Metaaaarghhhh
The artist formerly known as Facebook faceplants.
At pixel time, the shares of Meta Platforms — aka Facebook and its family of surveillance capitalism apps — are down 24 per cent on the day following what can only be described as a disastrous fourth-quarter earnings.
If you don’t know what happened (which if you’re reading this blog, we find unlikely) slowing user and revenue growth due, in part, to Apple’s new privacy policy and competition from TikTok has caused investors to get the heebie jeebies. Further worries about its capital intensive crusade into the “Metaverse” — for all intents and purposes, an attempt to rebrand VR — haven’t helped matters much either.
But what we’re focused on here is that market capitalisation drop.
$216bn smackeroos.
We believe it’s the single largest market capitalisation drop from one company in history. (Market data experts feel free to prove us wrong.)
If you can’t quite compute that figure, some context. That’s a fall of two IBMs, two General Electrics, just over one McDonald's, close to one Netflix and nearly three General Motors.
So who is holding the bag?
Although the natural assumption would be that Meta would be popular with growth funds, the artist formerly known as Facebook has actually become been a popular pick with value managers over the past year due to its apparently cheap valuation (23 times forward earnings before last night’s results), double digit revenue growth and a history of high returns on capital.
According to DataRoma, a site that collates the investment positions of storied fund managers from the latest official filings, these are the masters of the universe with Meta as a core position in their portfolios:
Among the names there you might spot John Armitage of Egerton, Seth Klarman of Baupost, Terry Smith of Fundsmith, David Tepper of Appaloosa and Stephen Mandel of Lonepine. All legends in the investment community.
Much has been made in the press recently of inexperienced retail investors crowding into stocks, which then proceed to crash. It seems, however, they weren’t the only ones exhibiting Lemming-like behaviour.
Why Celebrities Are Buying Their Brands Back
Jessica Simpson, Sean Combs and other early-aughts superstars turned moguls are itching for a comeback. But much has changed about the celebrity fashion business.
In the early aughts, Sean Combs, then known as P. Diddy, was a force in fashion.
His Sean John label, which he founded in 1998, amassed a huge following, pulling in $200 million in sales after just three years, and eventually became a best-selling department store brand. He also secured industry approval, winning the Council of Fashion Designers of America’s Menswear Designer of the Year award in 2004.
Two decades later, Combs wants to bring it all back.
In December, Combs bought his clothing line for $7.5 million from the North American arm of branding management company Global Brands Group, which had bought a majority stake in his company in 2016. At the time, Combs’ label had annual sales of $450 million, but its new owner was overly reliant on fading department stores to drive sales. It filed for bankruptcy protection last July.
Fellow early-aughts star Jessica Simpson is also hoping for a fashion comeback. In November, Simpson, who had owned a third of her brand, bought the rest for $65 million from majority owner Sequential Brands Group. Sequential acquired Jessica Simpson’s brand from majority owner Vince Camuto in 2015, when it was doing $1 billion in annual sales. It too struggled to grow its high-profile new asset while juggling a heavy debt load, and filed for Chapter 11 in August.
There’s a case to be made that this is an opportune time for both to make a comeback. The early aughts are in vogue, with stars like Paris Hilton and Britney Spears launching new projects and dominating headlines again. Today’s shoppers are hungry for Y2K-inspired styles, like Combs’ signature tracksuits.
But both stars will also find the market for celebrity brands has changed. Department stores and wide-ranging licensing deals are out of favour. Name recognition isn’t the asset it once was, either. Even today’s A-listers are at the mercy of the Instagram algorithm. Simpson and Combs did not respond to BoF’s request for comment.
“Celebrities really need to figure out now what sets them apart,” said Elaine Lui, the Canadian television personality behind the celebrity blog Lainey Gossip. “Any influencer today can get up to one million followers and then release a capsule collection at Nordstrom, which is the same for shoppers as a Jessica Simpson shoe.”
Changes in the Business Model
Celebrities used to rely on department stores and other national chains to put their products in front of the maximum number of potential customers. Both the Sean John and Jessica Simpson labels at their peak were sold in hundreds of stores, including Dillard’s, Belk, Lord & Taylor, Macy’s, and Bed Bath & Beyond.
These days, stars often find success selling directly to consumers, a model that gives them the ability to control everything from distribution to pricing, said Matthew Katz, managing partner at global advising firm SSA & Company. Examples include Kim Kardashian West’s Skims line of shapewear, which built its business online before moving into retailers such as Nordstrom and Selfridges, and Rihanna’s Savage X Fenty lingerie line, which has only recently begun opening stores in major cities like Houston and Los Angeles.
Celebrity fashion lines also used to be built around countless licensing deals that extend their brand name. By 2016, Sean John was licensed in almost 20 categories, including ties, fragrance, footwear, watches, and kidswear. Jessica Simpson similarly has about 30 licensing agreements for clothing, accessories, and home goods. Licensing is a quick and easy way to enter the market, but can dilute the brand if a famous name is slapped onto inferior products.
Today, celebrities tend to be more selective.
“Celebrities still rely on partners to design and release, but they are no longer giving their name to just any [company] to develop their product,” said Katz.
Licensing is still important for fashion, but these days, stars negotiate deals that have “a short term, a narrow territory, a limited usage right, approvals,” said Jamie Slade, a partner at entertainment law firm Granderson Des Rocher, who works on celebrity branding deals.
“These are all ways to retain control of the outcome of your business, which is so important especially when your business is quite literally your identity,” Slade said.
How Celebrities Can Compete
To mount a comeback, both Combs and Simpson will have to contend with countless influencer labels, plus clothing and beauty lines from a new generation of singers, actors and reality stars.
“It’s hard to capture people’s attention,” said Teri Agins, a former fashion reporter for the Wall Street Journal and author of “Hijacking the Runway,” a book about the intersection of celebrity and fashion. “There is also no brand loyalty. Jessica Simpson was known for her shoes and once people bought them, they’d buy something else from her. But people don’t shop like that anymore. There’s too much product.”
Agins said both will need to find their way back into the spotlight.
For Simpson, Lui believes shoppers will still feel a sense of allegiance to her, as long as she continues to keep her focus on Middle America, where she’s always found an audience.
“Some celebrity brands aim for luxury, and have an elevated tone, but she never pretended that was her,” said Lui. “She’ll have success tapping into that.”
Agins believes Combs could return to Sean John with a renewed vigour, after watching fellow rapper Kayne West (now known as Ye) dominate the conversation.
“People talk about Kanye, but Puffy was the trailblazer,” said Agins. “This is a guy who knows how to market products.”
Ralph Lauren, Reset and Ready to Go with $217.7 M Profit
The company has been working to transform its business and now has big third-quarter profit to show for the effort.
Ralph Lauren Corp.’s net income bounced back 82 percent to $217.7 million, or $2.93 a diluted share, from $119.8 million, or $1.61, a year ago, when the pandemic was hitting the consumer world hard. Adjusted earnings of $2.94 came in well ahead of the $2.17 analysts projected.
Revenues for three months ended Dec. 25 increased 26.7 percent to $1.8 billion from $1.4 billion.
Lauren boosted its annual revenues outlook to constant currency growth of 39 percent to 41 percent, up from the 34 percent to 36 percent growth projected in November.
Investors applauded the bullishness, pushing shares of the company up 9 percent to $123.85 in premarket trading on Thursday.
Patrice Louvet, president and chief executive officer, said: “Our better-than-expected results across all three regions are a testament to the outstanding work our teams have done to fundamentally reposition our business, elevate our brand and pivot to offense – including in North America, where our turnaround is well underway. With our significant reset work behind us, we are encouraged that our long-term growth is supported by multiple engines – from geographic and channel expansion to recruiting new high-value consumers and developing high-potential product categories.”
The brand has been raising prices and its branded lifestyle positioning for years and has fast forwarded its transformation during the pandemic, tightening operations, doubling down on digital and selectively opening new stores.
Now, even as the pandemic lingers, it is moving on into the future of retail more than getting ready for it.
“What we do has always been about living — enjoying every moment from what you wear, to the way you live, to the way you love,” said Ralph Lauren, executive chairman and chief creative officer. “And as we enter a new year, filled with hope of more connection and healing as humans and for our planet, I am inspired by how our teams and people around the world are connecting to what we are about — timelessness and an authentic life well-lived.”
Turkish inflation at highest level of Erdogan era
Global price pressures combined with the president’s unorthodox economic management fuel a surge in prices.
Official inflation in Turkey has reached the highest level since Recep Tayyip Erdogan’s ruling party came to power almost two decades ago, as global inflationary pressures combined with the president’s unorthodox economic management fuel a surge in prices.
The country’s consumer price index rose 48.7 per cent year on year in January, the Turkish Statistical Institute said, up from 36 per cent in December.
The figure, announced just days after Erdogan sacked the statistics agency’s head, was in line with the expectation of economists, according to a survey by Bloomberg — although opposition parties and some economists claimed it was far lower than the country’s true inflation rate.
The reading was driven by sharp rises in the cost of food, electricity and gas, and represents the highest official rate that Turkey has experienced since April 2002.
Erdogan, who was widely credited during his first decade in power with ushering in economic prosperity, has presided over repeated bouts of high inflation in recent years as he has consolidated his powers and meddled in monetary policy.
The Turkish president, an ideological opponent of high interest rates, ordered the central bank to cut borrowing costs four times in a row last year, bringing the policy rate to 14 per cent despite warnings that it would exacerbate the country’s already high inflation.
Erdogan has long argued, contrary to established economic orthodoxy, that lowering rates helps to stabilise prices. But economists say that the plunge in the lira that often accompanies the rate cuts quickly feeds through into rising prices in a country that is heavily reliant on important energy and goods. The Turkish currency lost 44 per cent of its value against the dollar in 2021.
Turkey’s recent rate-cutting drive also puts it at odds with global central banks that are tightening policy in a bid to cool the highest rate of inflation in decades.
Polls suggest that support for Erdogan’s AKP is close to historic lows amid public discontent about the soaring cost of living.
Still, Turkey’s finance minister, Nureddin Nebati, said prior to Thursday’s announcement that there would be “no turning back” from the policy of having interest rates that are far below inflation. “We have no rate hike in our agenda,” he told Nikkei Asia.
Nebati said that he expected inflation to peak at a level below 50 per cent in April.
Goldman Sachs, the US investment bank, predicted that inflation would rise to around 56 per cent in May and remain close to that level for much of the year. “With real rates deeply in the negative territory, we also think that the policy stance adds to the inflationary risks,” it said.
BT Sport/Discovery: a joint venture is more home draw than away win
Negotiations on the proposed deal may yet fail but it would have commercial logic
BT’s proposed joint venture delivers a partial exit from the pricey game of sports broadcasting. Retaining full ownership of the cash-guzzling business — at a time of hefty investment in broadband — was never an option. This is a halfway house signposting eventual full disposal: a 50/50 venture with Discovery, the US media group with which BT is now in exclusive talks.
A clean break would have been better. A sale would have removed uncertainty and pulled in maybe £600mn. But BT failed to agree terms with DAZN, the sports streaming company owned by billionaire Sir Leonard Blavatnik.
Launched in 2013, BT Sport was a vanity project championed by football-loving former boss Gavin Patterson. It bled money in the early years at an annual rate of about £400mn. Broadcasting rights for football and rugby games do not come cheap: three years’ worth for the Premier Leagues alone came to £885mn. The unit now breaks even, with revenues of about £1bn covering a similar magnitude of costs.
Bundling content with airtime is passe and sporting rights no longer dazzle BT investors. The group has emerged from a bruising period to become a stolid infrastructure play via broadband network subsidiary Openreach. It now needs to focus on efficiency, not least because French telecoms tycoon Patrick Drahi has bought an 18 per cent stake. Capital expenditure will rise from 13 per cent of sales in 2012 to about 23 per cent this year.
Investors, deprived of the windfall from a sale, should bear in mind that the game is not yet over. Terms of the proposed alliance with Discovery-owned Eurosport UK must still be hashed out. Some of the thorny issues that scuttled sale talks, such as revenue guarantees, still apply with joint ventures.
Negotiations may yet fail. But it would have commercial logic: a bigger range of sports coverage would boost the JV’s market share as it battled with UK rivals Sky and Virgin. That is a better bet than glomming football rights on to a legacy utility in hopes it will resemble a cool streaming business.
Facebook Feels $10 Billion Sting From Apple’s Privacy Push
Meta COO Sheryl Sandberg says adjusting to the iPhone maker’s app-tracking changes will take time
Facebook’s parent company served up the starkest sign yet of how Apple Inc.’s AAPL -0.99% new ad-privacy policy is roiling the digital-advertising world.
Discussing Meta Platforms Inc.’s FB -25.41% quarterly earnings and its outlook for the current year that shocked investors, Chief Financial Officer Dave Wehner on Wednesday said the company expects the Apple policy to cost it more than $10 billion in lost sales for 2022. That is equivalent to about 8% of its total revenue last year.
“It’s a pretty significant headwind,” Mr. Wehner said on a call with analysts.
Apple introduced the changes last April, altering its iPhone software to require apps to ask users whether they want to be tracked. The move seriously limited the ability to gather data through apps that is used to target digital ads and drove advertisers to alter spending patterns. Meta had said previously that the Apple move was hurting its ad business, but hadn’t given an estimate for how much.
Meta “was impacted significantly and it’s going to be a continuous problem,” Daniel Newman, a principal analyst at Futurum Research, said Wednesday.
The guidance was part of a quarterly report that raised multiple concerns for investors and sent Meta’s shares plunging more than 24% in early Thursday trading—the equivalent of a $215 billion-plus loss in market capitalization. Meta also reported losing about a million daily users globally in the last quarter, and its sales outlook for the current quarter fell short of Wall Street expectations. The company expects expenses to jump around $20 billion or more this year as it pursues Chief Executive Mark Zuckerberg’s bet on the metaverse, the online virtual world some see as the next evolution of the internet.
The gloomy outlook also tainted investor sentiment on other ad-focused companies. Snap Inc., which suffered a 20% share decline when it previously said it expected a revenue hit from the Apple move, declined after Meta’s report on Wednesday. Snap traded more than 18% lower early Thursday. It is expected to provide more insight on how its business has been affected when it reports quarterly results after the closing bell.
Booming digital ad spending has been a boon for Mr. Zuckerberg’s company. Facebook, as the company was known before its renaming last year to Meta, enjoyed years of strong revenue driven in significant part by its ability to track the behavior of users of apps and websites and enable advertisers to deliver highly targeted ads based on that information. The Apple policy change disrupted that ability, with a large majority of users, according to some measurements, opting not to be tracked. Meta says that policy has made ad targeting more difficult and measuring the impact of placements harder.
Apple’s move has had reach beyond social-media companies. Videogame company Zynga Inc., which specializes in smartphone games like Words With Friends and has its own advertising platform, suffered an earnings hit from the new Apple policy that led its shares to drop sharply last year. The company ended up selling itself to Take-Two Interactive Software Inc. for $11 billion last month.
While there clearly is an impact from Apple’s policy, Brian Wieser, GroupM’s president of business intelligence, said the impact on Meta might not be as great as the company’s executives have suggested. “I’m skeptical that it’s as bad as they’re conveying,” he said. The digital ad business remains healthy, he said, pointing to Google parent Alphabet Inc.’s strong earnings this week seemingly largely unaffected by the policy changes.
Twitter, in its most recent earnings report in October, said it expected to be largely unaffected by the Apple policy because it isn’t as reliant on targeted digital ads as some of its rivals.
Meta’s CFO, Mr. Wehner, said Apple’s policy treats Google differently, suggesting that the difference might reflect a longstanding business relationship between the two companies. “We believe Google’s search ad business could have benefited relative to services like ours that face a different set of restrictions from Apple and given that Apple continues to take billions of dollars a year from Google search ads, the incentive clearly sits for this policy discrepancy to continue.”
Google’s flagship search-ad business relies on search terms customers input to reveal what they are interested in, rather than on data collected from app and web tracking.
Apple didn’t immediately respond to a request for comment. Google declined to comment.
Google said its search and advertising revenue rose 36% and topped $43 billion in the most recent quarter, led by strength in retail-related ad spending, with YouTube advertising up 25% from the year-earlier period. The company didn’t address the Apple situation but previously said the changes to user tracking had a modest impact on YouTube revenue.
Sheryl Sandberg, Meta’s chief operating officer, said on Wednesday’s earnings call that the company was working on ways to measure the impact of the ads it sells and to find ways to show relevant ads without collecting personalized data. “That’s going to take us time.”
Gapping down
In reaction to earnings/guidance:
- FB -22%, LSPD -16.2%, CSII -12.9%, SPOT -9.9%, NTGR -9.2%, LITE -8.9%, ING -5.3%, TKR -4.9%, QRVO -4.6%, DGX -4.3%, LNC -4.1%, CTVA -3.8%, BIIB -3.8%, LAZ -3.7%, SU -3.5%, HON -3.2%, AVB -3%, ALGN -2.9%, NOK -2.8%, YELL -2.2%, ABB -2.2%, FTV -2%, PENN -1.8%, SITM -1.7%, AFL -1.6%, KLIC -1.6%, MET -1.5%, XYL -1.4%, BCE -1.4%, CTSH -1.1%, WMS -1.1%, OMF -1%, QCOM -1%, RDS.A -1%, APTV -1%, HOLX -0.8%, BERY -0.8%, OHI -0.7%, LLY -0.7%, CMI -0.6%
Other news:
- SLCA -4.1% (to increase prices on certain industrial and specialty products)
- CX -1.8% (co and Synhelion announce breakthrough in cement production with solar energy)
- AMC -1.6% (upsizes and prices private offering of $950 mln senior notes due 2029)
- NTLA -1.5% (announces the acquisition of Rewrite Therapeutics)
- AWK -1% (CEO retires)
- XL -1% (CFO resigns)
Analyst comments:
- ELMS -6.6% (downgraded to Hold from Buy at Jefferies)
- FSLR -4.4% (downgraded to Neutral from Buy at BofA Securities)
- PYPL -2.1% (downgraded to Hold from Buy at DZ Bank)
- VRTX -1.1% (downgraded to Sector Perform from Outperform at RBC Capital Mkts)
Gapping up
In reaction to earnings/guidance:
- RRR +8.4%, TMUS +7.7%, CCS +7.4%, CHNG +6%, WD +6%, AZEK +5.3%, VSTO +4.4%, EGHT +3.3%, WEC +2.9%, SKY +2.7%, PBH +2.7%, HBI +2.4%, ABMD +2.3%, MTG +2.2%, MCK +1.6%, MXL +1.6%, ICE +1.5%, BDX +1.3%, INGR +0.8%, PH +0.8%, CHKP +0.7%, NS +0.7%
Other news:
- FLEX +6.6% (to sell $500 mln of convertible preferred equity in Nextracker to TPG Rise Climate)
- SYRS +5.7% (FDA grants orphan drug designation for tamibarotene)
- ZEV +4.8% (reached an agreement with General Motors (GM) to be the first GM Specialty Vehicle Manufacturer to provide fully electric Class 3 through Class 6 commercial vehicles)
Analyst comments:
- CHRW +0.5% (upgraded to Buy from Hold at Stifel)