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Business

Meta stock spikes despite earnings miss, as Facebook hits 2 billion users for first time and sales guidance quells fears

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Meta Platforms Inc. shares soared in after-hours trading Wednesday despite an earnings miss, as the Facebook parent company guided for potentially more revenue than Wall Street expected in the new year and promised more share repurchases amid cost cuts.

Meta
META,
+2.79%
said it hauled in $32.17 billion in fourth-quarter revenue, down from $33.67 billion a year ago but stronger than expectations. Earnings were $4.65 billion, or $1.76 a share, compared with $10.3 billion, or $3.67 a share, last year.

Analysts polled by FactSet expected Meta to post fourth-quarter revenue of $31.55 billion on earnings of $2.26 a share, and the beat on sales coincided with a revenue forecast that also met or exceeded expectations. Facebook Chief Financial Officer Susan Li projected first-quarter sales of $26 billion to $28.5 billion, while analysts on average were projecting first-quarter sales of $27.2 billion.

Shares jumped more than 18% in after-hours trading immediately following the release of the results, after closing with a 2.8% gain at $153.12.

Alphabet Inc.’s
GOOGL,
+1.61%

GOOG,
+1.56%
Google and Pinterest Inc.
PINS,
+1.56%
benefited from Meta’s results, with shares for each company rising 4% in extended trading Wednesday.

“Our community continues to grow and I’m pleased with the strong engagement across our apps. Facebook just reached the milestone of 2 billion daily actives,” Meta Chief Executive Mark Zuckerberg said in a statement announcing the results. “The progress we’re making on our AI discovery engine and Reels are major drivers of this. Beyond this, our management theme for 2023 is the ‘Year of Efficiency’ and we’re focused on becoming a stronger and more nimble organization.”

Read more: Snap suffers worst sales growth yet in holiday quarter, stock plunges after earnings miss

Facebook’s 2 billion-user milestone was slightly better than analysts expected for user growth on Meta’s core social network. Daily active users across all of Facebook’s apps neared, but did not crest, another round number, reaching 2.96 billion, up 5% from a year ago.

Meta has been navigating choppy ad waters as it copes with increasing competition from TikTok and fallout from changes in Apple Inc.’s
AAPL,
+0.79%
ad-tracking system in 2021 that punitively harmed Meta, costing it potentially billions of dollars in advertising sales. Meta has invested heavily in artificial-intelligence tools to rev up its ad-targeting systems and making better recommendations for users of its short-video product Reels, but it laid off thousands of workers after profit and revenue shrunk in recent quarters.

The cost cuts seemed to pay off Wednesday. While Facebook missed on its earnings, it noted that the costs of its layoffs and other restructuring totaled $4.2 billion and reduced the number by roughly $1.24 a share.

Meta executives said they now expect operating expenses to be $89 billion to $95 billion this year, down from previous guidance for $94 billion to $100 billion. Capital expenditures are expected to be $30 billion to $33 billion, down from previous guidance of $34 billion to $37 billion, as Meta cancels multiple data-center projects.

In a conference call with analysts late Wednesday, Zuckerberg called 2023 the “year of efficiency.”

“The reduced outlook reflects our updated plans for lower data-center construction spend in 2023 as we shift to a new data-center architecture that is more cost efficient and can support both AI and non-AI workloads,” Li said in her outlook commentary included in the release.

Meta expects to increase its spending on its own stock. The company’s board approved a $40 billion increase in its share-repurchase authorization; Meta spent nearly $28 billion on its own shares in 2022, and still had nearly $11 billion available for buybacks before that increase.

“Investors are cheering Meta’s plans to return more capital to shareholders despite worries over rising costs related to its metaverse spending,” said Jesse Cohen, senior analyst at Investing.com.

The results came a day after Snap Inc.
SNAP,
-10.29%
posted fourth-quarter revenue of $1.3 billion, flat from a year ago and the worst year-over-year sales growth Snap has ever reported. But they also arrived on the same day Facebook scored a major win in a California court. The company successfully fended off the Federal Trade Commission bid to win a preliminary injunction to block Meta’s planned acquisition of VR startup Within Unlimited.

Read more: Meta wins bid to buy VR startup Within Unlimited, beating U.S. FTC in court: report

Meta shares have plunged 53% over the past 12 months, while the broader S&P 500 index 
SPX,
+1.05%
has tumbled 10% the past year.

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Technology

Microsoft’s Cloud Doesn’t Quite Cover All

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Demand for Windows operating-system software has fallen with sales of the personal computers that use it.



Photo:

STEVE MARCUS/REUTERS

Microsoft’s

MSFT -0.22%

latest results are like a blast from the past—and not in a good way. 

The software titan has come a long way from the days when it depended on its ubiquitous Windows operating system. But it is still a lucrative business—enough so that a slump in personal computer sales can weigh on Microsoft’s financial results. And a slump this is; IDC reported earlier this month that PC unit sales slid 28% year over year during the December quarter—the biggest drop tracked by the market research firm’s numbers going at least back to 2015. 

Not surprisingly then, Microsoft said Tuesday in its fiscal second quarter results report that Windows revenue slid 27% year over year to about $4.9 billion for the same period. That is less than 10% of the company’s revenue now, but it is a profitable contributor given that much comes from PC makers simply paying Microsoft to bundle Windows onto their machines. Hence, operating profits in Microsoft’s More Personal Computing segment that includes the Windows business slid 48% year over year. That played a big part in the company’s total operating profit for the quarter coming about 3% shy of Wall Street’s forecasts, at $20.4 billion.   

Investors have largely learned to look past Windows these days in favor of Microsoft’s far more important cloud business. But as Microsoft’s last report three months ago proved, even that isn’t immune to the slumping global economy. Azure, the cloud computing service that competes squarely with

Amazon

‘s AWS, grew revenue by 31% year over year. That slightly exceeded Wall Street’s forecasts, but it was still a record-low pace for the business. Things also aren’t looking like they will get much better anytime soon. Chief Financial Officer

Amy Hood

noted that cloud growth moderated, “particularly in December,” and projected revenue growth of 14% to 15% year over year for the company’s Intelligent Cloud segment during the March quarter—a deceleration of 11 percentage points from the same period last year. 

Investors were at least better-prepared for bad news this time. Microsoft’s share price slipped 1% in after-hours trading following the results and forecast compared with the 8% drop sparked by its previous quarterly report. As the first major tech player to post results for the December quarter, Microsoft also casts a large shadow. It has a highly diversified business that spans corporate and consumer software, cloud services, videogame systems and even online advertising. The company even noted that the recent spate of big tech layoffs will hurt its LinkedIn business, which is a major corporate recruiting tool in the tech sector. Those layoffs include 10,000 positions to be cut from Microsoft’s own payroll–another sign that even a cloud titan can’t keep floating above the economy. 

Write to Dan Gallagher at dan.gallagher@wsj.com

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

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Business

Hiring, Wage Gains Eased in December, Pointing to a Cooling Labor Market in 2023

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The U.S. labor market is losing momentum as hiring and wage growth cooled in December, showing the effects of slower economic growth and the Federal Reserve’s interest-rate increases.

After two straight years of record-setting payroll growth following the pandemic-related disruptions, the labor market is starting to show signs of stress. That suggests 2023 could bring slower hiring or outright job declines as the overall economy slows or tips into recession.

Employers added 223,000 jobs in December, the smallest gain in two years, the Labor Department said Friday. Average hourly earnings were up 4.6% in December from the previous year, the narrowest increase since mid-2021, and down from a March peak of 5.6%.

All told, employers added 4.5 million jobs in 2022, the second-best year of job creation after 2021, when the labor market rebounded from Covid-19 shutdowns and added 6.7 million jobs. Last year’s gains were concentrated in the first seven months of the year. More recent data and a wave of tech and finance-industry layoffs suggest the labor market, while still vibrant, is cooling.

“I do expect the economy to slow noticeably by June, and in the second half of the year we’ll see a greater pace of slowing if not outright contraction,” said

Joe Brusuelas,

chief economist at RSM U.S.

Friday’s report sent markets rallying as investors anticipated it would cause the Fed to slow its pace of rate increases. The central bank’s next policy meeting starts Jan. 31. The Fed’s aggressive rate increases aimed at combating inflation didn’t significantly cool 2022 hiring, but revisions to wage growth showed recent gains weren’t as brisk as previously thought.

The Dow Jones Industrial Average rose 700.53 points, or 2.13%, on Friday. The S&P 500 Index was up 2.28% and NASDAQ Composite Index advanced 2.56%. The benchmark 10-year Treasury yield declined 0.15 percentage point to 3.57%. Yields fall as bond prices rise.

The unemployment rate fell to 3.5% in December from 3.6% in November, matching readings earlier in 2022 and just before the pandemic began as a half-century low. Fed officials said last month the jobless rate would rise in 2023. December job gains were led by leisure and hospitality, healthcare and construction.

Historically low unemployment and solid hiring, however, might mask some signs of weakness. The labor force participation rate, which measures the share of adults working or looking for work, rose slightly to 62.3% in December but is still well below prepandemic levels, one possible factor that could make it harder for employers to fill open positions.

The average workweek has declined over the past two years and in December stood at 34.3 hours, the lowest since early 2020.

Hiring in temporary help services has fallen by 111,000 over the past five months, with job losses accelerating. That could be a sign that employers, faced with slowing demand, are reducing their employees’ hours and pulling back from temporary labor to avoid laying off workers.

The tech-heavy information sector lost 5,000 jobs in December, the Labor Department report showed. Retail saw a 9,000 rise in payrolls, snapping three straight months of declines.

Tech companies cut more jobs in 2022 than they did at the height of the Covid-19 pandemic, according to layoffs.fyi, which tracks industry job cuts. On Wednesday,

Salesforce Inc.

said it would cut 10% of its workforce, unwinding a hiring spree during the pandemic. The Wall Street Journal reported that

Amazon.com Inc.

would lay off 18,000 people, roughly 1.2% of its total workforce. Other companies, such as

Facebook

parent

Meta Platforms Inc.,

DoorDash Inc.

and

Snap Inc.,

have also recently cut positions.

Companies in the interest-rate-sensitive housing and finance sectors, including

Redfin Corp.

,

Morgan Stanley

and

Goldman Sachs Group Inc.,

have also moved to reduce staff.


Months where overall jobs gained

Months where overall jobs declined

By the end of 2022, the U.S. had added nearly 2 million jobs since the end of 2019

More than 20 million jobs were lost near the start of the pandemic

Employment returns to prepandemic level

A monthly gain of more than 4 million jobs

Months where

overall jobs gained

Months where

overall jobs declined

By the end of 2022, the U.S. had added nearly 2 million jobs since the end of 2019

More than 20 million jobs were lost near the start of the pandemic

Employment returns to prepandemic level

A monthly gain of more than 4 million jobs

Months where

overall jobs gained

Months where

overall jobs declined

By the end of 2022, the U.S. had added nearly 2 million jobs since the end of 2019

More than 20 million jobs were lost near the start of the pandemic

Employment returns to prepandemic level

A monthly gain of more than 4 million jobs

Months where

overall jobs gained

Months where

overall jobs declined

By the end of 2022, the U.S. had added nearly 2 million jobs since the end of 2019

More than 20 million jobs were lost near the start of the pandemic

Employment returns to prepandemic level

A monthly gain of more than 4 million jobs

Months where

overall jobs gained

Months where

overall jobs declined

By the end of 2022, the U.S. had added nearly 2 million jobs since the end of 2019

More than 20 million jobs were lost near the start of the pandemic

Employment returns to prepandemic level

A monthly gain of more than 4 million jobs

Other data released this week point to a slowing U.S. economy. New orders for manufactured goods fell a seasonally adjusted 1.8% in November, the Commerce Department said Friday. Business surveys showed a contraction in economic activity in December, according to the Institute for Supply Management. Manufacturing firms posted the second-straight contraction following 29 months of expansion, and services firms snapped 30 straight months of growth in December.

Economists surveyed by The Wall Street Journal last fall saw a 63% probability of a U.S. recession in 2023. They saw the unemployment rate rising to 4.7% by December 2023.

“We’ve obviously been in a situation over the past few months where employment growth has been holding up surprisingly well and is slowing very gradually,” said

Andrew Hunter,

senior U.S. economist at Capital Economics. “There are starting to be a few signs that we’re maybe starting to see a bit more of a sharp deterioration.”

Max Rottersman, a 61-year-old independent software developer, said he had been very busy with consulting jobs during much of the pandemic. But that changed over the summer when work suddenly dried up.

“I’m very curious to see whether I’m in high demand in the next few months or whether—what I sort of expect will happen—there will be tons of firing,” he said.

Despite some signs of cooling, the labor market remains exceptionally strong. On Wednesday, the Labor Department reported that there were 10.5 million job openings at the end of November, unchanged from October, well more than the number of unemployed Americans seeking work.

Some of those open jobs are at Caleb Rice’s home-renovation business in Calhoun, Tenn., which has been consistently busy since the start of the pandemic. The small company has raised pay and gone to a four-day week in an effort to hold on to workers.

“If I could get three more skilled hands right now, I’d be comfortable,” Mr. Rice said. “The way it goes is I’ll hire five, two will show up and of those two one won’t be worth a flip.”

Fed officials have been trying to engineer a gradual cooling of the labor market by raising interest rates. Officials are worried that a too-strong labor market could lead to more rapid wage increases, which in turn could put upward pressure on inflation as firms raise prices to offset higher labor costs.

The central bank raised rates at each of its past seven meetings and has signaled more rate increases this year to bring inflation down from near 40-year highs. Fed officials will likely take comfort in the slowdown in wage gains, which could prompt them to raise rates at a slower pace, Mr. Brusuelas, the economist, said.

“We’re closer to the peak in the Fed policy rate than we were prior to the report, and the Fed can strongly consider a further slowing in the pace of its hikes,” he said. “We could plausibly see a 25-basis-point hike versus a 50-basis-point hike at the Feb. 1 meeting.”

Write to David Harrison at david.harrison@wsj.com

Corrections & Amplifications
A graphic in an earlier version of this article showing the change in nonfarm payrolls since the end of 2019 was incorrectly labeled as change since January 2020. (Corrected on Jan. 6)

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

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Business

Amazon Layoffs to Hit Over 17,000 Workers, the Most in Recent Tech Wave

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Amazon.

AMZN -0.79%

com Inc.’s layoffs will affect more than 17,000 employees, according to people familiar with the matter, the highest reduction tally revealed in the past year at a major technology company as the industry pares back amid economic uncertainty.

The Seattle-based company in November said that it was beginning layoffs among its corporate workforce, with cuts concentrated on its devices business, recruiting and retail operations. At the time, The Wall Street Journal reported the cuts would total about 10,000 people. Thousands of those cuts began last year.

The rest of the cuts will bring the total number of layoffs to more than 17,000 and will be made over the coming weeks, some of the people said. As of September,

Amazon

AMZN -0.79%

employed 1.5 million people, with a large percentage of them in its warehouses. The layoffs are concentrated in the company’s corporate ranks, some of the people said.

Amazon

was one of the biggest beneficiaries of the Covid-19 pandemic as customers flocked to online shopping. The rush to Amazon’s various businesses, from e-commerce to groceries and cloud computing, pushed forward years of growth for the company. To keep up with demand, Amazon doubled its logistics network and added hundreds of thousands of employees.

When demand started to wane with customers moving back to shopping in stores, Amazon initiated a broad cost-cutting review to pare back on units that were unprofitable, the Journal reported. In the spring and summer, the company made targeted cuts to bring down costs, shutting physical stores and business units such as Amazon Care. Amazon later announced a companywide hiring freeze before deciding to let employees go.

Many tech companies have cut jobs as the economy sours. Amazon’s layoffs of more than 17,000 employees would represent the highest number of people let go by a tech company in the past few months, according to tallies released on Layoffs.fyi, a website that tracks the events as they surface in media reports and company releases.

The trend has affected companies such as Amazon and others that have acknowledged they grew too quickly in many cases.

Facebook

parent

Meta Platforms Inc.

said it would cut more than 11,000 workers, or 13% of its staff, adding to layoffs at

Lyft Inc.,

HP Inc.

and other tech companies. On Wednesday,

Salesforce Inc.

said that it was laying off 10% of its workforce. Co-Chief Executive

Marc Benioff

said the business-software provider hired too many people as revenue surged earlier in the pandemic. “I take responsibility for that,” he said.

Write to Dana Mattioli at dana.mattioli@wsj.com and Jessica Toonkel at jessica.toonkel@wsj.com

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

Appeared in the January 5, 2023, print edition as ‘Amazon Layoffs To Exceed Initial Reports.’

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Business

Tesla is not alone: 18 (and a half) other big stocks are headed for their worst year on record

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In the worst year for stocks since the Great Recession, several big names are headed for their worst year on record with just one trading day left in 2022.

The S&P 500 index
SPX,
+1.75%
and Dow Jones Industrial Average
DJIA,
+1.05%
are both headed for their worst year since 2008, with declines of 20.6% and 9.5% respectively through Thursday. But at least 19 big-name stocks — and half of another — are headed for a more ignominious title for 2022, according to Dow Jones Market Data: Worst year ever.

Tesla Inc.
TSLA,
+8.08%
is having the worst year among the group of S&P 1500 constituents with a market capitalization of $30 billion or higher headed for record annual percentage declines. Tesla shares have declined 65.4% so far this year, which would be easily the worst year on record for the popular stock, which has only had one previous negative year since going public in 2010, an 11% decline in 2016.

Tesla may not be the worst decliner on the list by the time 2023 arrives, however, as another Silicon Valley company is right on its heels. Meta Platforms Inc.
META,
+4.01%,
the parent company of Facebook, has fallen 64.2% so far this year, as Chief Executive Mark Zuckerberg has stuck to spending billions to develop the “metaverse” even as the online-advertising industry that provides the bulk of his revenue has stagnated. It would also only be the second year in Facebook’s history that the stock has declined, after a 25.7% drop in 2018, though shares did end Facebook’s IPO year of 2012 30% lower than the original IPO price.

Only one other stock could contend with Tesla and Meta’s record declines this year, and Tesla CEO Elon Musk has some familiarity with that company as well. PayPal Holdings Inc.
PYPL,
+4.46%,
where Musk first found fame during the dot-com boom, has declined 63.2% so far this year as executives have refocused the company on attracting and retaining high-value users instead of trying to get as many users as possible on the payments platform. It would be the second consecutive down year for PayPal, which had not experienced that before 2021 since spinning off from eBay Inc.
EBAY,
+4.76%
in 2015.

None of the other companies headed for their worst year yet stand to lose more than half their value this year, though Charter Communications Inc.
CHTR,
+1.99%
is close. The telecommunications company’s stock has declined 48.2% so far, as investors worry about plans to spend big in 2023 in an attempt to turn around declining internet-subscriber numbers.

In addition to the list below, Alphabet Inc.’s class C shares
GOOG,
+2.88%
are having their worst year on record with a 38.4% decline. MarketWatch is not including that on the list, however, as Alphabet’s class A shares
GOOGL,
+2.82%
fell 55.5% in 2008; the separate class of nonvoting shares was created in 2012 to allow the company — then still called Google — to continue issuing shares to employees without diluting the control of co-founders Sergey Brin and Larry Page.

Apart from that portion of Alphabet’s shares, here are the 19 large stocks headed for their worst year ever, based on Thursday’s closing prices.

Company % decline in 2022
Tesla Inc.
TSLA,
+8.08% 		65.4%
Meta Platforms Inc.
META,
+4.01% 		64.2%
PayPal Holdings Inc.
PYPL,
+4.46% 		62.6%
Charter Communications Inc. 48.0%
Edwards Lifesciences Corp.
EW,
+2.87% 		41.9%
ServiceNow Inc.
NOW,
+3.67% 		39.9%
Zoetis Inc.
ZTS,
+3.00% 		39.3%
Fidelity National Information Services Inc.
FIS,
+2.03% 		37.8%
Accenture PLC
ACN,
+2.00% 		35.3%
Fortinet Inc.
FTNT,
+2.82% 		31.5%
Estee Lauder Cos. Inc.
EL,
+1.52% 		32.5%
Moderna Inc.
MRNA,
+1.34% 		29.6%
Iqvia Holdings Inc.
IQV,
+2.94% 		26.3%
Carrier Global Corp.
CARR,
+2.17% 		22.8%
Hilton Worldwide Holdings Inc.
HLT,
+1.63% 		19.2%
Broadcom Inc.
AVGO,
+2.37% 		16.2%
Arista Networks Inc.
ANET,
+2.27% 		15.2%
Dow Inc.
DOW,
+1.32% 		10.7%
Otis Worldwide Corp.
OTIS,
+2.16% 		9.2%

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Business

Facebook Parent’s Oversight Board Criticizes ‘Cross Check’ Program That Protects VIP Users

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Meta Platforms Inc. has long given unfair deference to VIP users of its Facebook and Instagram services under a program called “cross check” and has misled the public about the program, the company’s oversight board concluded in a report issued Tuesday.

The report offers the most detailed review to date of cross check, which Meta has billed as a quality-control effort to prevent moderation errors on content of heightened public interest. The oversight board took up the issue more than a year ago in the wake of a Wall Street Journal article based on internal documents that showed that cross check was plagued by favoritism, mismanagement and understaffing.

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Business

Facebook Parent Meta Is Preparing to Notify Employees of Large-Scale Layoffs This Week

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Meta Platforms Inc.

META 2.11%

is planning to begin large-scale layoffs this week, according to people familiar with the matter, in what could be among the largest round in a recent spate of tech job cuts after the industry’s rapid growth during the pandemic.

The layoffs are expected to affect many thousands of employees and an announcement is planned to come as soon as Wednesday, according to the people. Meta reported more than 87,000 employees at the end of September. Company officials already told employees to cancel nonessential travel beginning this week, the people said.

The planned layoffs would be the first broad head-count reductions to occur in the company’s 18-year history. While smaller on a percentage basis than the cuts at Twitter Inc. this past week, which hit about half of that company’s staff, the number of Meta employees expected to lose their jobs could be the largest to date at a major technology corporation in a year that has seen a tech industry retrenchment. 

CEO Mark Zuckerberg has said recently that ‘some teams will grow meaningfully, but most other teams will stay flat or shrink over the next year.’



Photo:

Michael Nagle/Bloomberg News

A spokesman for Meta declined to comment, referring to Chief Executive

Mark Zuckerberg’s

recent statement that the company would “focus our investments on a small number of high priority growth areas.”

“So that means some teams will grow meaningfully, but most other teams will stay flat or shrink over the next year,” he said on the company’s third-quarter earnings call on Oct. 26. “In aggregate, we expect to end 2023 as either roughly the same size, or even a slightly smaller organization than we are today.”

The Wall Street Journal reported in September that Meta was planning to cut expenses by at least 10% in the coming months, in part through staff reductions.

The cuts expected to be announced this week follow several months of more targeted staffing reductions in which employees were managed out or saw their roles eliminated.

“Realistically, there are probably a bunch of people at the company who shouldn’t be here,” Mr. Zuckerberg told employees at a companywide meeting at the end of June. 

Meta, like other tech giants, went on a hiring spree during the pandemic as life and business shifted more online. It added more than 27,000 employees in 2020 and 2021, and added an additional 15,344 in the first nine months of this year—about a fourth of that in the most recent quarter.

Meta’s stock has fallen by more than 70% this year. The company has highlighted deteriorating macroeconomic trends, but investors have also been spooked by its high spending and threats to the company’s core social-media business. Growth for that business in many markets has stalled amid stiff competition from TikTok, and

Apple Inc.’s

requirement that users opt-in to the tracking of their devices has curtailed the ability of social-media platforms to target ads. 

Last month, investment firm Altimeter Capital said in an open letter to Mr. Zuckerberg that Meta should slash staff and pare back its metaverse ambitions, reflecting the rising discontent among shareholders. 

Meta’s expenses have also risen sharply, causing its free cash flow to decline by 98% in the most recent quarter. Some of the company’s spending stems from heavy investments in the additional computing power and artificial intelligence needed to further develop Reels, Meta’s TikTok-like short-form video platform on Instagram, and to target ads with less data.

But much of Meta’s ballooning costs stem from Mr. Zuckerberg’s commitment to Reality Labs, a division of the company responsible for both virtual and augmented reality headsets as well as the creation of the metaverse. Mr. Zuckerberg has billed the metaverse as a constellation of interlocking virtual worlds in which people will eventually work, play, live and shop. 

Meta has invested heavily in promoting its virtual-reality platform, but users have been largely unimpressed.



Photo:

Guillermo Gutierrez/Zuma Press

The effort has cost the company $15 billion since the beginning of last year. But despite investing heavily in promoting its virtual-reality platform, Horizon Worlds, users have been largely unimpressed. Last month, the Journal reported that visitors to Horizon Worlds had fallen over the course of the year to well under 200,000 users, about the size of Sioux Falls.

“I get that a lot of people might disagree with this investment,” Mr. Zuckerberg told analysts on the company’s earnings call last month before reaffirming his commitment. “I think people are going to look back on decades from now and talk about the importance of the work that was done here.” 

Following the call, analysts downgraded their rating of Meta’s stock and slashed price targets. 

“Management’s road map & justification for this strategy continue to not resonate with investors,” analysts at RBC Capital Markets said in a note last month. 

Write to Jeff Horwitz at jeff.horwitz@wsj.com and Salvador Rodriguez at salvador.rodriguez@wsj.com

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

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Business

The Dow soars, Big Tech tumbles: What’s next for stocks as investors await Fed guidance

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The past week offered a tale of two markets, with gains for the Dow Jones Industrial Average putting the blue-chip gauge on track for its best October on record while Big Tech heavyweights suffered a shellacking that had market veterans recalling the dot-com bust in the early 2000s.

“You have a tug of war,” said Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors LLC (RBA), in a phone interview.

For the technology sector, particularly the megacap names, earnings were a major drag on performance. For everything else, the market was short-term oversold at the same time optimism was building over expectations the Federal Reserve and other major global central banks will be less aggressive in tightening monetary policy in the future, he said.

Read: Market expectations start to shift in direction of slower pace of rate hikes by Fed

What’s telling is that the interest-rate sensitive tech sector would usually be expected to benefit from a moderation of expectations for tighter monetary policy, said Suzuki, who contends that tech stocks are likely in for a long period of underperformance versus their peers after leading the market higher over the last 12 years, a performance capped by soaring gains following the onset of COVID-19 pandemic in 2020.

RBA has been arguing that there was “a major bubble within major portions of the equity market for over a year now,” Suzuki said. “We think this is the process of the bubble deflating and we think there’s probably further to go.”

The Dow
DJIA,
+2.59%
surged nearly 830 points, or 2.6%, on Friday to end at a two-month high and log a weekly gain of more than 5%. The blue-chip gauge’s October gain was 14.4% through Friday, which would mark its strongest monthly gain since January 1976 and its biggest October rise on record if it holds through Monday’s close, according to Dow Jones Market Data.

While it was a tough week for many of Big Tech’s biggest beasts, the tech-heavy Nasdaq Composite
COMP,
-8.39%
and tech-related sectors bounced sharply on Friday. The tech-heavy Nasdaq swung to a weekly gain of more than 2%, while the S&P 500
SPX,
+2.46%
rose nearly 4% for the week.

Big Tech companies lost more than $255 billion in market capitalization in the past week. Apple Inc.
AAPL,
+7.56%
escaped the carnage, rallying Friday as investors appeared okay with a mixed earnings report. A parade of disappointing earnings sank shares of Facebook parent Meta Platforms Inc.
META,
+1.29%,
Google parent Alphabet Inc.
GOOG,
+4.30%

GOOGL,
+4.41%,
Amazon.com Inc.
AMZN,
-6.80%
and Microsoft
MSFT,
+4.02%.

Mark Hulbert: Technology stocks tumble — this is how you will know when to buy them again

Together, the five companies have lost a combined $3 trillion in market capitalization this year, according to Dow Jones Market Data.

Opinion: A $3 trillion loss: Big Tech’s horrible year is getting worse

Aggressive interest rate increases by the Fed and other major central banks have punished tech and other growth stocks the most this year, as their value is based on expectations for earnings and cash flow far into the future. The accompanying rise in yields on Treasurys, which are viewed as risk-free, raises the opportunity cost of holding riskier assets like stocks. And the further out those expected earnings stretch, the bigger the hit.

Excessive liquidity — a key ingredient in any bubble — has also contributed to tech weakness, said RBA’s Suzuki.

And now investors see an emerging risk to Big Tech earnings from an overall slowdown in economic growth, Suzuki said.

“A lot of people have the notion that these are secular growth stocks and therefore immune to the ups and downs of the overall economy — that’s not empirically true at all if you look at the history of profits for these stocks,” he said.

Tech’s outperformance during the COVID-inspired recession may have given investors a false impression, with the sector benefiting from unique circumstances that saw households and businesses become more reliant on technology at a time when incomes were surging due to fiscal stimulus from the government. In a typical slowdown, tech profits tend to be very economically sensitive, he said.

The Fed’s policy meeting will be the main event in the week ahead. While investors and economists overwhelmingly expect policy makers to deliver another supersize 75 basis point, or 0.75 percentage point, rate increase when the two-day gathering ends on Wednesday, expectations are mounting for Chairman Jerome Powell to indicate a smaller December may be on the table.

However, all three major indexes remain in bear markets, so the question for investors is whether the bounce this week will survive if Powell fails to signal a downshift in expectations for rate rises next week.

See: Another Fed jumbo rate hike is expected next week and then life gets difficult for Powell

Those expectations helped power the Dow’s big gains over the past week, alongside solid earnings from a number of components, including global economic bellwether Caterpillar Inc.
CAT,
+3.39%.

Overall, the Dow benefited because it’s “very tech-light, and it’s very heavy in energy and industrials, and those have been the winners,” Art Hogan, chief market strategist at B. Riley Wealth Management told MarketWatch’s Joseph Adinolfi on Friday. “The Dow just has more of the winners embedded in it and that has been the secret to its success.”

Meanwhile, the outperformance of the Invesco S&P 500 Equal Weight ETF
RSP,
+2.08%,
up 5.5% over the week, versus the market-cap-weighted SPDR S&P 500 ETF Trust
SPY,
+2.38%,
underscored that while tech may be vulnerable to more declines, “traditional parts of the economy, including sectors that trade at a lower valuation, are proving resilient since the broad markets bounced nearly two weeks ago,” said Tom Essaye, founder of Sevens Report Research, in a Friday note.

“Stepping back, this market and the economy more broadly are starting to remind me of the 2000-2002 setup, where extreme tech weakness weighed on the major indices, but more traditional parts of the market and the economy performed better,” he wrote.

Suzuki said investors should remember that “bear markets always signal a change of leadership” and that means tech won’t be taking the reins when the next bull market begins.

“You can’t debate that we’ve already got a signal and the signal is telling up that next cycle not going to look anything like the last 12 years,” he said.

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Business

Elon Musk’s Twitter Reversal Revives Takeover Bid for a Now-Weaker Firm

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Elon Musk’s

latest about-face over his $44 billion deal to buy

Twitter Inc.

TWTR -1.35%

has him poised to take over a company that is weaker than it was before he tried to abandon the agreement—thanks in part to his own actions.

Broad economic concerns have intensified since July 8, when Mr. Musk made public his intention to terminate the deal. The Federal Reserve has raised interest rates by 0.75 percentage point at a second and third straight meeting, the Dow Jones Industrial Average last week fell into what investors call a bear market, and Twitter’s social-media rival

Snap Inc.

is slashing jobs.

While Twitter’s stock price has held up because of Mr. Musk’s potential acquisition, its performance has declined. The company reported a surprising decline in revenue in the second quarter that it blamed on weakness in the advertising industry and uncertainty related to Mr. Musk’s acquisition.

Twitter this year is expected by analysts to report one of its slowest annual rates of sales growth ever as a public company, at 4.5%. In 2021, revenue rose 37%.

Mr. Musk has given few specific details about his plans for Twitter, but the billionaire chief executive of

Tesla Inc.

has said he wants to transform Twitter as a private company and unlock what he called its extraordinary potential as a platform for free speech.

He has talked about modifying Twitter’s rules around content moderation, reducing its reliance on advertising—which provided more than 90% of its revenue in this year’s second quarter—and making Twitter’s algorithms open source, which would allow others to view and recommend changes. Mr. Musk also has proposed “defeating the spam bots and authenticating all humans.”

In texts released last week as part of the litigation between Twitter and Mr. Musk over his effort to abandon the deal, Mr. Musk said in April that his biggest concerns were Twitter’s head count and expense growth. He also said he wanted to oversee software development at Twitter and works better with engineers than people with business degrees.

Twitter will become a private company if Elon Musk’s $44 billion takeover bid is approved. The move would allow Mr. Musk to make changes to the site. WSJ’s Dan Gallagher explains Mr. Musk’s proposed changes and the challenges he might face enacting them. Illustration: Jordan Kranse

There are no guarantees that Mr. Musk will follow through with his proposal and close the transaction. Mr. Musk and Twitter are scheduled to go to trial Oct. 17 in Delaware over his effort to abandon the deal, and that could still go forward.

On Wednesday, the Delaware Chancery Court judge presiding over the legal battle said she is pressing ahead with preparing for the trial and issued a ruling that asked Mr. Musk’s legal team to produce more of his text messages to the extent they haven’t done so already.

Should a deal occur and avert a trial, the resolution could ease some of the uncertainty surrounding the company’s future.

“Assuming the deal closes, it’s a good price for shareholders,” said Jason Goldman, former Twitter product chief and board member. “But it’s a bad outcome for everyone else,” including employees who have labored under the uncertainty and users who rely on the product, he said. Mr. Goldman said he didn’t think Mr. Musk has presented serious ideas about how he would lead such an influential platform.

Mr. Musk has proven doubters wrong before in becoming the world’s wealthiest person. He has turned Tesla into the world’s most valuable car company and a leader in electric vehicles, and his SpaceX company is the world’s busiest rocket-launch operation.

Mr. Musk’s legal team declined to comment Tuesday about his proposal. Twitter on Tuesday confirmed receipt of Mr. Musk’s letter and said it intends to close the transaction at the original price of $54.20 a share.

The outlook for the social-media industry has darkened in recent weeks.

Snap Inc.

in August said it was slashing one-fifth of its workforce and curbing investment in a range of areas after a slowdown in its business. Facebook parent

Meta Platforms Inc.

last week told employees it was implementing a hiring freeze and looking for other ways to cut costs.

In July, Twitter said in a regulatory filing that attrition was slightly higher than in normal economic times, but remained in line with current industry trends. Twitter said Tuesday that it had anticipated higher attrition this year even before the merger agreement.

In addition, Twitter’s former head of security,

Peiter Zatko,

emerged in August with a whistleblower complaint listing a litany of criticisms about the company’s management of security and privacy issues. That complaint prompted new scrutiny from Washington lawmakers. Twitter CEO

Parag Agrawal

told employees in a memo at the time that the spotlight on Twitter would “only make our work harder.” Twitter also said that Mr. Zatko’s claims were inaccurate.

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If the deal goes through, how do you think Elon Musk might change Twitter? Join the conversation below.

Despite the industry’s challenges, Twitter said in July that its audience has grown, reporting a second-quarter average of 237.8 million monetizable daily active users, up 17% from the same period a year earlier. Advertising revenue increased 2% in the second quarter compared with the year-earlier period.

Mr. Musk, when he met with Twitter employees in June, was asked about what he would consider successful for Twitter five to 10 years from now, and said a substantial increase in daily active users to over a billion, according to people familiar with the meeting. He also said during the meeting that Twitter should be entertaining, like TikTok, and that he admired the Chinese app

WeChat,

which is used heavily in China for a range of purposes including e-commerce and social networking.

Asked about his stance on free speech, Mr. Musk drew a distinction between freedom of speech and freedom of reach, according to attendees. He said that meant people should be allowed to say pretty outrageous things within the law but didn’t necessarily deserve to have their tweets amplified and spread virally across Twitter.

In the texts released last week, Mr. Musk said in April, “Twitter is obviously not going to be turned into some right wing nuthouse. Aiming to be as broadly inclusive as possible.”

Accomplishing that balance will be a challenge, content-moderation analysts said Tuesday.

“Elon Musk and his new leadership are about to get a crash course in the complexities of moderating harmful content,” said Eddie Perez, a former Twitter employee who worked on civic integrity and misleading information and is a board member at the OSET Institute, a nonpartisan election-technology group.

Write to Alexa Corse at alexa.corse@wsj.com

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

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Business

Stocks Fall on Hotter-Than-Expected Inflation Data

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The Dow Jones Industrial Average slumped more than 1,000 points Tuesday after hotter-than-expected inflation data dashed investors’ hopes that cooling price pressures would prompt the Federal Reserve to moderate its campaign of interest-rate increases.

Investors sold everything from stocks and bonds to oil and gold. All 30 stocks in the blue-chip average declined, as did all 11 sectors in the S&P 500. Only five stocks in the broad benchmark were in the green in recent trading. Facebook

 

META -9.36%

parent

Meta Platforms

dropped 8.3%,

BlackRock

declined 7.2% and

Boeing

fell 6.4%.

The 3.3% tumble in the Dow put the index on pace for its worst day since May. The S&P 500 declined 3.7%, while the Nasdaq Composite slid 4.5% as rate-sensitive technology stocks took a heavy beating.

The Dow is off 14% in 2022, while the S&P 500 is down 17% and the Nasdaq Composite has fallen 25%.

Investors had eagerly anticipated Tuesday’s release of the consumer-price index, which provided a last major look at inflation before the central bank’s interest-rate-setting committee meets next week. Expectations for the path of monetary policy have held sway over the markets as investors factor higher rates into asset prices and try to project how well the economy will hold up as rates rise.

“It increases the probability of recession if the Fed has to move more significantly to address inflation,” said Chris Shipley, chief investment strategist for North America at Northern Trust Asset Management.

The consumer-sentiment index and the consumer-confidence index both try to measure the same thing: consumers’ feelings. WSJ explains why the Federal Reserve is keeping a close eye on consumer confidence in 2022. Illustration: Adele Morgan

The new data showed the consumer-price index rose 8.3% in August from the same month a year ago. That was down from 8.5% in July and 9.1% in June—the highest inflation rate in four decades.

The figures show inflation is easing, but at a slower pace than investors and economists had anticipated. Economists surveyed by The Wall Street Journal had been expecting consumer prices to rise 8% annually in August.

Analysts had hoped that officials would consider easing their pace of interest-rate increases if data continued to show inflation subsiding. The data undercut those hopes, seeming to settle the case for the Fed to raise rates by at least 0.75 percentage point next week. After the release, stock futures fell, bond yields rose and the dollar rallied.

Traders began to consider the possibility that the central bank will raise interest rates by a full percentage point next week.

As of Tuesday afternoon, they assigned a 28% probability to a 1-percentage-point increase at that meeting, up from a 0% chance a day earlier, according to CME Group’s FedWatch Tool.

The market-based probability of a half-percentage-point increase, by contrast, fell to 0% from 9% on Monday, according to the CME data.

The most likely scenario remained an increase of 0.75 percentage point.

Beyond next week, the suggestion that inflation is sticking around raises the possibility that the Fed might ultimately raise rates higher than markets had been anticipating.

“That’s really the challenge,” said Matt Forester, chief investment officer of Lockwood Advisors at BNY Mellon Pershing. “The Fed might have to do a lot more work in order to contain inflation.”

Food prices have surged as part of a broader pickup in U.S. inflation.



Photo:

michael reynolds/EPA/Shutterstock

Fed Chairman

Jerome Powell

said earlier this month that the central bank is squarely focused on bringing down high inflation to prevent it from becoming entrenched as it did in the 1970s.

The reaction to the new inflation reading could be seen across asset classes.

The communication services, technology and consumer discretionary sectors of the S&P 500 all fell more than 4.5%. Semiconductor stocks were particularly hard hit:

Western Digital,

Nvidia,

Advanced Micro Devices

and

Micron Technology

declined more than 7%.

In bond markets, the yield on the benchmark 10-year U.S. Treasury note jumped to 3.429% from 3.361% Monday. Yields and prices move in opposite directions. The rise in bond yields was an additional sign that investors were expecting higher interest rates after the data. 

Brent crude, the international benchmark for oil prices, fell 0.9% to $93.17 a barrel. Gold prices declined 1.3%.

The U.S. dollar, by contrast, rallied Tuesday. The WSJ Dollar Index, which measures the greenback against a basket of other currencies, rose 1.3%. The strong dollar has weighed on the value of other currencies against the greenback this year.

Overseas, the pan-continental Stoxx Europe 600 fell about 1.5%. In Asia, major indexes closed mixed. South Korea’s Kospi Composite rallied 2.7% , while Hong Kong’s Hang Seng declined 0.2%. 

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Karen Langley at karen.langley@wsj.com

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

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