Tag Archives: disruptions

Business

Amazon Stock Slides After it Gives Weak Outlook Amid Recession Fears

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Amazon.com Inc.

AMZN -4.06%

projected sales in the current quarter would be far below expectations, sending its stock plunging and offering the latest stark sign of how shifting economic forces are battering tech giants that thrived during the pandemic.

The company on Thursday said sales in the recently completed third quarter rose 15% from a year earlier, while net income was $2.9 billion—its first quarterly profit in 2022, though still a 9% decline from the same period last year.

The e-commerce giant jolted investors with its projection for revenue of $140 billion to $148 billion in the current period—analysts had expected more than $155 billion, according to FactSet. Amazon, which said the estimate includes a sizable hit from foreign-exchange factors, also said it anticipated operating income of anywhere between zero and $4 billion, reflecting the uncertainty looming over what is traditionally its biggest quarter of the year because of holiday shopping.

The company’s shares fell more than 12% in after-hours trading following the results to trade near $97. At that level, Amazon’s valuation is below $1 trillion, which it first hit in 2018.

The disappointing outlook capped an extraordinary several days that also saw shares of other tech giants plummet after their results showed worsening conditions in a range of areas.

Shares of

Facebook

parent Meta Platforms Inc., already battered over the past year, dropped nearly 25% on Thursday after it reported its second quarterly revenue decline in a row a day earlier.

Microsoft Corp.’s

stock also fell after it delivered on Tuesday its worst net income decline in more than two years and the weakest revenue growth in over five years. Google-parent

Alphabet Inc.

similarly disappointed investors with slowing sales.

These tech companies flourished during the pandemic, as life and work suddenly shifted more to the internet, pushing up sales and spurring the already fast-growing companies to accelerate hiring and investment.

Now, one after another, engines that drove that growth are sputtering. Sales of personal computers and other gadgets are falling. Consumers, walloped by inflation, are broadly trimming their spending, while companies are tightening their outlays for everything from digital ads to IT services.

“There is obviously a lot happening in the macroeconomic environment, and we’ll balance our investments to be more streamlined without compromising our key long-term, strategic bets,” Amazon Chief Executive

Andy Jassy

said Thursday. 

In the third quarter, Amazon’s online store sales rose 7% to $53.48 billion after falling in recent quarters. The segment includes product sales primarily on its flagship site and digital media content. Its online sales got a boost from its annual Prime Day sale, which this year fell in the third quarter where last year it was in the second quarter.

While still the nation’s largest online store, Amazon’s e-commerce division has struggled to grow this year. The company in the second quarter reported a 4% year-over-year drop in its online stores segment. That marked the largest drop since the metric was first reported in 2016.

This year, Amazon’s e-commerce machine—which has grown at breakneck speed for decade—has been showing signs that it could be entering a phase of slower growth. After a multibillion-dollar infrastructure build-out and hiring spree, it now has to contend with high inflation and concerns about a recession weighing on consumer spending.

Chief Financial Officer

Brian Olsavsky

said the company has entered a period of caution.

“We are preparing for what could be a slower growth period like most companies. We are going to be very careful on our hiring,” Mr. Olsavsky said during a call with reporters Thursday. “We certainly are looking at our cost structure and looking for areas where we can save money.”

He said Amazon is “seeing signs all around that people’s budgets are tight, inflation is still high.”

Analysts say the new challenges Amazon faces in e-commerce could linger.

Amazon has the largest share of online commerce, about 38%, but its market share has plateaued in recent years, according to market research firm Insider Intelligence. Analysts say the company’s size has made it unlikely the e-commerce unit’s growth would hit the same pace it once did. Amazon also is dealing with increased competition from

Walmart Inc.,

Target Corp.

and others.

Mr. Jassy has shifted toward cost-cutting. The company cut back on subleasing millions of square feet of excess warehouse space and put off opening new facilities while earlier thinning out its hourly workforce through attrition.

It enacted a hiring freeze through the end of the year at its corporate retail division, the segment that drives core sales and is responsible for a large part of this year’s slowdown. The company has paused hiring among some teams at its Amazon Web Services cloud-computing division.

While Amazon’s earnings continue to be aided by AWS and its expanding advertising business, growth slowed in the cloud business. AWS had sales of $20.5 billion during the third quarter, a 27% rise but one of the lowest rates of growth posted by the unit in recent quarters. Mr. Olsavsky said the company saw AWS customers “working to cut their bills.”

Amazon’s advertising revenues rose 25% to $9.5 billion.

Amazon is headed toward the end of the year with added challenges. After needing fewer blue-collar employees earlier in the year, it has looked to add more than 100,000 workers at its warehouses to meet the expected holiday demand. Still, that strategy has come with a cost. Amazon recently said it would spend $1 billion to raise average starting salaries to $19 an hour nationwide and is earmarking millions to raise wages and benefits for its delivery employees.

Consumers will be more likely to return to bricks-and-mortar stores for their holiday shopping this year, and economic concerns will likely weigh on spending, according to analysts. Amazon’s own

Jeff Bezos

seemed cautious about the future. He recently said it is time to “batten down the hatches,” referring to warning signs that the U.S. is headed for a recession.

Write to Sebastian Herrera at sebastian.herrera@wsj.com

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

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Business

Peloton Co-Founder John Foley Faced Repeated Margin Calls From Goldman Sachs as Stock Slumped

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John Foley,

the co-founder and former chief executive of

Peloton Interactive Inc.,

PTON -3.41%

faced repeated margin calls on money he borrowed against his Peloton holdings before he left the fitness company’s board last month, according to people familiar with the situation.

As Peloton’s shares slumped over the past year,

Goldman Sachs Group Inc.

GS -2.11%

asked Mr. Foley several times to provide fresh funds or additional collateral for personal loans the bank had extended to him, the people said. The company’s share price has fallen nearly 95% from its $160 peak in December 2020.

Resigning from the board gave Mr. Foley flexibility to sell or pledge more Peloton shares, though he said the margin calls weren’t the reason he left the company.

“I didn’t resign from the board because I was underwater,” he said. “To the extent that I took on debt through Goldman, it was because I am bullish on Peloton and still am. It was and is a great company.”

The former chairman and CEO had pledged as collateral about 3.5 million Peloton shares as of the end of September 2021, or about 20% of his stake at the time, securities filings show. The pledged shares were worth more than $300 million a year ago. At current prices, they are worth roughly $30 million.

Peloton has cut thousands of jobs this year to stem its losses.



Photo:

John Smith/VIEWpress/Getty Images

Mr. Foley was able to secure private financing and avoid stock sales by Goldman, the people said. He declined to say on Monday how much of his current stake had been pledged or how much he had borrowed against his holdings.

His seat on the board limited his ability to raise additional funds because most public companies prohibit directors and executives from selling their shares during certain trading periods. In addition, Peloton’s policy limits pledges for margin loans by directors or executives to 40% of the value of an individual’s shares or vested options.

Mr. Foley’s decision to leave the board on Sept. 12 followed a tumultuous several months at the company he co-founded a decade ago, as well as a sharp decline in his personal wealth as Peloton’s sagging fortunes diminished the value of his holdings. His stake in the company, worth $1.5 billion a year ago, is currently worth less than $100 million.

“Everyone can see I had a rocky year,” Mr. Foley said. “This was not a fun personal balance-sheet reset.”

Barry McCarthy, a Silicon Valley veteran, became Peloton’s CEO in February.



Photo:

Angela Owens/The Wall Street Journal

In February, Mr. Foley stepped down as Peloton’s CEO and was succeeded by

Barry McCarthy,

a former

Netflix Inc.

and Spotify Technology SA executive. Mr. Foley kept his position as Peloton’s executive chairman and continued to hold a controlling stake in the company through Class B shares with 20 votes apiece.

A few weeks later, Mr. Foley reported selling $50 million worth of Peloton shares in a private transaction. At the time, Peloton said the sale was part of the executive’s personal financial planning. The sale left him and his wife,

Jill Foley,

a former Peloton executive, with 6.6 million shares and options on another 8.4 million, according to securities filings, which combined are currently worth less than $100 million. He hasn’t reported any stock or option sales since March. Business Insider reported in March that Mr. Foley was in discussions with Goldman about restructuring his personal loans.

Peloton’s business deteriorated throughout the spring and summer, with the company in August reporting a $1.2 billion loss and the first ever quarter in which its subscriber numbers failed to grow. The company has cut thousands of jobs this year to stem its losses, including a round of layoffs unveiled last week.

Mr. Foley’s 10-year tenure as CEO was marked by rapid growth and sometimes lavish spending. He took heat from Peloton employees last December for hosting a black-tie holiday party that included some of the company’s celebrity instructors weeks after implementing a hiring freeze. Pictures circulated on Instagram of gown-clad instructors dancing at New York’s luxury Plaza Hotel. Mr. Foley acknowledged on social media that the event caused “frustration and angst” among employees.

Peloton has been on a wild ride, announcing its CEO was stepping down and thousands of jobs would be cut, despite seeing a surge in sales early in the pandemic. Here’s why Peloton became a viral success, and why it’s spinning out now. Photo illustration: Jacob Reynolds

That same month, Mr. Foley paid $55 million to purchase an oceanfront mansion in East Hampton, N.Y., according to real-estate records and people familiar with the transaction. He and Ms. Foley in September put their Manhattan penthouse up for sale. The property, last priced at $6.5 million, is in contract to be sold, according to listings website StreetEasy.

Margin loans, or borrowing against portfolios of stocks and bonds, come with the risk that a broker can call for additional cash or collateral to meet the minimum equity required if a security’s price drops too low. Sharp drops in stock prices during the 2000 dot-com burst and the 2008 financial crisis generated margin calls for executives at well-known companies.

John Foley paid $55 million to purchase this oceanfront mansion in East Hampton, N.Y.



Photo:

PICTOMETRY

Peloton requires directors, executives and employees to get approval for pledging their shares as collateral for margin loans. Other Peloton executives also have pledged some of their Class B holdings, and in the annual report Peloton filed last month, the company warned that investors could be harmed if its stock fell and executives were forced to sell shares.

Goldman has worked closely with Peloton, including when Mr. Foley was the CEO. The investment bank was one of the lead underwriters of the company’s initial public offering in 2019. Goldman bankers also co-led a $1 billion stock offering in November 2021.

Investors initially soured on Peloton—its shares fell 11% the day they made their debut at $29. The stock surged in 2020 during the onset of the Covid-19 pandemic, giving the company a peak market value of $50 billion and making Mr. Foley a billionaire on paper. The shares closed down 3.4% Tuesday at $8.78.

—Theo Francis

and Katherine Clarke contributed to this article.

Write to Sharon Terlep at sharon.terlep@wsj.com and Suzanne Vranica at suzanne.vranica@wsj.com

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

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Business

Ford stock drops more than 4% as supply costs to jump by $1 billion, parts shortages to leave more cars unfinished

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Ford Motor Co. shares dropped more than 4% in the extended session Monday after the company said inflation and parts shortages will leave it with more unfinished vehicles than it had expected, reminding Wall Street supply-chain snags are far from over for auto makers.

Ford
F,
+1.43%
said it expects to have between 40,000 and 45,000 vehicles in inventory at the end of the third quarter “lacking certain parts presently in short supply.”

The auto maker also said that based on its recent negotiations, payments to suppliers will run about $1 billion higher than expected for the quarter, thanks to inflation. The company reaffirmed its outlook for the year, however.

Ford’s warning “is evidence that auto parts shortages and supply-chain issues are still ongoing,” CFRA analyst Garrett Nelson told MarketWatch.

Many investors had started to believe “these problems were in the rearview mirror with inventories starting to recover from the record lows of the last year or so,” Nelson said.

The unfinished vehicles include high-demand, high-margin models of popular trucks and SUVs, Ford said. That will cause some shipments and revenue to shift to the fourth quarter.

“Ironically, Ford may have become a victim of its own success in that its recent U.S. sales growth has outperformed peers by a wide margin,” Nelson said. Its third-quarter production “apparently wasn’t able to keep pace with demand.”

Ford reiterated expectations of full-year 2022 adjusted earnings before interest and taxes of between $11.5 billion and $12.5 billion, despite the shortages and the higher payments to suppliers, it said.

Ford called for third-quarter adjusted EBIT of between $1.4 billion and $1.7 billion.

Shares of Ford ended the regular trading day up 1.4%. The company has embarked on a reorganization to pivot to electric vehicles, and last month confirmed layoffs in connection with its new structure.

Ford is slated to report third-quarter financial results on Oct. 26, when it said it expects to “provide more dimension about expectations for full-year performance.”

Analysts polled by FactSet expect the auto maker to report adjusted earnings of 51 cents a share, which would match the third-quarter 2021 adjusted EPS, on revenue of $38.8 billion.

The quarterly sales would compare with $35.7 billion in revenue in the year-ago period.

Shares of Ford slid 4.4% after hours, and have lost 28% so far this year, compared with losses of 18% for the S&P 500 index
SPX,
+0.69%.

The news comes a week after FedEx Corp.
FDX,
+1.17%
roiled markets and raised fears of an economic slowdown by withdrawing its outlook for the year and warning that the year was likely to become worse for the business.

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Business

Ray Dalio says watch out for rates reaching this level, because Wall Street stocks will take a 20% hit

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After that CPI shock earlier in the week, Wall Street is fielding a fresh batch of data on Thursday, with the headline retail sales number coming in stronger than expected. And a disastrous rail strike may be inverted.

But there’s no cheering up billionaire investor and hedge-fund manager Ray Dalio who in our call of the day asserts the Fed has no choice but to keep driving up interest rates, at a high price to stocks.

And he’s putting some fairly precise guesswork out there. “I estimate that a rise in rates from where they are to about 4.5% will produce about a 20% negative impact on equity prices,” Dalio said in a LinkedIn post dated Tuesday.

Some are forecasting the Fed could hike interest rates by 100 basis points next week, a move not seen since the likewise inflationary 80s. The central bank’s short-term rate hovers between 2.25% to 2.5%, but Nomura, for one, sees that rate headed to 4.75% by 2023.

But Dalio thinks interest rates could even reach the higher end of a 4.5%-to-6% range. “This will bring private sector credit growth down, which will bring private sector spending, and hence the economy down with it,” he says.

Behind this prediction is the Bridgewater Associates founder belief that the market is severely underestimating where inflation will end up — at 2.6% over the next 10 years versus what he sees as 4.5% to 5% in the medium term, barring shocks.

Read: Why a single U.S. inflation report roiled global financial markets — and what comes next

As for what happens when people start losing money in the markets — the so-called “wealth effect” — he expects less spending as they and their lenders grow more cautious.

“The upshot is that it looks likely to me that the inflation rate will stay significantly above what people and the Fed want it to be (while the year-over-year inflation rate will fall), that interest rates will go up, that other markets will go down, and that the economy will be weaker than expected, and that is without consideration given to the worsening trends in internal and external conflicts and their effects.”

The markets

Stock futures
ES00,
-0.25%

YM00,
+0.02%

NQ00,
-0.48%
are slightly lower post data, as Treasury yields
TMUBMUSD10Y,
3.437%

TMUBMUSD02Y,
3.852%
keep climbinging and the dollar
DXY,
-0.10%
firms up.

Oil prices
CL.1,
-1.63%
are lower, along with gold
GC00,
-0.83%.
China stocks
SHCOMP,
-1.16%

HSI,
+0.44%
slipped after the country’s central bank left rates unchanged. European natural-gas prices
GWM00,
+4.13%
are on the rise again. Bitcoin
BTCUSD,
+0.64%
is trading at just over $20,000.

The buzz

Shares of Union Pacific
UNP,
-3.69%,
Norfolk Southern 
NSC,
-2.16%
and CSX
CSX,
-1.05%
 are rallying in premarket after the White House said it has reached a tentative railway agreement with unions. No deal by Friday would mean strikes and havoc for supply chains, grain markets and even the coming holidays. Read more here.

August retail sales rose a stronger-than-expected 0.3% as Americans spent on new cars while weekly jobless claims came in lower for a fifth-straight week and import prices dropped 1%. Elsewhere, the Empire State manufacturing index perked up on the heels of a deep negative reading, but the Philly Fed factory index worsened. Industrial production and business inventories are still to come.

Adobe shares
ADBE,
+0.85%
are dropping after a report the software company is mulling a $20 billion deal to buy graphic design startup Figma .

Vitalik Buterin, one of the co-founders of Ethereum, says the so-called “merge” is done, meaning the birth of a more environmentally friendly crypto. Ethereum
ETHUSD,
-1.22%
is up just a little right now.

A new lawsuit claims Tesla
TSLA,
+3.59%
has made false promises over Autopilot and Full Self Driving features. And move over Tesla, Apple
AAPL,
+0.96%
is now Wall Street’s biggest short bet.

Ericsson
ERIC,
-3.32%

ERIC.A,
-1.78%

ERIC.B,
-3.34%
is dropping after a double downgrade at Credit Suisse, who cited inflationary headwinds. Analysts lifted Nokia
NOKIA,
-0.51%

NOK,
-0.40%
to outperform, though the stock is barely moving.

Cathie Wood’s Ark Investment Management went on a dip-buying spree after Tuesday’s market meltdown, scooping up chiefly Roku
ROKU,
+0.44%.

Opinion: Pinterest never considered itself a social network. Until now.

Patagonia billionaire Yvon Chouinard is donating his entire company — worth $3 billion — to the climate fight.

Best of the web

No U.S. shale rescue for Europe.

Turkey finds an extra $24.4 billion laying around.

Queue to pay respects to Queen is 2.6 miles long and counting.

The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m. Eastern Time:

Ticker Security name
TSLA,
+3.59% 		Tesla
GME,
+1.01% 		GameStop
AMC,
+1.95% 		AMC Entertainment
BBBY,
+4.66% 		Bed Bath & Beyond
HKD,
+311.78% 		AMTD Digital
NIO,
-0.14% 		NIO
AAPL,
+0.96% 		Apple
APE,
+0.94% 		AMC Entertainment preferred shares
AMZN,
+1.36% 		Amazon
NVDA,
-0.02% 		Nvidia
Random reads

Scientists try to teach robots comedic timing

Sausage, mozzarella, batter. Meet South Korea’s hot dog.

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Business

Ford Stock Falls After $1.7 Billion Verdict in Fatal Rollover Case

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Ford Motor Co.

’s shares slid nearly 5% in morning trading Monday, following news of a $1.7 billion jury verdict involving a fatal rollover accident in one of its older-model heavy-duty trucks.

A jury in Georgia on Friday reached the verdict after a three-week trial, determining punitive damages should be imposed on

Ford

F -4.98%

for selling 5.2 million Super Duty trucks that the plaintiffs’ lawyers argued had dangerously weak roofs vulnerable to collapsing in a rollover crash.

Ford’s stock, trading at about $15.12 a share Monday morning, fell more sharply than the broader market.

The lawsuit, brought by the children of the victims who died in the crash, centered on a 2014 accident in which a couple driving a 2002 Ford F-250 truck were killed when the right front tire blew out and the pickup rolled over. The victims, Melvin and Voncile Hill, were crushed inside the truck, according to court records.

“While our sympathies go out to the Hill family, we don’t believe the verdict is supported by the evidence, and we plan to appeal,” Ford said Sunday. “In the meantime, we aren’t going to litigate this matter through the news media.”

The verdict is believed to be one of Georgia’s largest and puts a spotlight on other older-model Super Duty trucks sold by Ford over a roughly 17-year period that the plaintiffs’ lawyers have argued have a similar roof design.

In the lawsuit, the plaintiffs’ attorneys allege that Super Duty trucks sold through the 1999-2016 model years had defectively designed roofs and Ford knew of the dangers posed at the time. The lawyers pointed to evidence they said showed that the trucks failed internal company testing and that in 2004, Ford developed a stronger roof but didn’t use it in sellable pickups until the 2017 model year, according to court documents.

Ford has identified 162 lawsuits and 83 similar incidents of roof crush in 1999-2016 Super Duty trucks, according to the pre-trial order.

Ford contends that Mr. Hill, the driver of the F-250 truck involved in the accident, improperly steered the vehicle after the tire ruptured, causing it to leave the roadway at a dangerous angle, the court records show.

Ford also said that the tire on the truck had the incorrect load-carrying capacity, which led it to fail, and the Hills had improperly used their seat belts, according to the court documents.

Often, high-dollar verdicts such as this one are later reduced by judges or the appeals court.

Write to Nora Eckert at nora.eckert@wsj.com

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

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Business

Transportation Secretary Buttigieg scolds airline CEOs over flight disruptions: ‘Unacceptable’

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Airbnb co-founder and CEO Brian Chesky discusses how airline flight cancellations have affected Q2 travel bookings on ‘The Claman Countdown.’

Transportation Secretary Pete Buttigieg called the uptick in flight cancellations and delays nationwide “unacceptable” and warned airlines his department could take actions if carriers don’t provide more transparency on why the disruptions are occurring. 

Buttigieg wrote letters to several CEOs of U.S. airline carriers this week and called the level of disruption Americans have experienced this summer “unacceptable.”

Buttigieg asked airline CEOs to, at a minimum, provide lodging for passengers stranded overnight at an airport and give out meal vouchers for delays of three hours or longer when the disruption is caused by something in the airline’s control.

The Transportation Department says the letters were sent to CEOs of 10 U.S. airlines including the major ones, their regional affiliates, and budget carriers.

HOUSE REPUBLICAN TO INTRODUCE BILL TO RAISE PILOT RETIREMENT AGE

Transportation Secretary Pete Buttigieg, center, speaks during a briefing at the White House in Washington (AP Photo/Susan Walsh, File / AP Newsroom)

Buttigieg’s agency recently proposed rules around refunds for passengers whose flights are canceled or rescheduled. He told the CEOs the department is considering additional rules “that would further expand the rights of airline passengers who experience disruptions.”

Buttigieg has been sparring with the airlines since late spring over high numbers of cancellations and delays but said in his letter that he appreciates that airlines have stepped up hiring and trimmed schedules to better match the number of flights they can handle.

CHARLOTTE AIRLINE PASSENGERS MISERABLE AFTER THEY’RE FORCED TO WAIT 6 HOURS FOR MAINTENANCE, WEATHER DELAYS

NEWARK, NJ – JULY 01: Travelers arrive an air train at Newark Liberty International Airport (EWR) on July 1, 2022 in Newark, New Jersey.  ((Photo by Jeenah Moon/Getty Images) / Getty Images)

A spokeswoman for Airlines for America, a trade group whose members include American, United, Delta and Southwest, said airlines “strive to provide the highest level of customer service.” She said the airlines are committed to overcoming challenges including a tight labor market.

Staffing shortages have caused a significant amount of flight cancellations and delays throughout the summer, which analysts say would have been even worse if airlines had not trimmed down their schedules. 

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Earlier this summer, Nicholas Calio, president of the trade group Airlines for America, said its member carriers cut 15% of the flights they originally planned for through August while also ramping up hiring and training to combat issues and become more reliable for passengers.

Transportation Secretary Pete Buttigieg listens at an event in Philadelphia, on Jan. 14, 2022. (AP Photo/Matt Rourke, File / AP Newsroom)

Problems have persisted as demand ramps up to pre-pandemic levels, forcing some carriers to reduce their schedule for the fall.

Associated Press contributed to this report

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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

Roku Swings to Second-Quarter Loss on Slower Ad Spending

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Roku Inc.

ROKU -2.01%

said it expected two of its main revenue drivers—advertising and sales of streaming hardware—to come under further pressure during the second half of the year, sending the company’s shares down 25% in after-hours trading.

“We are in an economic environment defined by recessionary fears, inflationary pressures, rising interest rates, and ongoing supply chain disruptions,” the company said in a letter to investors Thursday in which it announced its second-quarter results. It forecast that ad spending would continue to be negatively affected as a result. “We also believe that consumer discretionary spend will continue to moderate, pressuring both Roku TV and Roku player sales.”

The company said it expected to make $700 million in revenue during the third quarter, below analysts’ expectations of $898.3 million. Roku also withdrew its full-year revenue growth rate estimate, citing uncertainty and volatility in the macro environment.

San Jose, Calif.-based Roku is the nation’s largest maker of streaming hardware—accounting for about 37% of the U.S. market, according to Parks Associates—but it derives most of its revenue from advertising: It sells all ads viewed on The Roku Channel, its own streaming service, and also sells some ads that appear on other streaming services viewed on Roku devices.

In the second quarter, the company swung to a loss of $112.3 million, or a loss of 82 cents a share, compared with a profit of $73.5 million, or 52 cents a share, a year earlier. Analysts polled by FactSet expected a loss of 71 cents a share.

Supply-chain issues are pushing up prices for Roku’s component parts, the company said. Roku said it was absorbing the higher costs to insulate customers from price increases, which resulted in a negative gross margin of 24% for its players.

Roku’s stock has had a rough 2022 so far. Even before Thursday’s after-hours plunge, its shares were down 63% since the start of the year.

As markets react to inflation and high interest rates, technology stocks are having their worst start to a year on record. WSJ’s Hardika Singh explains why the sector — from tech giants to small startups — is getting hit so hard. Illustration: Jacob Reynolds

Revenue rose 18% to $764.4 million. Of that, $673.2 million came from platform revenue—which includes revenue from advertisers and content publishers—while player revenue accounted for $91.2 million.

Roku Chief Executive

Anthony Wood

described the ad-market upheaval as cyclical. “We’re in an economic cycle where advertising is trending down. It’ll turn around,” he said during a call with analysts Thursday. He also said Roku was the beneficiary of some of that upheaval, because some advertisers were shifting more ad dollars away from traditional TV and toward streaming services, helping Roku grow its market share.

During the second quarter, advertisers in the automotive and consumer-packaged-goods industries reduced their spending on traditional TV, but increased their spending on Roku by a double-digit percentage, said Alison Levin, Roku’s vice president for ad sales and strategy, during a call with journalists before the earnings call.

Roku will soon face competition for streaming ad dollars from two major competitors: streaming services

Netflix

and

Disney

+ are planning to begin selling ads. Mr. Wood said he believed the new entrants to the market would complement Roku by making streaming ads an even greater draw for advertisers.

“With companies like Netflix and Disney moving into ads, it makes streaming ads even more mainstream,” he said.

Write to Patience Haggin at patience.haggin@wsj.com and Denny Jacob at denny.jacob@wsj.com

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Business

Boeing Profit Falls as Executives Point to Turnaround

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The company said its second-quarter results showed it was making progress in stabilizing its operations after a series of production and regulatory problems have prevented it from delivering commercial aircraft on time and without quality issues.

“We do believe we’re in the middle of a momentum shift,” Chief Executive

David Calhoun

said in a call with analysts Wednesday.

Boeing shares were recently trading around even, having climbed more than 3% at one point.

Production of the 737 MAX has reached 31 planes a month, up from 16 a year ago, as it deals with supply-chain challenges such as engine shortages that are also affecting rival Airbus SE, which reports quarterly earnings later Wednesday. Boeing has said it stepped up 737 deliveries in June.

Executives said Wednesday Boeing appeared on the verge of receiving regulatory approval to resume deliveries of its wide-body 787 Dreamliner. A series of production issues has kept the plane maker from handing over that jet to customers for much of the last two years, leaving it with more than $25 billion of the aircraft in inventory.

A rebound in air travel has fueled airlines’ continued demand for new aircraft, which Mr. Calhoun said hasn’t slowed. “While we understand the sort of recession fears that are growing out there, so far it has not impacted the aviation industry or our customers,” Mr. Calhoun said.

Boeing is typically nearly tied for orders with rival Airbus entering the annual Farnborough Air Show, but this year it’s well behind. WSJ’s George Downs reports from the show on how Boeing is trying to catch up and what it will take to restore balance to the aviation duopoly. Illustration: Rami Abukalam

The company on Wednesday reported a profit of $160 million, or 32 cents a share, for the three months to June 30, down from $567 million, or $1, during the same period a year earlier.

The adjusted per-share loss of 37 cents, which excludes pension charges, fell short of the 13-cent loss consensus among analysts polled by FactSet. Sales in the quarter fell 2% to $16.7 billion, with analysts expecting $17.6 billion.

Results of Arlington, Va.-based Boeing’s defense business continued to be weighed down by around $400 million in charges during the quarter. This included $93 million on its Starliner space capsule in the quarter. Boeing successfully launched the Starliner in May, but it has incurred higher costs after earlier failed attempts to launch and dock with the International Space Station. It also took a $147 million charge on its MQ-25 refueling drone as costs rose to meet requirements set by the U.S. Navy.

Boeing faces a possible strike at three of its defense plants from Aug. 1 after workers rejected a new contract, which Mr. Calhoun said on CNBC could disrupt deliveries.

The company said it had positive operating cash flow in the second quarter. It reiterated the target of generating surplus cash for the full year.

Over the last couple of years, Boeing has dealt with production and regulatory problems that have impeded a recovery from two crises: a nearly two-year grounding of its 737 MAX after two fatal crashes in 2018 and 2019, and the pandemic’s hit to demand for new aircraft.

A year ago, Mr. Calhoun expressed optimism, telling analysts in July 2021: “We are turning a corner, and the recovery is gaining momentum.”

More recently, Mr. Calhoun has said this year would mark a turning point. “I can’t measure it week by week or month by month or even quarter by quarter, but I know the year is going to be substantially better,” he said at a June analyst event.

Airbus has been producing its A320 narrow-body family at a monthly rate of about 50, with a goal of reaching 75 by 2025. But Mr. Calhoun said Wednesday he couldn’t predict when Boeing would be in a position to increase its 737 MAX production rates, citing supply constraints as a barrier to ramping up.

“If I thought I had an engine supply, I’d do it today,” he said.

Boeing has had to slow production of its narrow-body aircraft this year due to supply bottlenecks, and getting stored MAX jets out of inventory has taken longer than the company anticipated. Scores of the planes have been in storage since the MAX grounding. Many of the MAX jets are bound for customers in China, which hasn’t allowed the aircraft to return to service in the country.

After previously saying it expected to deliver about 500 of 737 MAX jets by the end of the year, Boeing finance chief

Brian West

on Wednesday said the company now estimates it will deliver closer to 400 of the aircraft by the end of 2022. As of June 30, the company had handed over 181 of the aircraft to customers.

Write to Andrew Tangel at Andrew.Tangel@wsj.com and Doug Cameron at doug.cameron@wsj.com

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Business

Shopify Says It Will Lay Off 10% of Workers, Sending Shares Lower

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Shopify Inc.

SHOP -14.06%

is cutting roughly 1,000 workers, or 10% of its global workforce, rolling back a bet on e-commerce growth the technology company made during the pandemic, according to an internal memo.

Tobi Lütke,

the company’s founder and chief executive, told staff in a memo sent Tuesday that the layoffs are necessary as consumers resume old shopping habits and pull back on the online orders that fueled the company’s recent growth. Shopify, which helps businesses set up e-commerce websites, has warned that it expects revenue growth to slow this year.

Shopify’s shares fell 14% to $31.55 on Tuesday after The Wall Street Journal first reported on the layoffs. The shares have fallen more than 80% since they peaked in November near $175 adjusting for a recent stock split. The company reports quarterly results on Wednesday.

Mr. Lütke said he had expected that surging e-commerce sales growth would last past the Covid-19 pandemic’s ebb. “It’s now clear that bet didn’t pay off,” said Mr. Lütke in the letter, which was reviewed by the Journal. “Ultimately, placing this bet was my call to make and I got this wrong.”

The Ottawa-based company will cut jobs in all its divisions, though most of the layoffs will occur in recruiting, support and sales units, said Mr. Lütke. “We’re also eliminating overspecialized and duplicate roles, as well as some groups that were convenient to have but too far removed from building products,” he wrote. Staff who are being let go will be notified on Tuesday.

Shopify’s job cuts are among the largest so far in a wave of layoffs and hiring freezes that is washing over technology companies. Rising interest rates, supply-chain shortages and the reversal of pandemic trends, including remote work and e-commerce shopping, have cooled what was once a red-hot tech sector.

Shopify’s job cuts are the first big layoffs the company has announced since Tobi Lütke founded it in 2006.



Photo:

Cate Dingley/Bloomberg News

Netflix Inc.

cut about 300 workers in June as it deals with a loss in subscribers.

Twitter Inc.,

now mired in a legal standoff with

Elon Musk,

laid off fewer than 100 members of its talent acquisition team. Mr. Musk’s own company, electric-vehicle maker

Tesla Inc.,

late in June laid off roughly 200 people, after announcing it would cut 10% of salaried staff.

Other firms, including

Microsoft Corp.

and

Alphabet Inc.’s

Google, said they would slow hiring the rest of the year.

Tuesday’s announcement is Mr. Lütke’s first big move after Shopify’s shareholders approved a board plan to protect his voting power. The job cuts are the first big layoffs the company has announced since Mr. Lütke started the company in 2006.

Shopify’s workforce has increased from 1,900 in 2016 to roughly 10,000 in 2021, according to the company’s filings. The hiring spree was made to help keep up with booming business. E-commerce shopping surged during the pandemic, and many small-business owners created online stores to sell goods and services.

Shopify reported annual revenue growth of 86% in 2020 and 57% in 2021 to about $4.6 billion. However, the company reported a softening this year, and warned that 2022’s numbers wouldn’t benefit from the pandemic trends.

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In his memo on Tuesday, Mr. Lütke said, “What we see now is the mix reverting to roughly where pre-Covid data would have suggested it should be at this point. Still growing steadily, but it wasn’t a meaningful 5-year leap ahead.”

Shopify has been expanding its business in recent years to provide more services for merchants. It has developed point-of-sale hardware for retailers, launched a shopping app for its merchants to list products and created a network of fulfillment centers to ship orders for its business partners.

In May, Shopify agreed to buy U.S. fulfillment specialist Deliverr Inc. for $2.1 billion in cash and stock. It announced partnerships with Twitter in June and with YouTube earlier this month, allowing users to buy items that Shopify merchants post on those platforms.

Shopify is offering 16 weeks of severance to the laid-off workers, plus one week for every year of service.

Write to Vipal Monga at vipal.monga@wsj.com

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