Meta on the Move After a Day That Hit Tech Stocks Hard, and Cracks in the Luxury Consumer 10/25/23

0:01Live from the Nasdaq market site in the heart of New York City's Times Square this is fast Here's what's on tap tonight. Meta's moment, the stock popping as Facebook's earnings beat and revenue jumps more than 20%. We'll go inside all the numbers and get the details from the conference call straight ahead. Plus, fintech fade, a French payment giant, falling over 50 % on a serious slowdown in Europe. The crushing loss sending shockwaves across major U.S. players like PayPal and Square. We'll get the very latest coming up. And later, Texas Instruments, really bad day after. The options action on Amazon ahead of results tomorrow and talking the tape on Target.

0:35The stock closing higher for a change. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Carter Worth, Dan Nathan, and Guy Adami. We start off with a mega pop for Meta. Shares of the social media giant now up 2.5 % just about after posting a top and bottom line beat. The company is seeing a return to ad revenue growth after a dismal 2022. CNBC's Julia Borson has all the details now. Julia. Well, Melissa, Meta beat expectations on the top and bottom lines, reporting its fastest revenue growth in two years, 23 percent revenue growth in the third quarter.

1:07That's ahead of the 21 percent that analysts expected. Now, for the fourth quarter, Meta provided a revenue guidance range with a midpoint just a hair below analysts' consensus. And in Meta's year of efficiency, the company brought down its expense outlook for the year, down to between$87 and$89 billion from a prior forecast of$88 to$91 billion. And it forecasts its 2024 expenses for the first time, giving a range between$94 and$99 billion. Now, for context, analysts had been looking for expenses to come in at$100 billion or below, so they met that. Now, the company did flag growing expenses in its Reality Labs division and also warned, quote, we continue to monitor the active regulatory landscape, including the increasing legal and regulatory headwinds in the EU and the U.S.

1:54that could significantly impact our business and our financial results. Melissa, the call is starting right now. I'm going to jump on. We'll be back if there are any more big breaking news headlines. All right, Julia, thank you. Julia Vorston. So it is still the year of efficiency. I think that was a big outstanding question for a lot of investors. Plus, the ad growth is there. It is continuing, just like what we saw from yesterday's report from Alphabet. Guy. I understand the fourth quarter guidance was, okay, in line, maybe slightly. Okay, let's back that out for a second. But ARPU for Facebook,$11.

2:25What is our boost down for? I was about to ask you. That would be average revenue per user. Thank you, Tim. We could preschool that or we could just keep moving. $11.23. Street was looking for$11.05. Better. $9.31 this time a year ago. Margins, much better. 40.3%, 20 % a year ago. These are great numbers. I'm surprised the stock hasn't gotten back at least today's losses. This stock should be higher than yesterday's close, given this quarter, I think. So it'll be interesting to see what happens over the next couple hours. We did go in down 4 % on the day. Well, that's just it. So haven't even recouped.

2:57And so are they good numbers? It always gets found. There's no such actually thing as good or bad earnings. All there is are earnings, and it's how the market reacts. So if the market is up a little bit, it's not really good numbers. It's great to have Carter here on a big earnings date. I don't think anyone else here would have said that, by the way. It's awesome. I mean, that's just the issue. Why isn't it if it was good? Right. We should be up. Netflix really went up, right, when it was. That's true. This is feeble. It's not even recouping today's losses. Feeble? Well, no, I'm not going to he's not saying feeble.

3:27I'm not going to say feeble. I'm going to say, boy, we've we've combined the year of efficiency with the year of the best growth since 21, 23 percent. But also the dominance in the ad spend. And look, maybe real material signs of A.I. growth. I mean, they talked about ad targeting and they talked about dynamics that are very much A.I. related. And when we started evaluating who was best positioned for AI a few months ago when we started to go down this road, I think a lot of people felt like it was Microsoft and Facebook. So Reels and Instagram continuing to grow. And obviously their audience and the size of the platform amazingly continues to grow.

4:06Question is, where do you go with the stock from here? Because relative to, you know, it's up 160 percent this year. It's been struggling over the last three months. unlike Google, which I think really rallied straight into their numbers. And I think that's really the difference in performance. But hard to argue here. Headcount down 24 percent. The low hanging fruit on expenses is done, though. And that's the real challenge. Yeah, I agree with that. And that relatively labs business is going to be really important. That was one of the things I think caused a lot of concern in late 2021. All this metaverse sort of spending here.

4:35So Julia just mentioned they have, you know, total expenses below 100 billion dollars, which is what investors wanted. Right. But, you know, R &D is going to continue to be high. And again, if like what we saw last night or what we saw today, if that Google Alphabet can lose$150 billion in market cap because they miss a couple expectations as it relates to their cloud business because uptake of the AI product is not as great as it was at Microsoft that gained, you know,$100 billion in market cap or whatever. This is probably not good enough, in my opinion. So to Carter's point is that you need a beaten raise.

5:08This stock has been consolidating over the last three months. It trades at a valuation that has a lot of support. We know that they've been cutting costs, like all of this stuff. So the market reaction, again, we're an hour after the reported earnings. The only thing I'll just say this, if you want to broaden it out a little bit, you know, I'm looking at a sea of red in the NASDAQ, which closed down nearly 2.5 % in the day. The S &P closed 1.5 % in the day. You know, Microsoft makes up 7 % of the S &P. It makes up 10 % of the NASDAQ 100. And we still have that devastation across the board. And I know we're going to talk about, like, semis and Texas Instruments a little bit.

5:39I didn't think there was anything that horrible. I mean, other than I didn't think even Alphabet was that horrible. So why is the NASDAQ down 2.5 %? Because, you know, I know we're going to talk markets. But, I mean, rates closed at their high. We had a closing high this cycle on the 10-year, 495. The auction was terrible. JGB, bad auction, all the things that are hurting equities, and even the mega cap stocks, which are less long-duration stocks than other high-tech stocks. So is that why the reaction is feeble? or are the earnings feeble and deserve that commensurate reaction? Probably a little bit of both.

6:10But, I mean, at the end of the day, there are a lot of people whose economic livelihoods, their lives depend on getting this one stock right. They're an analyst paid to know this or it's a person with its biggest position or an insider. And the reaction is feeble. I think it's more about the truth is it's not that good a number. I think the reaction, I think the quarter is very good. I think given the fact that the stock has sold off 10 percent-ish over the last couple weeks, the reaction is feeble. The stock, and I'm curious what Gene thinks, but the stock should be higher based on what I'm looking at right now, unless I'm missing something, which has happened before.

6:42Occasionally, not too often. You're pretty sharp, buddy. Thank you. But I think the comps here are also important. Think about up 23 % year over year. What was last year at this time? One of the worst. One of the worst years in their history. All right. And so we had a dynamic where also ad revenue was under a lot of pressure. It's nice to see ad revenue come back. We heard that from Google. The growthier parts of the business are the ones that I think we have to be careful about. So it really is about the year of efficiency that might also be largely done. I'm on Facebook. I'm not looking for reasons to to push it down.

7:11But I agree. It's not an extraordinary number. Another reason why the conference call feels particularly important in terms of the commentary and how they talk about expenses. Mark Zuckerberg did an interview with The Verge last month and said we are squarely back to developing innovative products. And when I hear that from Mark Zuckerberg, I think spending money. is that your efficiency still intact well they gave their 94th spend right and and they i think they're they're basically up nine percent or something like that is that good is that bad news uh let's listen here's a company though that is competing on every front with some of the biggest companies in tech when you think about you know oculus and all the energy that they put into this platform which is basically this metaverse platform which is again the stock sold up 75 since they changed the name and changed the focus of the company and a lot of people and i I know Gene is one of them, are really excited about Vision Pro and the applications that can be used for both enterprise and consumer.

8:06And that's a ways out. And so you think about that. You think about where they are in some of their social platforms. I mean, I don't know about you guys. I was kind of excited about Threads at one point. And, you know, three or four months out, it just doesn't. They're not delivering on the product front. You would think that every week they would have another tweak, another, you know what I mean, like sort of addition to that thing to keep people engaged. And they're not doing that. So to me, and then the last thing I'll just say about the ad spend, I mean, you know, what did Snap say to us last night?

8:33And I get it. Their revenue is like a rounding error for Facebook. But they said that they're seeing a little bit of hesitation as it relates to the situation in the Middle East. And that probably only gets worse. And then just throw on what we're seeing. I'll just say the Russell 2000 acts like you know what, okay? And when you think about where a lot of those advertisers are coming from, they're small and medium-sized businesses. So to me, I think that probably doesn't portend well for ad revenue in the near term. So what's interesting is that Microsoft and Meta are pretty much similar in valuation at this point.

9:04So given that we've seen the quarters, which one do you like better? Which one would you rather have from this point on? Facebook, I think, to be honest with you. I think Facebook. No, I mean, I get Microsoft. I understand the excitement around it. I think Facebook is a little more reasonable valuation. And I actually think this quarter was OK. I'm interested to hear what Gene says again. By the way, the Meta CEO is saying on the conference call they will continue deprioritizing a number of non-AI projects, shift personnel toward working on AI. So they're further jumping on that bandwagon. So I think that was a would you rather.

9:38You just dressed up differently, but I'm listening to you, and I'm going to respond to the game. It's Microsoft, I think. And I have trouble saying that. I'm really not long Microsoft. I believe they have more leverage to pull. I believe the strengths that they showed were the ones that the market wanted to see, and at least is rewarding here. And I think there are multiple divisions in Microsoft where they're showing that they've got the pricing power and they're going to be able to push people around. But I don't think you have to love any of them here. And I think, you know, I've got company here.

10:07Yeah, you don't have to. I mean, really think about Meta. Meta is the exact same price it was two years ago. Literally two years ago in the last weeks in October. So here's a stock that goes from 315, drops to 88, loses 70 % of its value. Now it's back to where it was two years ago. Why do it? How about the truth? Would you rather have cash? I'd rather have cash than Google. Then I, then I, then. Sure. Then Google. Or Microsoft. Or Microsoft. How about between now and tomorrow? Or Meta. Or how about now and next Friday? Or now to the end of the year? I mean, you've got to pick your time frame, but I would say.

10:35He's playing. I was going to say. He just did a would you rather, rather. I make an exception for Carter Brax. Yeah, of course you do. Let's get some instant analysis from our friend, fast money friend, Gene Munster. He's the managing partner at Deepwater Asset Management. Gene, great to have you with us. As was pointed out by the desk, you know, the reaction is not that great considering we went in with a decline of 4 percent. So what do you make of the of the earnings and the guidance? Because if it were really that good, shouldn't we at least make up the losses from today's session? We should, Melissa.

11:07And I think that eventually investors will give them credit. This was a solid quarter. I want to put a couple points into perspective is that DAUs, the daily active users, grew 5.4 percent. That's the fourth consecutive quarter of acceleration, albeit it goes from 3.5 % to 4%, 4.5%, 5%. But accelerating, that's a 2 billion number, daily active users. That means that one out of every four people in the world visit a Meta property daily. And Zuckerberg kicked off the call. The first data point that he gave was that the number of people that visit an app monthly was 3.9 billion. My last check, there's about 7.5 billion people in the world.

11:45That means that more than half the people in the world, that's the I think one of the most important overlook points to this quarter is that means that the machine, this addictive machine that they have is intact. And as the second piece related to just the health of the ad business, that they slightly exceeded the numbers. They raised revenue by my math by about three percent for the December quarter and kept expenses unchanged, which gets to the third point, which is margins. Margins are 40 % operating margins. That's the best since June of 2021. And if you're curious, the operating margin for full year 2019 pre-pandemic, before they got that big boost in 21, was 33%.

12:28So they're measurably higher. The question comes up, why own Meta? Deepwater, we do own Meta. The reason to own it is they have a lock in terms of reach that no other advertiser can get. We talked about how many people use it. And separately, they're doing it in a more profitable way than they did three years ago. And I think that is those are positives that I think you put the final filter on top of this, which is valuation. I think it lines up attractive. Everything wasn't perfect. We can talk about Reality Labs. That's still a sore point for me. But that's how I see the quarter in aggregate.

13:01So to oversimplify oversimplify what you just said, Gene, is it about growth or is it about efficiency? Why does someone own the stock? You want it for growth. And ultimately, the efficiency piece is going to top out. I think that margins are going to go from 40 % in September to probably 42%. But eventually, they're just going to kind of keep the margins at that level. It has to come to growth. Where are you going to get the growth from? I do believe that AI is going to make some of these content tools more easy to build content. I believe in the creator economy. Instagram is one manifestation of that, a big beneficiary of that.

13:35And separately, I think that this placeholder that they have related to the metaverse or spatial computing, I wish they wouldn't spend$15 billion. That is absolutely absurd that they're spending that kind of money on it. But Tim, to answer your question, it's about growth. But Melissa, if I can get 10 more seconds, I'd love just to give you my thoughts on Real Adolab because that is, I think, the one negative here. Sure. All right. I'm going to go fast here. As I mentioned, they've increased spending. It's going to be$15 billion kind of a spend annually on that. Annually, Apple spends$30 billion in total on their R &D.

14:11I mean, this just doesn't make sense. I think there's a place for the metaverse. I think spatial computing with Apple is going to be a hit. But that number should be more like$5 billion a year, not$15 billion. Hey, Gene. So, you know, we hear a lot about BARD. We hear a lot about chat GPT-4. Talk to us a little bit about Llama. And so when you look at a company like Meta, which valued not really anywhere near what Microsoft is, Mel just played the would you rather on some of us here. But this is stock expected to grow earnings next year, 20 percent plus sales growth of double digits, maybe 12 percent or something like that.

14:43You just talked about the operating margins of what's built in for their open source, large language model, Lama, which I think you believe that they're going to be able to integrate across a lot of these platforms that reaches nearly four billion people. What at least once a month? Yeah, it's kind of the substance. It's the fabric that they're going to build products on. Just a few minutes I was on with the call. Zuckerberg, his first comments were about reality labs, and his second comment was about AI and getting those into all the products. They need Llama to do that. they're not going to, based on what they've told us so far, they're not going to charge, they're not going to have an outright business around Llama.

15:19And so it's not going to be a direct revenue contributor. But your point is that that kind of generative AI that can be powered by Llama is going to make creating content more effective. And I think they can use less on the generative side, but I think they can use AI to build better advertising tools. Remember, Apple ripped the ball out of Meta's hands when they had those changes to privacy. It was the right thing for Apple to do. It left Meta in a very tough spot. That created a headwind a couple years ago, and they can dig their way out of that by using AI to do better ad attribution, and that's part of the whole Lama story.

15:53All right, Gene, we'll check back with you on Meta a little bit later on after the conference call proceeds. Guy, what do you want to know about the, you know, what would you ask on the call? Reality Labs is a disaster. I mean, at a point now where it has to be addressed. I mean, they had$210, I think, million dollars of revenue, right? And they lost close to$4 billion operating income. It's just an unmitigated disaster. At some point, either you have to have a direction for this, have to have a vision, or you have to cut bait. And I think maybe that's what's holding the stock back a little bit.

16:22All right, let's get to the overall markets here. Sinking during the regular trading session, dragged down by big tech. The Nasdaq dropping more than 300 points for its worst percent drop since February. The S &P finishing below its 200-day moving average for the third time in four sessions. Both indices posting their lowest closes since May. The drop in Alphabet responsible for a lot of the loss is Google's parent company falling 9.5%, its biggest drop since March of 2020. Apple, NVIDIA, Apple all coming along for the ride. So does this action mean the market's been broken here? Carter, do we do damage?

16:56For sure. And I think if you think about it, we're down still only about 9%, 10 % from the July peak. That's nothing. I mean, that's a sell-off. It's a decline. It's a drop. It's a drawdown. It's a correction. You choose the word. But it's nothing really cathartic. And so what if we get a Google-type thing out of Apple? And what if the really compromised stocks in the Russell 2000 break to yet new lows? And I think one has to assume that. And so the question is, and this is important, at some points there's nothing to be lost by postponing all new buying. You just don't have to do it. If you are mandated and you're being paid to run it.

17:30Well, you're paid to have cash. Right, exactly. But individuals are not. An individual can make the decision, I just don't want to do this right now. meaning I can hold back and wait and maybe get a more fortuitous price or level. Because we have the chart master here, let me ask you about the breakdown, though, in the high multiple tech stocks. So these stocks that had outperformed everything because they were the most oversold had big, big years coming into this. Some of them look like they're about to test new lows, so fresh lows for this cycle. And the fact that the velocity of these moves lower in these names is more excessive than even mega cap tech.

18:04These led the market lower, believe it or not. They actually led the mega cap tech stocks lower back. And I'm talking 22. What does that mean to you? It just means that it's gaining. It's gaining. Talk about breath. The breath is now going the other way, right? It's getting ferocity. People are trying to back away from the asset class of equities. And if you think about it, the things that were the most stretched weren't necessarily expensive. Homebuilders were cheap at the top, but they're cheaper now. The point is the things that were really stretched are the things that got hurt first. Think about the big staple stocks, right, that were maybe expensive, maybe not.

18:35But now you've always had bifurcation, strong housing staples while you've got the small cap making 52-week lows. The bifurcation is always resolved by the strong ones succumbing, Estee Lauder's and Hermès's, while the weak ones get weaker. It's usually finished when everything has had its haircut. Tim mentioned yields. I'll go to Japan for a second, if I may. Dollar-yen closing above 150, 150 and a quarter, big deal. Ten-year yields in Japan, 86 basis points. I haven't seen that in a while. That's why our yields will continue to go higher. Yields don't want to stay down. I mean, they had an opportunity over the last couple of days closing high here, 495.

19:13I mean, it feels like yields continue to move higher from here. And I'll just say this, you know, talking about like what led this latest, you know, I guess, sell off over the last couple of months or so. Yes, it was Microsoft and Apple at one point. We're down 15 percent. And it feels like, you know, at least Apple is right back in that. But this felt a lot like 2021. Like we had a bifurcation like you're talking about. I mean, we've seen, you know, tons of different sectors that are in correction mode. We've seen some of the worst valuation stuff, the stuff that doesn't make money, the stuff that was the craziest at the heights in early 2020.

19:45They've been correcting. They've been in bear markets. And so to me, like the equity market didn't feel great. And it doesn't feel great now with a 10-year at$4.95. You know, at 4%, for whatever reason, like two months ago, people were like, well, you know, yields can go up and stocks can go up. And I think at 5%, they're showing us that they can't. And I also think that all the headwinds that we have about the economy, we haven't even talked about the economy yet. If we're looking through the lens of earnings season, it doesn't feel great. It doesn't feel like the consumer is great. When I hear Visa say, oh, travel is great.

20:15What are you talking about? We are like about to be. This is what they see. They see it right here and right now. And they, you know, I don't know. But, you know, what did I say to you last night about what Brian Moynihan said about the consumer for the first time in two years? He's kind of saying that maybe the consumer is not so strong. So I don't know, man. Like, I don't know. Man? I don't know. I'm not buying it. Yeah, it was almost a have at it. I'm not buying it. All right, coming up. We've got more after-hours action. Shares of IBM and Whirlpool on the move after reporting results. The numbers out of the quarters next.

20:44Plus, the auto trade hitting the skids. GM and Ford hitting multi-year lows. And even shares of Chipmaker Texas Instruments have had their hazard lights on. The details on that when Fast Money returns.

21:03Welcome back to Fast Money. Let's get to some more earnings movers, starting with IBM. The stock is higher after reporting a beat on top and bottom lines. That conference call got underway at the top of the hour. Christina Parsonevelis, the details. Christina. A beat even with a strong U.S. dollar. It took less than two minutes for IBM's CEO to bring up the opportunities in what? Generative AI. And there are over 20 ,000 AI consultants. He believes generative AI will consist of multi-models, so it'll be IBM's AI platform like WatsonX, along with other companies, models, and OpenAI. So it's a hybrid AI approach similar to the hybrid approach to the cloud right now.

21:35But 75 % of IBM's revenue comes from consulting and software. IBM's CFO said they saw one of the strongest bookings quarters, but consulting fell light of estimates. I asked him specifically about this. He blamed the strong dollar. Software grew 6 % on a constant currency basis. Jim Cavanaugh, again, the CEO, said they are seeing, quote, nice green shoots of AI leading to a couple of hundred million dollars in the quarter. The company reiterated it would grow about 3 % to 5 % this year, and they reiterated their free cash flow of$10.5 billion. I also grilled him on that. I asked him how they're going to hit$5.4 billion in Q4 one quarter when the combined three quarters of this year was$5.1.