Tuesday's Headlines: Meta Gets Openly Criticized By Prominent Shareholder
Here were the biggest movers in the MyWallSt shortlist yesterday:
Moving Up ⬆️
Spotify (SPOT) +6.7%
Under Armour (UAA) +5.1%
Core & Main (CNM) +4.4%
Costco (COST) +3.9%
THOR Industries (THO) +3.7%
Moving Down ⬇️
Trip.com Group (TCOM) -15.0%
Huazhu Hotels Group (HTHT) -14.5%
2U (TWOU) -6.7%
Duolingo (DUOL) -6.5%
Starbucks (SBUX) -5.5%
Meta Gets Openly Criticized By Prominent Shareholder Ⓜ️
In an open letter published yesterday, CEO and Chairman of Altimeter Capital Brad Gerstner unveiled a scathing condemnation of Meta’s (META) current state of affairs. While Meta and its founder Mark Zuckerberg are certainly no strangers to criticism, it might weigh a little heavier coming from the head of a company that currently owns over two million shares in the firm.
Gerstner contends that Meta has become bloated, with simply too many people currently employed by the company:
“Meta has drifted into the land of excess — too many people, too many ideas, too little urgency.”
Quite the claim to make. Gerstner recommended that Meta reduce its headcount by at least 20% in order to offset this. He argues that this will take the company back to mid-2021 levels of employee expense, with most of his recommendations fixated on reducing annual capital expenditure.
The Altimeter CEO also raised an issue with Meta’s seemingly singular focus on developing the Metaverse. He implied that many are still confused by even the concept of the Metaverse, and that “an estimated $100B+ investment in an unknown future is super-sized and terrifying, even by Silicon Valley standards.”
The driving force behind this letter is undoubtedly Meta’s poor recent performance, with its stock sitting down over 61% year-to-date and almost 66% off all-time highs witnessed in late 2021. Waning user numbers and the aforementioned push to develop the Metaverse have both negatively impacted the stock, while the current macroeconomic environment has done little to help Meta’s cause.
Meta has yet to respond or comment publicly to Gerstner’s letter, but it appears that the appetite for change is there. What remains to be seen is how long Meta can hold out before giving in.
Chinese Stocks Plummet as Xi Gets Third Term 🇨🇳
It was a Black Monday for Chinese stocks yesterday as investors ran for the hills in anticipation of even stricter policies after President Xi Jinping was granted a third term in office.
Across the board, stocks plummeted with tech giants like Alibaba and Tencent falling more than 11%, EV makers NIO and Xpeng falling 16% and 12% respectively, and MyWallSt favorites Trip.com (TCOM) and Huazhu Hotels Group (HTHT) both down 15% on the day.
President Xi has long caused issues for Chinese businesses with restrictive policies limiting the power non-state companies can wield, especially in the tech sector. Having heralded an unprecedented third term in office, as well as packing the main positions of power with loyalists, it looks like there will be little to no challenge for any of his existing and future policies, which are likely to further prioritize the state sector ahead of private companies. He has also maintained a Zero-COVID policy while the rest of the world has moved on, slowing the economy even further.
Chinese stocks have always had an elevated risk profile, but with Xi and his followers in power, who have consistently showcased an anti-business mindset, it has become too much for many investors.
Warner Bros Discovery Proves Restructuring Can be Expensive 🦇
When the Warner Bros Discovery merger was announced, investors were shocked to learn that the new proprietor of HBO Max and Discovery+ was not all that interested in the streaming game. CEO David Zaslav declared an end to the “spend, spend, spend” model needed to compete with the likes of Netflix and Amazon Prime Video and instead stated the historic media brand would return to box office releases, traditional television, and stripped down ad-supported streaming.
However, we are now learning just how much this pivot is going to cost: $4.3 billion.
According to an SEC filing this week, restructuring costs are expected to last until 2024 but much of it will be absorbed in the coming quarter.
Following on from Q2, when Warner Bros Discovery wrote off approximately $1 billion, Q3 will see more than $1.5 billion of restructuring costs. Much of this comes in the form of discarded content investments that have been deemed unsuited to the new model. This includes the $90 million ‘Batgirl’ movie, ‘The Not-Too-Late Show With Elmo’, JJ Abrams’ HBO series ‘Demimonde’, and the entirety of CNN Plus.
The company was also forced to cut estimates for operating profits this year to between $9 and $9.5 billion. Management stated this was due to advertising headwinds, overspending on streaming content, and a financial position that is worse than what was disclosed prior to the merger.