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Business

Individual Investors Ramp Up Bets on Tech Stocks

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Technology stocks have taken a beating this year. Many individual investors have used it as an opportunity to double down.

The Nasdaq Composite Index—home to the big tech stocks that propelled the market’s decadelong rally—has fallen 21% in 2022. Shares of

Amazon.com Inc.

AMZN 10.36%

and the parents of Google and

Facebook

META -1.01%

have suffered double-digit declines as well, stung by higher interest rates and souring attitudes about their growth prospects. 

Yet many of those stocks remain the most popular among individual investors who say they are confident in a rebound and expect the companies to continue powering the economy. 

In late July, purchases by individual investors of a basket of popular tech stocks hit the highest level since at least 2014, according to data from Vanda Research. The basket includes the FAANG stocks—Facebook parent Meta Platforms Inc., Amazon,

Apple Inc.

AAPL 3.28%

,

Netflix Inc.

and Google parent

Alphabet Inc.

GOOG 1.79%

—along with a handful of others like

Tesla Inc.

and

Microsoft Corp.

Meanwhile, Apple, chip company

Advanced Micro Devices Inc.

and the tech-heavy Invesco QQQ Trust exchange-traded fund have remained among the most popular individual bets since 2020. 

Interest in risky and leveraged funds tied to tech and stocks like

Nvidia Corp.

has also swelled, a sign that investors have stepped in to play the wild swings in the shares. 

It has been a fruitful bet for many. Tech stocks have been on the rebound of late, partly on investor hopes for a slower path of interest-rate increases in the months ahead. The Nasdaq gained 12% in July, its best month since April 2020, outperforming the broader S&P 500, which rose 9.1%.

Individual investor Jerry Lee says: ‘The market is severely undervaluing how much tech can actually play into our lives.’



Photo:

Peggy Chen

“I’m extremely bullish on tech,” said Jerry Lee, a 27-year-old investor in New York who co-founded a startup that helps people find jobs. “The market is severely undervaluing how much tech can actually play into our lives.” 

In coming days, investors will be parsing earnings reports from companies such as AMD and

PayPal Holdings Inc.

for more clues about the market’s trajectory. Data on manufacturing and the jobs market are also on tap. 

Mr. Lee said he recently stashed cash into a technology-focused fund that counts Apple and Nvidia among its biggest holdings, after years of pouring money into broad-based index funds. His experience working at firms such as Google has made him optimistic about the sector’s future, he said.

Gabe Fisher holds stock in Meta Platforms, Amazon and Alphabet.



Photo:

Ethan Kaplan

Even last week when many of the industry’s leaders, including Apple, Amazon and Alphabet, warned their growth is slowing, investors pushed the stocks higher and expressed confidence in the ability of the companies to withstand an uncertain economy. Apple logged its best month since August 2020, while Amazon finished its best month since October 2009, helped by a 10% jump in its shares on Friday alone.

Many investors also pounced on the tumble in shares of Facebook parent Meta Platforms. The stock was the top buy among individual investors on the Fidelity brokerage Thursday when it fell 5.2% in the wake of the social-media giant’s first-ever revenue drop. Tesla,

Ford Motor Co.

and leveraged exchange-traded funds tracking the tech-heavy Nasdaq-100 index were also widely traded that day.

Gabe Fisher, a 23-year-old investor near San Francisco, said he is holding on to stocks like Meta, Amazon and Alphabet. 

“Even if these companies never grow at as fast of a pace, they’re still companies that are so relevant and so prevalent that I’m going to hold on to them,” Mr. Fisher said.

He said he also has a small position in

Cathie Wood’s

ARK Innovation Exchange-Traded Fund that he doesn’t plan to sell soon, even though the fund has lost more than half of its value this year. 

Other investors have been turning to riskier corners of the market. Leveraged exchange-traded funds tracking tech have been the third- and fourth-most-popular ETFs for individual investors to buy this year, behind funds tracking the S&P 500 and Nasdaq-100 indexes. These funds allow investors to make turbocharged bets on the market and can double or triple the daily return of a stock or index.

Many individual investors have also turned to the options market to bet on tech. Bullish bets that would pay out if Tesla shares rose have been among the most widely traded in the options market, according to Vanda. Individual traders have spent more on Tesla call options on an average day this year than on Amazon, Nvidia and options tied to the Invesco QQQ Trust combined, according to Vanda. The firm analyzed the average premium spent on options that are out-of-the-money, or far from where the shares are currently trading. 

Jeff Durbin, a 59-year-old investor based in Naples, Fla., said he regrets missing out on buying big tech stocks decades ago.  

He has scooped up shares of companies like artificial intelligence firm

Upstart Holdings Inc.

and

Shopify Inc.

SHOP -3.01%

—and hung on despite their sharp swings. Shopify, for example, dropped 14% in a single session last week as it said it would cut about 10% of its global workforce. “It’s painful, but I missed out on things like Amazon and Netflix when they were cheap,” Mr. Durbin said. “Who is going to be the Amazon and Apple 20 years from now?”

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Business

Amazon Has Been Slashing Private-Label Selection Amid Weak Sales

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Amazon.com Inc.

AMZN 0.21%

has started drastically reducing the number of items it sells under its own brands, and the company has discussed the possibility of exiting the private-label business entirely to alleviate regulatory pressure, according to people familiar with the matter.

Amazon’s private-label business, with 243,000 products across 45 different house brands as of 2020, has been a source of controversy because it competes with other sellers on its platform. The decision to scale back the house brands resulted partly from disappointing sales for many of the items, the people said. It also came as the retail-and-technology giant has faced criticism in recent years from lawmakers and others that it sometimes gives advantages to its own brands at the expense of products sold by other vendors on its site.

Over the past six months, Amazon leadership instructed its private-label team to slash the list of items and not to reorder many of them, the people said. Executives discussed reducing its private-label assortment in the U.S. by well over half, one of them said.

Dave Clark initiated a review of Amazon’s private-label business.



Photo:

LINDSEY WASSON/REUTERS

The move was initiated after a review of the business by

Dave Clark,

a longtime Amazon executive who took over as head of its global consumer business in January 2021, the people said. Mr. Clark left the company last month. As a result of that review, Mr. Clark pushed the team to focus on bestselling commodity goods, along the lines of

Target Corp.’s

“Up & Up” or

Walmart Inc.’s

“Great Value” brands, rather than offer the extensive range of items Amazon currently does, the people said.

Amazon’s private-label business started in 2009 with consumer electronics products such as cables and expanded into other categories. It now encompasses everything from vitamins and coffee to clothing and furniture, with brand names such as Amazon Basics, Goodthreads and Solimo. However, Amazon has said that its house brands only account for about 1% of its retail sales. Amazon’s revenue last year, including other businesses such as its cloud-computing operation, totaled $469.8 billion.

The growing scale of its own offerings increasingly put Amazon in competition with other sellers on its platform, angering those sellers and resulting in antitrust scrutiny.

In 2020, The Wall Street Journal detailed how Amazon employees used data from its platform on individual third-party sellers to develop Amazon-branded products that compete with those sellers. The Journal also reported that year how some major brands were angered by products Amazon developed for its own labels that closely resembled their items, claiming the tech company copied their designs.

Amazon at the time said it was opening an internal investigation into how its private-label employees use seller data and if they were violating a company policy not to use such data. In testimony to Congress, then-CEO

Jeff Bezos

said “I can’t guarantee you that policy has never been violated.”

Amazon’s handling of such competition issues has been under scrutiny from a congressional committee investigating big tech companies and from regulators including the Securities and Exchange Commission, which the Journal reported in April was examining how the company disclosed some details of its business practices. The Federal Trade Commission has been investigating Amazon’s competitive practices.

Amazon Basics products on display at an Amazon 4-star store in Berkeley, Calif., in 2019.



Photo:

Cayce Clifford/Bloomberg News

Amazon has said its platform provides opportunity for nearly two million small- and medium-size businesses that sell there, and that it competes fairly and in a way that benefits its customers.

The scrutiny has prompted Amazon executives over the past year to consider fully exiting private brands, and how the company might go about that, the people said. The executives decided not to take any action until necessary, potentially as a concession they could offer if the FTC or another regulatory agency were to threaten or file litigation, some of the people said.

After a version of this article published online, Amazon said in a statement that: “We never seriously considered closing our private label business and we continue to invest in this area, just as our many retail competitors have done for decades and continue to do today.”

A spokeswoman declined to comment on whether it has discussed the possibility, or to say how many private label items it is cutting.

U.S. lawmakers have proposed legislation aimed at big tech companies including Amazon that would bar dominant tech platforms from favoring their own products and services. On Thursday, Amazon proposed concessions to settle two antitrust cases against it in the European Union. Amazon promised not to use nonpublic data about sellers on its marketplace, after the EU accused Amazon of violating competition law by using nonpublic information from merchants to compete against them.

Mr. Bezos, who stepped down as CEO last year to be executive chairman, has long been a backer of the private-label business. In the past he has bristled at its relatively small sales, said some of the people.

A few years ago, Mr. Bezos gave the private-label team a goal to reach 10% of Amazon sales by 2022, the Journal has reported. The team responded by rapidly adding thousands of items to try to juice sales, said the people involved.

Many items ended up sitting in warehouses or needing to be marked down.

Under Mr. Clark, private-label teams did a profitability review of each private-label item, determining which ones didn’t sell enough to hit their profit threshold and targeting them to be phased out. The strategy now is to make fast-selling private-brand items, such as Amazon’s phone-charging cables, that it can place at warehouses all over the country to deliver quickly, some of the people said, instead of tens of thousands of items that sell in low quantities.

Write to Dana Mattioli at dana.mattioli@wsj.com

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Business

Peloton Swaps Out Finance Chief as It Navigates Persistent Losses

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Peloton Interactive Inc.

is exchanging its top finance executive about four months after it named a new chief executive, a move that comes as the fitness-equipment maker navigates persistent losses.

The New York-based at-home exercise equipment company on Monday said

Liz Coddington

will serve as its chief financial officer, effective June 13. Peloton said its current CFO,

Jill Woodworth,

decided to leave after more than four years with the company.

Peloton said Ms. Woodworth will remain with the company as a consultant on an interim basis to help prepare the fiscal year 2022 financial results.

Ms. Coddington most recently served as vice president of finance for Amazon Web Services, an

Amazon.com Inc.

subsidiary that provides on-demand cloud computing platforms. Before that, she held CFO and leadership finance roles at companies including retailer

Walmart Inc.

and streaming business

Netflix Inc.

Ms. Coddington joins Peloton as the company is dealing with waning demand from consumers after facing issues around its ability to meet orders, which soared during the early stages of the pandemic. The surge in demand for Peloton bikes led the company to break ground on a million-square-foot factory in Wood County, Ohio, last year.

Peloton is now looking to sell the factory that it will never use. The company also slashed prices for its equipment, projected slower growth and had to borrow $750 million to fund its operations.

Peloton in May reported its largest quarterly loss since the company went public in 2019, reporting a net loss of $757.1 million for the quarter ended March 31, compared with a loss of $8.6 million in the prior-year period.

In February, Peloton replaced Chief Executive

John Foley

with

Barry McCarthy,

who previously led the finances of digital music service

Spotify Technology SA

and Netflix. The company also cut 2,800 jobs amid reduced demand for its exercise equipment. Mr. Foley was closely associated with the company’s growth phase after its public offering and the revenue surge early in the pandemic.

The change in the CFO-seat makes sense given the continuing restructuring under Mr. McCarthy, said

Rohit Kulkarni,

managing director at equity trading and research firm MKM Partners LLC.

“As the new CEO puts his mark on the organization’s structure and aligns it with where he wants the company to go, these changes are not completely surprising,” he said.

With Peloton’s fiscal year ending June 30, Ms. Coddington will very quickly be “under a bigger investor microscope,” as the expectation is that the company will release fiscal year guidance soon after she joins, Mr. Kulkarni said. “It will be a challenging task to provide that new guidance.”

Write to Jennifer Williams-Alvarez at jennifer.williams-alvarez@wsj.com and Mark Maurer at Mark.Maurer@wsj.com

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Business

Lyft to Pause Some Hiring and Trim Budgets, Citing Economic Slowdown

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Lyft Inc.

LYFT -17.27%

will slow hiring, reduce the budgets of some of its departments and grant new stock options to some employees to make up for its eroding share price, joining rival

Uber Technologies Inc.

UBER -9.38%

in outlining cuts as investor optimism cools on tech stocks.

President

John Zimmer

announced the measures Tuesday in a memo to staff.

“It’s clear from our discussions with other business leaders that every company is taking a hard look at how they respond to concerns about an economic slowdown and the dramatic change in investor sentiment,” Mr. Zimmer wrote in an internal memo viewed by The Wall Street Journal.

“Given the slower than expected recovery and need to accelerate leverage in the business, we’ve made the difficult but important decision to significantly slow hiring in the US,” he said.

That includes the company giving priority to fewer initiatives, not filling many of the current open roles and focusing hiring on roles deemed critical, such as those that support its core rides business, Mr. Zimmer said. He said there are no layoffs planned.

Lyft’s board met on Friday to discuss the cuts, said a person familiar with the meeting. Lyft began signaling to some employees recently that there would be a hiring slowdown and cutting of budgets, another person familiar said.

Lyft shares have lost more than 60% since the start of the year, more than double the decline of the Nasdaq Composite Index. After declining more than 15% Tuesday, Lyft shares were up less than 1.5% in after-hours trading after the Journal reported about the plans.

Uber Technologies also has outlined budget cuts. An Uber driver in Paris.



Photo:

Nathan Laine/Bloomberg News

Tech companies that powered the U.S. economy during the pandemic are suffering through a punishing stretch. Concerns about rising interest rates and the reversal of some pandemic trends that bolstered tech revenues have hit the share prices of

Peloton Interactive Inc.,

PTON -8.08%

Netflix Inc.,

Amazon.com Inc.

AMZN -3.21%

and others.

Last month Amazon reported the slowest quarterly revenue growth in about two decades. Netflix lost subscribers during its first quarter for the first time in more than a decade and signaled that losses are set to continue.

Apple Inc.

AAPL -1.92%

cautioned that the resurgence of Covid-19 in China could hinder sales.

The shares of

Snap Inc.

SNAP -43.08%

tumbled 43% Tuesday after it said in a Monday filing that revenue and adjusted pretax earnings for the second quarter will come in below the range the company projected barely a month ago due to weak advertising revenues. Other tech stocks that rely on digital advertising, including Google parent

Alphabet Inc.

GOOG -5.14%

and

Facebook

parent

Meta Platforms Inc.,

FB -7.62%

also fell.

After years of adding jobs at a rapid pace, some tech companies have been broadcasting that they think it is time to take a more cautious approach. The pullback by tech giants raises questions about the direction of the overall U.S. job market and economy.

Meta, Peloton and Uber are among the tech companies that have announced they will slow hiring or re-evaluate their head count in recent weeks.

Among the other issues cooling the long-hot sector: inflation, labor shortages and supply-chain issues.

Uber and Lyft are struggling with a year-long driver shortage that has pushed fares to record highs. The elevated fares have partly resulted in fewer Lyft riders and fewer Uber trips compared with before the health crisis, though both companies’ first-quarter revenue outpaced prepandemic levels on the back of higher prices.

Lyft’s first-quarter results were overshadowed by a weaker-than-expected earnings outlook as the company said it would need to spend more money to incentivize drivers to return. Its stock tumbled more than 35% after the announcement, marking the biggest percentage drop in a single day since the company went public in 2019.

Earlier this month, Uber said it would cut spending on marketing and scale back on hiring as it focuses on turning a profit.

Both companies spent big for years to gain customers and market share. But their 2019 public offerings disappointed, with Wall Street increasingly wanting to see money-losing companies turn a profit.

“As we’ve seen and discussed, public market investors have continued to sharply shift their focus onto a potential recession and a company’s ability to deliver near-term profits,” Mr. Zimmer wrote in Tuesday’s memo.

He went on to write that “our near-term action plan will be focused on accelerating profits—whether we like it or not, that’s the ticket of entry in today’s market.”

Uber and Lyft have trimmed their losses, unloading costly divisions such as their self-driving units and cutting staff during the health crisis. Both companies turned a quarterly adjusted profit before certain expenses like interest, taxes and depreciation last year.

Uber said it expects to be cash-flow positive on a full-year basis this year. If it meets that goal, it would mark the first time the underlying operations of the ride-share and food-delivery giant generate more money than it spends.

Write to Preetika Rana at preetika.rana@wsj.com and Emily Glazer at emily.glazer@wsj.com

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Business

SoftBank Pitches IPO for Arm After Deal With Nvidia Falls Through

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TOKYO—After a deal that could have been worth $80 billion to his company fell apart,

SoftBank Group Corp.

9984 5.85%

Chief Executive

Masayoshi Son

is playing salesman for Plan B—an initial public offering of chip designer Arm.

Mr. Son sounded as if he were on a roadshow for investors at a news conference in Tokyo on Tuesday. He said Arm is entering a “golden period” of high demand for the chips it helps create in smartphones, electric vehicles and computer-server farms operated by the likes of

Amazon.com Inc.

The pitch came hours after the Japanese investment and technology conglomerate said it was abandoning plans to sell Arm to Nvidia Corp.—in what would have been the largest semiconductor deal on record—because antitrust concerns stood in the way.

Mr. Son said he was surprised to see the backlash not only from U.S. regulators who sued to block the deal in December but also big tech companies that rely on Arm’s chip designs.

“We saw strong opposition because Arm is one of the most important and essential companies that most companies in the IT industry or in Silicon Valley rely on, either directly or indirectly,” he said.

SoftBank paid $32 billion when it acquired the U.K.-based chip business in 2016. Mr. Son said the sale to Nvidia, under which SoftBank would have received both cash and Nvidia shares, could have been worth $80 billion because of a rise in Nvidia’s share price.

SoftBank now plans to pursue a public listing of Arm by March 2023. Arm shares will most likely be listed on the tech-heavy

Nasdaq Stock Market

in the U.S. because many of Arm’s clients are based in Silicon Valley, Mr. Son said.

He said SoftBank didn’t intend to keep Arm for itself because he wanted outside investors in the SoftBank-led Vision Fund, which owns a quarter of Arm, to be able to cash in through an IPO and because he wanted to give stock options as incentives to Arm employees.

Uncertainties linger around an Arm IPO, including whether the volatile semiconductor business will stay hot through this year.

Chinese tech stocks popular among U.S. investors have tumbled amid the country’s regulatory crackdown on technology firms. WSJ explains some of the new risks investors face when buying shares of companies like Didi or Tencent. Photo Composite: Michelle Inez Simon

Tech shares have fallen recently because of tightening by the Federal Reserve. Fumio Matsumoto, chief strategist at

Okasan Securities,

said that made the timing for a big IPO less than ideal, and he also observed that a strategic buyer in the chip industry might pay more for Arm because of the potential synergy effects.

Still, Mr. Matsumoto said the downturn in Silicon Valley also offered opportunities for Mr. Son, and it made sense to raise cash for his war chest from an Arm IPO. “Because technology share prices have gone through a sharp correction over the past year, we are seeing a good cycle to consider preparing” for new investments, Mr. Matsumoto said.

After a rough patch a few years ago, Arm is on track for $2.5 billion in revenue this fiscal year, which ends in March, up from $1.98 billion the previous year, SoftBank said. Arm’s operating profit, according to one type of calculation used by SoftBank, more than doubled over the past two years to a projected $900 million this fiscal year.

An array of consumer electronics companies as well as semiconductor companies, including

Apple Inc.,

Samsung Electronics Co.

and

Qualcomm Inc.,

use Arm’s designs in at least some of their chips. The designs are known for their low power consumption, making them nearly ubiquitous in mobile devices.

The collapse of the Arm deal is just one of the challenges Mr. Son is tackling in his globe-spanning investment portfolio. He said “we are in pain” over China’s crackdown on its big tech companies, which hit SoftBank investments including its most valuable one, e-commerce giant Alibaba Group Holding Ltd.

The past two years have seen some of the wildest swings in the four decades since Mr. Son started SoftBank. The pandemic, initially seen as a blow, soon emerged as a boon for many technology businesses including those in which SoftBank has invested. SoftBank shares surged, only to fall by half from their recent peak when the China troubles hit and the Arm deal ran aground.

SoftBank’s net asset value, Mr. Son’s preferred measure of the company’s finances, fell by ¥1.6 trillion, equivalent to about $14 billion, in the October-December quarter to ¥19.3 trillion. That is a fall of 30% from the peak in September 2020 and the lowest level since 2017.

Mr. Son blamed the sharp fall in Alibaba shares. The Chinese company, which once made up the majority of SoftBank’s net assets, now accounts for less than a quarter of the total.

SoftBank said it unloaded a small number of Alibaba shares to settle contracts with its lenders, but Mr. Son said SoftBank’s stake in the Chinese company remained close to a quarter.

Mr. Son, who turns 65 this year, has lost a number of top lieutenants in recent years, including Chief Operating Officer

Marcelo Claure,

who stepped down in January after a pay dispute. Mr. Son said that while he was grooming successors, he didn’t intend to step down soon.

“If I stop, I’d become an old grandpa very quickly,” he said. He boasted that when he went bowling recently, he topped 200 points in two different rounds—a fine score for an amateur. “I thought, ‘Hey, I’m still pretty young,’ ” he said.

—Sam Schechner in Paris contributed to this article.

Write to Megumi Fujikawa at megumi.fujikawa@wsj.com and Peter Landers at peter.landers@wsj.com

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Business

Amazon Breaks Record for One-Day Gain in Market Cap

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Investors in big technology stocks have a serious case of whiplash.

Amazon.com Inc.

AMZN 13.54%

on Friday notched the largest-ever one-day gain in market value for a U.S. company—just a day after Facebook parent

Meta Platforms Inc.

suffered the largest-ever loss.

The dramatic moves suggest investors are moving quickly to draw distinctions among the growth prospects of some of the biggest U.S. companies as they reassess their valuations in anticipation of higher interest rates.

Both stocks have surged so far, so fast in recent years that any big move can rattle the broader market and set various records. Amazon is the fourth-biggest company in the U.S. by market value, behind

Apple Inc.

AAPL -0.17%

,

Microsoft Corp.

and

Alphabet Inc.,

with a market capitalization of about $1.6 trillion, while Meta is No. 7, even after Thursday’s declines. 

In recent days, investors have shown more faith in the tech companies whose services are seen as staples than in those whose offerings are more elective, said

John Lynch,

chief investment officer at Comerica Wealth Management, which manages $175 billion.

“Within tech we’re starting to see a delineation between necessities and wants,” he said. “In a rising rate environment, you’re going to have noncorrelated moves in the market.”

Amazon relieved investors with a near doubling in profit in the holiday period and said it is raising the price of its Prime membership in the U.S. to $139 a year from $119. The results showed Amazon was able to control labor and supply costs better than had been expected. The company also saw growth in its cloud-computing and advertising businesses.

“The big thing was more of a sigh of relief with Amazon because there’s been so many worries in regards to that stock in terms of the comparisons after the pandemic being much more difficult,” said

Daniel Morgan,

senior portfolio manager at Synovus Trust Co.

Shares surged 14% Friday, their biggest one-day jump in almost seven years. The added $191 billion to Amazon’s market value, eclipsing the record

Apple

set just last week when it added $181 billion after posting quarterly results that shattered previous records.

Amazon’s rally helped the broader market stabilize Friday, as did a stronger-than-expected monthly jobs report. The S&P 500 added 0.5%, and the tech-focused Nasdaq Composite rose 1.6%.

Meta, meanwhile, warned it expects revenue growth to slow because users are spending less time on more lucrative services. The 26% drop in its shares Thursday erased $232 billion in market value.

Investors are grappling with the question of whether the company’s bet on the metaverse as its future growth engine will work out, Mr. Morgan said.

“That’s what the mystery behind Facebook (is) right now,” he said. “A lot of people can see their core business is really maturing.”

Investors are intensely focused on the Federal Reserve’s plans to begin raising interest rates in mid-March, ratcheting back the monetary stimulus that has helped power stocks since early in the Covid-19 pandemic. Near-zero rates pushed investors into risky assets like stocks and particularly into corners of the market that are valued based on growth far into the future.

The pace and scale of rate increases will depend in part on incoming data on inflation and the jobs market, leaving investors without a clear sight into the ultimate environment for stocks. Friday’s employment report showed the U.S. economy added more jobs in January than had been expected, a development that some investors said could support a more hawkish attitude from the Fed.  

“The uncertainty created by the mere possibility of rate hikes contributes to the large moves that we’re seeing from stocks,” said Andy Kern, senior portfolio manager at asset management firm New Age Alpha.

In another outsize move,

Snap Inc.

shares leapt 59%, more than unwinding Thursday’s 24% slide, when Meta’s report prompted investors to dump shares of social-media companies.

Prompting the turnaround: Snap posted its first quarterly profit. The image-sharing firm also signaled it is adjusting to disruptions in the digital-advertising market caused by Apple privacy-policy changes that are affecting Meta.

Pinterest Inc.

reversed course, too, climbing 11% following a 10% skid in Thursday’s session. After markets closed Thursday, Pinterest reported a 20% rise in sales in the fourth quarter from a year earlier.

Companies such as Apple, Microsoft, Amazon,

Alphabet Inc.

GOOG 0.26%

and Meta have powered the stock market higher in recent years. They have become so big that their moves can cause swings in the S&P 500 index, whose members are weighted by market capitalization. As of Thursday, Apple, Microsoft, Amazon, Alphabet, Meta,

Tesla Inc.

and

Nvidia Corp.

accounted for more than 25% of the weighting of the index, according to S&P Global.

Write to Karen Langley at karen.langley@wsj.com and Joe Wallace at joe.wallace@wsj.com

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Business

Disappointing Meta, PayPal Earnings Send Shudders Through Stock Market

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Facebook’s parent company shed more than $230 billion in market value Thursday, a one-day loss that would be the biggest ever for a U.S. company and increase the pressure on a stock market long powered by technology shares.

The setbacks reflect the increased scrutiny companies are under as major U.S. stock indexes remain near record highs and the Federal Reserve is preparing to raise interest rates for the first time since 2018. Rising rates tend to reduce the multiples that investors are willing to pay for a share of company profits, a trend that stands to mean pain for stocks that are already trading at lofty valuations.

That has put heightened pressure on the companies to show their financial results justify their price tags. In recent days, several have fallen short, raising concerns among investors that further declines in major indexes could lie ahead.

“The level of forgiveness has gone down,” said

Daniel Genter,

chief executive and chief investment officer at RNC Genter Capital Management. “When boards come to their shareholders to confess their sins, they’re just not going to be pardoned with one Hail Mary.”

Some strategists say the recent slide in shares of speculative tech companies should serve to remind investors that a robust market rally relies on advances by a variety of stocks. And they warn they expect more big stock swings ahead at any hint of slowing growth.

“The market can’t just be driven by a small number of megacap companies or tech companies,” said

Yung-Yu Ma,

chief investment strategist at BMO Wealth Management. “There should start to be more of a recognition that it’s not going to be technology that leads us out of this pullback.”

Earnings season had been overshadowed until recent days as investors fretted over the Fed’s plans to raise rates. They sold stocks across sectors, helping to send the S&P 500 down 5.3% in January, its worst monthly performance since the March 2020 slump.

The market briefly stabilized this week—with all three major stock indexes rising for four consecutive sessions—before tumbling again Thursday. The S&P 500 dropped 2%, while the tech-heavy Nasdaq Composite fell 3.1%.

All eyes have now turned to

Amazon.com Inc.,

which reports after the closing bell. The e-commerce company warned in late 2021 of a challenging end of the year as it confronted global supply-chain problems.

Amazon shares dropped more than 7% ahead of the report, while shares of speculative tech stocks like

Snap Inc.

and

Pinterest Inc.

also tumbled. Snap fell 24%, while Pinterest declined 10%.

The giant stock moves show how serious investors have become about demanding that companies deliver on their promises for growth after a steep and swift climb in share prices.

Meta, PayPal and Spotify entered 2022 at rich valuations. While the S&P 500 ended December trading at 21.5 times its projected earnings over the next 12 months, Meta was trading at 23.6 times, PayPal at 36 times and Spotify at 543.9 times, according to FactSet. Spotify isn’t an index constituent.

By Wednesday, Meta’s multiple had pulled back to 22.6 times forward earnings, while PayPal traded at 27.2 times, and Spotify at 287.6 times.

“Those stocks were really priced way beyond perfection,” Mr. Genter said. “People are saying, well, guess what, perfection is not here.”

The Facebook parent company surprised investors late Wednesday with a deeper-than-expected decline in profit and a downbeat outlook. The company said it expects revenue growth to slow and shared that it lost about one million daily users globally. Shares declined 27%, on course for their worst daily performance since they started trading in 2012.

The company’s challenges include a new ad-privacy policy from Apple Inc. that Meta expects to cost it more than $10 billion in lost sales for 2022. The requirement that apps ask users whether they want to be tracked limited the ability to gather data used to target digital ads, driving advertisers to change their spending.

Meta’s $234 billion drop in market value is set to exceed the record that Apple Inc. set in September 2020 when the iPhone-maker lost about $182 billion in a single day, according to Dow Jones Market Data.

PayPal lowered its profit outlook for 2022 and abandoned a target it set last year of roughly doubling its active user base. Executives said business this year will be pressured by forces including inflation, supply-chain problems, the Omicron variant and the runoff in government stimulus. Shares slumped 25% Wednesday in their worst selloff on record and continued sliding Thursday.

PayPal Holdings lowered its profit outlook.



Photo:

Justin Sullivan/Getty Images

And Spotify, which is embroiled in a controversy over

Joe Rogan’s

podcast, said it added users but declined to give annual guidance, pulling shares down 16% on Thursday.

Earnings results out of the tech segment haven’t been all bad. Google parent

Alphabet Inc.

reported robust sales growth and unveiled plans for a stock split this week, helping the company add more than $135 billion in market value Wednesday.

Alphabet has outperformed the other stocks in the popular FAANG trade lately. Its shares are about flat this year, while Meta, Amazon and

Netflix Inc.

are down by double-digit percentages.

Apple Inc.

is off modestly.

Broadly, the corporate earnings season has surpassed expectations. With results in from about half the constituents of the S&P 500, analysts estimate that profits from index constituents rose 26% in the holiday quarter from a year earlier, according to FactSet. That is up from forecasts for 21% growth at the end of September.

Money managers, though, say they have been particularly focused on what company executives have to say about their expectations for the coming months in the wake of higher rates and the continuing Covid-19 pandemic.

“Not too many of them are painting a rosy picture because of the uncertainty,” said

Robert Schein,

chief investment officer at Blanke Schein Wealth Management.

How the Biggest Companies Are Performing

Write to Karen Langley at karen.langley@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

Elliott and Vista Near Deal to Buy Citrix Systems

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Elliott Management Corp.’s private-equity arm, Evergreen Coast Capital, and Vista Equity Partners are near an agreement to pay $104 a share for the software company, according to people familiar with the matter.

The deal could be announced Monday, the people said, assuming the talks don’t fall apart or drag out.

Should it go forward, the takeover would be the biggest leveraged buyout in recent months, ending the lull that followed a flurry of them in 2021.

With interest rates near historic lows, private-equity firms have amassed billions of dollars of cash from investors that they must put to work to begin earning fees on it.

In all, private-equity firms announced more than $900 billion worth of deals in the U.S. last year, including buyouts and exits, according to Dealogic.

Software companies like Citrix, with their predictable revenue, have become some of the most sought-after targets for private-equity firms because they can carry significant amounts of debt.

Vista is among the firms that specialize in software buyouts, and this would be among its biggest deals. Based in Austin, Texas, Vista manages more than $86 billion in assets and its chief executive,

Robert Smith,

is the wealthiest Black person in the U.S., worth $6.7 billion, according to Forbes. Founded in 2000, Vista is known for using a detailed playbook aimed at maximizing profits at the companies it buys.

The firm has been relatively quiet on the large-buyout front since October 2020, when Mr. Smith admitted to criminal tax evasion and agreed to pay $139 million in back taxes and penalties.

Citrix makes software that allows users to virtually access desktops as well as other cloud-computing capabilities.

Citrix, like many legacy software companies, has had a rocky transition to a subscription-based model for its core virtual-desktop services. Converting customers into subscribers instead of licensees provides more recurring revenue, which investors like and have come to expect from software companies.

Citrix’s

David Henshall

in October stepped down as president and chief executive after investor pressure to explore a sale of the company. He also left as a director along with another board member, a move that reduced the board’s size to eight. The company tapped Chairman

Bob Calderoni

as interim CEO.

But Citrix has had some success lately, benefiting along with peers as more daily life takes place on the cloud and as the number of people working remotely soars. The company said in November that annualized recurring revenue in its third quarter grew 13% from a year earlier.

Its shares closed Friday at $105.55, and had already jumped on speculation of a deal over the past few months. Bloomberg reported Jan. 14 that Elliott and Vista were in advanced talks to buy Citrix.

The hardware and software infrastructure

Amazon.com Inc.,

Microsoft Corp.

, Google and others provide is commonly referred to as the cloud.

The migration to the cloud has been happening for about a decade as companies have opted to forgo costly investments in in-house, information-technology infrastructure and instead rent hardware and software from the likes of Amazon and Microsoft, paying as they go for storage and data-processing. That has made cloud computing one of the most fiercely contested battlefields among business-IT providers and the companies that provide it a hot commodity among investors and acquirers.

That trend appears poised to continue.

Citrix’s modest size compared with that of peers such as

VMware Inc.

and spotty results over the years have made it the subject of periodic takeover speculation. Indeed, it has drawn the attention of private-equity firms and industry competitors in the past, though no deal was struck.

Citrix is expected to be combined with Tibco, a software company Vista agreed to buy in a $4 billion deal in 2014 and has tried to sell multiple times since then, some of the people said. That could afford opportunities to cut costs from overlapping functions and create a company more attractive to another buyer down the road or to public investors if and when the buyout firms decide to take it public again.

Elliott, founded by billionaire

Paul Singer,

manages roughly $48 billion in assets and has been one of the most visible activist investors in recent years, challenging companies including

AT&T Inc.

and

Duke Energy Corp.

While best known for its activist investments, Elliott has been expanding its private-equity practice. Outside of Evergreen, which focuses on technology investments, Elliott owns other companies including bookseller Barnes & Noble Inc.

Elliott has a long history with Citrix. It holds a more than 10% stake worth over $1 billion and had been pushing it to take steps to boost its share price, The Wall Street Journal reported in September.

Elliott took a stake in Citrix in 2015 and held a seat on its board until last spring. The hedge fund has gone on to buy other companies it agitated at, including health-data company Athenahealth Inc., which it agreed to sell last year.

Remote Work, Hybrid Work and the New Office

Write to Cara Lombardo at cara.lombardo@wsj.com and Miriam Gottfried at Miriam.Gottfried@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

IBM Sells Watson Health Assets to Investment Firm

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International Business Machines Corp. agreed to sell the data and analytics assets from its Watson Health business to investment firm Francisco Partners, the companies said Friday.

The deal is the latest step by IBM to refocus its core business around the cloud. The Wall Street Journal reported last year that IBM was exploring a sale of its healthcare-analytics business as a way to streamline the computing giant’s operations and sharpen its focus on computing services provided via the internet. The Watson Health business uses artificial intelligence to analyze diagnostic tests and other health data and to manage care.

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