To kick off 2022, the financial markets have been on the decline, with the leading stock market benchmark indexes, particularly the tech-heavy Nasdaq Composite Index, all in the red. But as investors turn bearish and flood into Treasurys and the U.S. dollar, the slump might not be the most shocking turn of events. In what could be described as a bonfire of the vanity stocks, a jaw-dropping slide in some of the prominent shares has been quite the spectacle – unless, of course, you are a shareholder who bought at or near the top. Who shined and who sputtered?
Pay Up Pal
(Photo by Yichuan Cao/NurPhoto via Getty Images)
PayPal had a decent fourth quarter. The tech firm reported an October-to-December profit of $1.11 per share, slightly below the market forecast of $1.12. Sales surged $6.92 billion, beating estimates of $6.89 billion. However, investors hit the sell button when PayPal predicted earnings to be between $4.60 and $4.75 a share this fiscal year, below the consensus of $5.25. Moreover, guidance for revenue growth clocked in as low as 15%, under the initial projection of 18%.
The guidance led to a sharp 25% plunge during the Feb. 2 session, the worst performance in the company’s history. Before this decline, the largest selloff occurred in Mar. 2020 when shares plummeted 15.8%. Still, PayPal shares are now hovering near their 52-week lows as investors pray to the market gods that a bottom has been reached.
One of the chief problems behind PayPal has been slow growth in net new active accounts. The tech giant thinks it will add as many as 20 million new accounts this year, down from 48.9 million in 2021. In 2021, PayPal unveiled an ambitious plan to double its active accounts to 750 million by 2025, an objective that was scrapped during the Q4 earnings call.
In the end, the company recorded a weekly loss of 23%, adding to its year-to-date drop of about 33%. But PayPal could turn the sinking ship around through its growing number of acquisitions (Honey for $4 billion, for example) and partnerships, such as Uber and Facebook.
We’re Talking About Meta
Meta Platforms Inc., the parent of Facebook, suffered its biggest single-day percentage plunge in corporate history, wiping out $232 billion in market value. The social media goliath reported earnings per share of $3.67, falling short of analysts’ predictions of $3.84. However, it beat revenue forecasts and matched monthly active user expectations. But Meta’s forward guidance was abysmal, which was not surprising as users spent less time on Facebook, Instagram, Messenger, and WhatsApp. It also faces growing data privacy grumblings and is enduring more competition, even in the metaverse (hello, Microsoft and Walmart). Do people want to live life again after being under house arrest for two years?
A Joe Rogan Bottom?
Joe Rogan (Photo by Carmen Mandato/Getty Images)
Spotify Technology, the streaming service that has gotten into hot water for supporting the $100 million podcaster Joe Rogan, has seen its market value cut in half over the last 12 months. It has lost revenues, subscribers, and share price, trading slightly above its 52-week low. Many critics are smiling with glee, hoping that the company will blame Rogan and be forced to terminate his contract. This means Barbara Streisand’s music will stay on the platform. May God help us all! But the business has refrained from throwing Rogan under the bus, and some investors are calling the trend a “Joe Rogan bottom.”
As InvestorPlace noted, “Spotify stock bottomed after it addressed its controversy with podcaster Joe Rogan.” Analysts ostensibly contend that there is more upside to the music service: strong operating cash flow, billions in cash and short-term investments, and control of about one-third of market share. These conditions have prompted the market to give it either a “Buy” or “Hold” rating.
Is the Nasdaq for Losers?
The Nasdaq Composite Index had been the golden boy throughout the coronavirus pandemic, hitting an all-time high of 16,212. But the first month of trading has not been as glorious for QQQ bulls and tech ETF holders, sliding 10% year-to-date. Many of the securities listed among the Nasdaq-100 have plummeted immensely from their 52-week highs, like Zoom (-69%) and Netflix (-42%). This is what happens when just five companies comprise more than half of the benchmark’s gains. Now that Americans are moving on from the public health crisis by going outside again (when it is not snowing!) and the U.S. central bank is removing the juice, pouring the spiked punch bowl down the drain, and darkening the days of wine roses, it could turn out to be a lackluster year or two for this segment of the financial markets.
As the old Frank Sinatra song goes, “You’re riding high in April, shot down in May.” But will the growth stocks get “back on top in June”?
~ Read more from Andrew Moran.
