectations, driven by successful cost-cutting measures and higher-than-anticipated sales of its Alzheimer's drug, Leqembi. Sales of Leqembi reached approximately $19 million for the quarter, a significant increase from the $10 million generated by the drug last year.

💵 Personal Finance

Why Americans are spending like crazy

We read a lot about inflation and how people are struggling to make ends meet, yet reports suggest that Americans are on a spending spree.

They appear to be spending on everything from the latest iPhones to luxurious vacations. But, what’s causing this excessive spending and what impact could it have on us? Let’s dig in:

They’re making more money

Salaries are growing and unemployment is not very high.

Wages in the US increased 5.31% in September of 2023 over the same month in the previous year. Wage Growth averaged 6.19% from 1960 until 2023, reaching an all time high of 15.28 percent in April of 2021 and a record low of -5.89 percent in April of 2020.

The chart below highlights the growth:

This growth is encouraging Americans to spend more. Unfortunately, they don't appear to be very high on savings. In fact, savings rate for Americans is falling.

This could impact retirement plans since most people retire on savings. However, reports say that the new generation plans to work beyond their 50s.

Perks of pandemic

This might come as a surprise to some but the pandemic is one of the main reasons why people are spending so heavily. Firstly, they couldn’t do much during the pandemic.

Most people took no vacations and bought no expensive goods. Thus, they have more money to spend now. Plus, many had access to government packages. As a result, Americans accumulated more than $2 trillion in savings above the pre-pandemic trend.

This money is making people spend more. In fact, reports suggest that a large number of Americans are now digging into their savings. In fact, many are going into debt, which is a concern. It is not sustainable to count on savings. One should save for the rainy days.

A shift in values

There is a growing emphasis on experiential spending.

Consumers are willing to spend on new experiences. We have seen a surge in earnings reported by entertainment and travel companies due to a sudden increase in demand for these services.

There is a cultural shift that is fundamentally altering consumer behavior. People are spending on well-being and improving their quality of life. Experts believe this trend to continue.

But is this good?

No.

Most experts agree that this behavior is not good.

"The main reason why we think this pace of spending is not sustainable is because we look at the underlying drivers of spending. They are not the most reliable and sustainable sources of spending," said EY's chief economist Gregory Daco. "When you have households that are dipping into their savings, that's not an encouraging sign," he added.

There is a need to rethink your spending habits and concentrate more on savings.

Take that vacation, buy that outfit, and enjoy good meals but don’t use your savings to buy these new experiences. Spend in a consistent manner on your income.

Check this video for some motivation:

💰 Be a Better Investor

👩🏽‍⚖️ Legal Stuff
Nothing in this newsletter is financial advice. Always do your own research and think for yourself.

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