Barron’s Weekend Summary: Elon Musk likes to think of himself as a problem solver, and he has a big one to solve in Twitter.
Cover Story:
-Elon Musk likes to think of himself as a problem solver, and he has a big one to solve in Twitter. The social-media company is far from profitable, and Musk loaded it up with debt to make the acquisition. Finding a way to cut costs while generating new revenue from the largest tech leveraged buyout ever is a challenge that will test his problem-solving skills and pull his attention away from Tesla, SpaceX, The Boring Co., and Neuralink, the four other companies he controls.
Interview:
-This week, Barron’s interviews Thasunda Brown Duckett, a retirement expert. Retirement security and financial literacy are personal issues for Duckett, who often talks about how her father, a warehouse worker, missed out on years of retirement benefits. As president and CEO of TIAA, the $1.2T asset manager, Duckett is striving to shore up the retirement security of educators, healthcare workers, and other TIAA clients, and head off a national retirement crisis.
Tech Trader:
-Earnings reports have disproved the idea that cloud-based software companies have a magical power that makes them immune to recession. The trouble started two weeks ago, when both Microsoft and Amazon.com posted results for their cloud businesses—Azure and Amazon Web Services—that showed signs of a spending slowdown. Both Microsoft and Amazon noted that their customers were looking for ways to tighten spending. To be clear, the future of cloud computing is bullish. But there is also the risk that one or more of the cloud giants could miss expectations in the near term and trigger a market freakout—and that’s exactly what happened. This past week, Twilio and Atlassian—two once red-hot providers of cloud-based software tools—both issued ugly forecasts for the coming months.
The Trader:
-Markets like certainty. But that’s not what’s likely to happen after Election Day. History and polling both suggest that the most likely outcome will be a Republican win in the House and possibly in the Senate, leaving a divided government. The general rule of thumb, as far as the market is concerned, is that gridlock is good. It means fewer policy changes and less risk to individual sectors such as healthcare or energy from one party’s political priorities. Major tax code changes are also unlikely.
-Peloton Interactive lost less money, improved its free cash flow, and delivered more than expected connected fitness subscribers in the latest quarter—and its stock was rewarded for it. The big winner, however, might be Planet Fitness. Peloton’s loss is Planet Fitness’s gain. Konik notes that Planet Fitness has a large and growing presence—at the end of June it had 2,324 owned and franchised locations globally and aims to have 4,000 in the US alone—while gym membership demand should continue to improve.
Features:
Elon Musk is the center of his business universe, one that includes the huge and hugely successful companies Tesla and SpaceX. But for all the attention that Musk gets, he doesn’t do it all alone. The best known of his lieutenants is SpaceX president Gwynne Shotwell, who speaks publicly more often than Tesla’s top executives. But there are many others who can step up as Twitter demands more of Musk’s time. If anything, Musk might not get the credit he deserves for attracting top talent and building high-functioning teams.
-Twitter is now filled with tweets from the company’s laid off staff. Twitter employees waited for an email saying whether Elon Musk was laying them off. Reports through the week said Twitter’s new owner planned to cut half the social platform’s staff. As Friday progressed, no statement on the layoffs was issued from the company. But this is Twitter, and dozens of postings quickly appeared from people who said they’d been laid off. There were sympathetic replies, but the postings also drew jeers saying the layoffs were payback for Twitter’s purported censorship.
European Trader:
-Britain’s companies haven’t been in nearly as much disarray as its politicians this year. Pearson and BAE Systems —the two best-performers in the blue-chip FTSE 100 index since Jan. 1—are up more than 40% in local currency terms. he companies have done well in a challenging environment. Not only have financial markets been rocky, but firms have also had to cope with the fastest inflation in 40 years, rapidly rising interest rates, a depreciating pound, and the threat of an energy crisis after Russia cut off gas supplies to Europe.
Emerging Markets:
-Investors rarely applaud leftist victories in emerging markets elections. They’ve made an exception for Luiz Inácio Lula da Silva’s comeback in Brazil. That may not last. Brazil’s economy has defied gravity in 2022, growing 3% even as the central bank yanked rates to nearly 14% to quell inflation. Thank rising commodity earnings and expensive government cash transfers. The trick may run out of rope next year, especially if Lula’s spending ambitions push the central bank to stay higher for longer. “The inflection point on rates should come toward the end of the first half of 2023,” says Eduardo Figueiredo, head of Brazilian equities at asset manager abrdn. “But a lot depends on clarity around the fiscal framework.”
Commodities:
-Even if Europe has avoided the worst of the crisis this winter, 2023 is shaping up to be precarious, too—and some factors that helped Europe escape calamity this year are likely to go away. The International Energy Agency, a multinational organization based in Paris, published a report on Thursday explaining why Europe could have an even harder time preparing for the winter of 2023-2024. On the supply side, Europe’s woes are likely to translate into higher profits for several energy firms. Natural gas has historically been a seasonal business, with demand spiking in the winter because it’s used for heating. But the need for more gas in storage means that demand is likely to stay high all year round. Exxon Mobil CEO Darren Woods said on the company’s third-quarter-earnings call that he expects natural-gas demand to stay strong year-round for at least the next few years. Exxon and Chevron, among others, have profited from soaring gas demand this year. Higher demand for gas exports will also help companies that process and ship LNG around the world, such as Cheniere Energy and Golar LNG.
Streetwise:
-In this week’s Streetwise podcast, jack Hough says that Elon Musk overpaid for Twitter. What Comes Next? Scott Galloway and an ARKK Invest Futurist weigh in on America’s new favorite wedge issue: Elon Musk.