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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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Business

Chevron Rides High Oil Prices to Record $35.5 Billion Annual Profit

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Chevron Corp.

CVX -4.44%

banked historic profit last year as the pandemic receded and the war in Ukraine pushed oil prices to multiyear highs, with its shares climbing 53% for the year while other sectors tumbled.

The U.S. oil company in its quarterly earnings reported Friday that it collected $35.5 billion in its highest-ever annual profit in 2022, more than double the prior year and about one-third higher than its previous record in 2011. Almost $50 billion in cash streamed in from its oil-leveraged operations, another record that is underpinning plans to pay investors through a new $75 billion share-repurchase program over the next several years.

That payout, announced Wednesday, is roughly equivalent to the stock-market value of companies such as the big-box retailer

Target Corp.

, the pharmaceutical firm

Moderna Inc.

and

Airbnb Inc.

Chevron, the second-largest U.S. oil company after

Exxon Mobil Corp.

, posted revenue of $246.3 billion, up from $162.5 billion the previous year. The San Ramon, Calif., company reported a fourth-quarter profit of $6.4 billion, up from $5.1 billion in the same period the prior year.

The fourth-quarter results came short of analyst expectations, and Chevron shares closed down more than 4% Friday.

For all of its recent winnings, though, Chevron and its rival oil-and-gas producers could face a rockier year in 2023, according to investors and analysts, if an anticipated slowdown in U.S. economic growth dents demand for oil, and if China’s reopening from strict Covid-19 restrictions unfolds slowly.

U.S. oil prices have held steady this year, but are off about 36% from last year’s peak. The industry is proceeding with caution, holding capital expenditures for 2023 below prepandemic levels and saying production will grow only modestly. Chevron has said it plans to spend about $17 billion in capital expenditures this year, up more than 25% from the prior year, but $3 billion less than it planned to spend in 2020 before Covid-19 took root.

Oil companies are still outperforming other sectors such as tech and finance, which have seen widespread job cuts in recent weeks. The energy segment of the S&P 500 index has climbed 43.7% over the past year, compared with a 6.7% drop for the broader index.

Chevron Chief Executive Mike Wirth said the company is unsure of what 2023 will bring after global energy supplies were squeezed because of geopolitical events last year, particularly in Europe following Russia’s invasion of Ukraine. He said markets appeared to be stabilizing.

“We certainly have seen a very unusual and volatile year in 2022,” Mr. Wirth said, noting the European energy crisis has proven less dire than anticipated thanks to milder winter weather, growing natural gas inventories in Europe. “China’s economy has been slow throughout the year, which looks to be turning around. It’s good that markets have calmed.”

Chevron projects its output in the Permian Basin of West Texas and New Mexico to grow at a slower pace this year.



Photo:

David Goldman/Associated Press

Chevron hit a record in U.S. oil-and-gas production in 2022, increasing 4% to about 1.2 million barrels of oil equivalent a day, stemming from its increased focus on capital investments in the Western Hemisphere, particularly in the Permian Basin of West Texas and New Mexico, where it boosted output 16% last year. Worldwide, Chevron’s oil-and-gas production was down 3.2% compared with the prior year, at 2.99 million barrels of oil-equivalent a day.

Its overall return on capital employed came in at 20%, it said.

“There aren’t many sectors generating the type of free cash flow that energy is right now,” said

Jeff Wyll,

an analyst at investment firm Neuberger Berman, which has invested in Chevron. “The sector really can’t be ignored. Given the supply-demand balance, you have to have some things go wrong here to see a pullback in oil prices.”

Even so, institutional investors have shown limited interest so far in returning to the energy sector, after years of poor returns and heightened concerns about their environmental impact prompted large financiers to sell off their stakes in oil-and-gas companies or stop investing in drillers outright.

Pete Bowden,

global head of industrial, energy and infrastructure banking at

Jefferies Financial Group Inc.,

said energy companies in the S&P 500 index are throwing off 12% of the group’s free-cash flow, but only account for about 5% of the index’s weighting—an indication their stock prices are lagging behind.

Investors’ concerns around environmental, social and governance-related issues are a constraint on the share prices of energy companies, “yet the earnings power of these businesses is superior to the earnings power of companies in other sectors,” he said.

Chevron and others have faced criticism from the Biden administration and others that they are giving priority to shareholder returns over pumping oil and gas at a time when global supplies are tight and Americans are feeling pain at the pump. On Thursday, the White House assailed Chevron’s $75 billion buyout program, saying the payout was proof the company could boost production but was choosing to reward investors instead.

Pierre Breber,

Chevron’s finance chief, said the company expects oil prices to be volatile but within a range needed to sustain its dividend and investments. There are some optimistic signs, he added, including that the U.S. economy grew faster than expected in the fourth quarter, at 2.9%.

“Supply is tight. Oil-field services are near capacity, and we continue to have sanctions on Russian production,” Mr. Breber said. “You’re seeing international flights out of China are way up, and low unemployment in the U.S.”

Mr. Breber said Chevron’s output in the Permian this year is expected to grow at a slower pace, around 10%, because it has exhausted much of its inventory of wells that it had drilled but hadn’t brought into production.

Exxon, which has typically posted quarterly earnings on the same day as Chevron, will report Tuesday. Analysts expect it will also post record profit for 2022, according to FactSet.

Both companies expect to slow their output growth this year in the Permian, considered their growth engine. The two U.S. oil majors, which had been growing output faster in the U.S. than most independent shale producers, are beginning to step up their focus on shareholder returns and allow output growth to ease, said Neal Dingmann, an analyst at Truist Securities.

“This has all been driven by investor requirements,” Mr. Dingmann said.

Write to Collin Eaton at collin.eaton@wsj.com

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

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Business

Dow falls nearly 500 points after strong data, bearish comments by David Tepper

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U.S. stocks traded lower on Thursday, erasing most of their gains from their biggest rally in three weeks after a round of upbeat economic data and a warning from hedge-fund titan David Tepper that he was “leaning short” against both stocks and bonds on expectations the Federal Reserve and other central banks will continue tightening into 2023.

Positive economic news can be a negative for stocks by underlining expectations that monetary policy makers will remain aggressive in their efforts to quash inflation.

What’s happening
  • The Dow Jones Industrial Average
    DJIA,
    -1.51%
    fell 472 points, or 1.4%, to 32,903.
  • The S&P 500
    SPX,
    -1.99%
    shed 71 points, or 1.8%, to 3,807.
  • The Nasdaq Composite
    COMP,
    -2.84%
    fell 272 points, or 2.5%, to 10,437.

A day earlier, all three major indexes recorded their best gain in three weeks as the Dow advanced 526.74 points.

What’s driving markets

Investors saw another raft of strong economic data Thursday morning, including a revised reading on third-quarter gross domestic product which showed the U.S. economy expanded more quickly than previously believed. Growth was revised up to 3.2%, up from 2.9% from the previous revision released last month.

See: Economy grew at 3.2% rate in third quarter thanks to strong consumer spending

The number of Americans who applied for unemployment benefits in the week before Christmas rose slightly to 216,000, but new filings remained low and signaled the labor market is still quite strong. Economists polled by The Wall Street Journal had forecast new claims would total 220,000 in the seven days ending Dec 17.

“Jobless claims ticking slightly up but coming in below expectations could be a sign that the Fed’s wish of a slowing labor market will have to wait until 2023. While weekly jobless claims aren’t the best indicator of the overall labor market, they have remained in a robust range these last two months suggesting the labor market remains strong and has withstood the Fed’s tightening, at least for the time being,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office, in emailed comments.

“While weekly jobless claims aren’t the best indicator of the overall labor market, they have remained in a robust range these last two months suggesting the labor market remains strong and has withstood the Fed’s tightening, at least for the time being,” he wrote. “It’s no surprise to see the market take a breather today after yesterday’s rally as investors parse through earnings data, and despite some beats this week, expectations that earnings will remain as resilient in 2023 may be overblown.”

Stocks were feeling pressure after Appaloosa Management’s Tepper shared a cautious outlook for markets based on the expectation that central bankers around the world will continue hiking interest rates.

“I would probably say I’m leaning short on the equity markets right now because the upside-downside doesn’t make sense to me when I have so many people, so many central banks, telling me what they are going to do, what they want to do, what they expect to do,” Tepper said in a CNBC interview.

Key Words: Billionaire investor David Tepper would ‘lean short’ on stock market because central banks are saying ‘what they’re going to do’

A day earlier, the Conference Board’s consumer confidence survey came in at an eight-month high, which helped stoke a rally in stocks initially spurred by strong earnings from Nike Inc. and FedEx Corp. released Tuesday evening. This optimistic outlook helped stocks clinch their best daily performance in three weeks.

Volumes are starting to dry up as the year winds down, making markets more susceptible to bigger moves. According to Dow Jones Market Data, Wednesday saw the least combined volume on major exchanges since Nov. 29.

Read: Is the stock market open on Monday after Christmas Day?

In other economic data news, the U.S. leading index fell a sharp 1% in November, suggesting that the U.S. economy is heading toward a downturn.

Many market strategists are positioned defensively as they expect stocks could tumble to fresh lows in the new year.

See: Wall Street’s stock-market forecasts for 2022 were off by the widest margin since 2008: Will next year be any different?

Katie Stockton, a technical strategist at Fairlead Strategies, warned clients in a Thursday note that they should brace for more downside ahead.

“We expect the major indices to remain firm next week, helped by oversold conditions, but would brace for more downside in January given the recent downturn,” Stockton said.

Others said the latest data and comments from Tepper have simply refocused investors on the fact that the Fed, European Central Bank and now the Bank of Japan are preparing to continue tightening monetary policy.

“Yesterday was the short covering rally, but the bottom line is the trend is still short and we’re still fighting the Fed,” said Eric Diton, president and managing director of the Wealth Alliance.

Single-stock movers
  • AMC Entertainment Holdings 
    AMC,
    -14.91%
    was down sharply after the movie theater operator announced a $110 million equity capital raise.
  • Tesla Inc. 
    TSLA,
    -8.18%
    shares continued to tumble as the company has been one of the worst performers on the S&P 500 this year.
  • Shares of Verizon Communications Inc. 
    VZ,
    -0.53%
    were down again on Thursday as the company heads for its worst year on record.
  • Shares of CarMax Inc. 
    KMX,
    -6.60%
    tumbled after the used vehicle seller reported fiscal third-quarter profit and sales that dropped well below expectations.
  • Chipmakers and suppliers of equipment and materials, including Nvidia Corp.
    NVDA,
    -8.60%,
    Advanced Micro Devices 
    AMD,
    -7.17%
    and Applied Materials Inc.
    AMAT,
    -8.54%,
    were lower on Thursday.

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Business

Opinion: Tesla investors have been the biggest losers in Elon Musk’s Twitter deal, and those losses continue

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Twitter users have complained a lot about Elon Musk’s early moves after taking control of the social network, but their complaints seem tiny compared with what Tesla Inc. investors have had to suffer.

As the U.S. focused on election returns Tuesday evening, Tesla
TSLA,
-7.17%
Chief Executive Musk tried to slip through disclosure of his long-awaited stock sales, revealing that he had sold nearly $4 billion of Tesla stock in the previous three trading sessions. Musk did not publicly address the stock sales nor his intentions to sell more within 24 hours of the disclosure, even while tweeting roughly 20 times in that period.

[MarketWatch asked him on Twitter to address the sales twice, and did not receive a reply; Tesla disbanded its media-relations department years ago.]

The sales fueled a further downturn in shares of the electric-vehicle maker on Wednesday, when the stock fell 7.2% to $177.59, its lowest closing price since November 2020. Tesla is currently down 49.6% on the year, which would be far and away the worst year yet for the stock — the previous record annual decline was 2016, when it fell 11%.

The problems for Tesla investors go far beyond Musk selling its stock so that he could overpay for a company with limited growth prospects and a host of other problems, but the poor optics certainly start there.

“He sold caviar to buy a $2 slice of pizza,” said Dan Ives, a Wedbush Securities analyst.

Ives was one of several on Wall Street to predict Musk would need to sell more shares to either close a gap in his financing of the $44 billion deal to buy the social-media company, or provide additional operating funds. In a telephone conversation Wednesday, he said the Twitter move is “a nightmare that just won’t end for Tesla investors.”

One reason it isn’t ending is that Musk’s need for cash in relation to Twitter is not done with the recent sales, portending more in the future. Musk said in a tweet late last week that Twitter had a “massive drop in revenue” due to activists pressuring advertisers to pull their ads, and he will have to continue paying the employees he did not lay off while servicing a debt load that analysts have estimated will cost him $1 billion a year, much more than Twitter has cleared in profit in the past two years. Twitter reported a net loss of $221 million in 2021, and a net loss of $1.13 billion for 2020.

Read more about Elon Musk potentially pumping Tesla stock ahead of a sale

“The first two weeks of ownership have been a ‘Friday the 13th‘ horror show,” Ives said, adding that the verification plan and mass layoffs of 50% of employees — and then trying to rehire some of the engineers, developers and cybersecurity experts — was “really stupid.” And, according to CNBC, Musk has also pulled more than 50 Tesla engineers, many from the Autopilot team, to work at Twitter.

“But it’s consistent with how this thing has been handled,” Ives said, adding that Musk is “way over his skis” with the Twitter acquisition.

Amid all the chaos of his first two weeks running Twitter, how much time has Musk had to run his other companies? Musk was already splitting his Tesla time with SpaceX, The Boring Company, Neuralink and many other endeavors, and now he has taken on the gargantuan task of turning a social-media company that has never been highly profitable, nor valuable, into something worth the $44 billion he paid.

The effort, Ives said, has “tarnished his brand,” which in turn has a big risk of hurting Tesla. Many investors have bought into the Tesla story because they believe Musk is a genius and they back his vision of electrifying the automotive industry. Twitter does not meld into that vision, except as a platform to spout his opinions, vitriol and promote more wacky concepts.

Since Musk began his quest to buy the company, he has endured more criticism than ever before, with even some fans starting to throw shade or question his decisions. Investor Gary Black, managing partner of the Future Fund LLC, for example, pointed out that Tesla’s top engineers should not be running Twitter, where the news was getting worse.

Tesla is not a company that can just run itself at this point. Musk has claimed he did not want to be chief executive but that there was no one else to take over the car company, which is why he has served as CEO for years. It’s not clear, though, how much effort he actually has made at trying to recruit someone. Now, as Tesla faces its usual multitude of issues, he is off spending his time trying to turn Twitter into a payments company, or maybe a subscription company, or maybe an “everything app,” or whatever he comes up with tomorrow.

“Musk needs to look in the mirror and end this constant merry-go-round of Twitter overhang on the Tesla story, with his focus back on the golden child Tesla, which needs his time more than ever given the soft macro, production/delivery issues in China, and EV competition increasing from all corners of the globe,” Ives wrote in a note Wednesday, in which he reiterated an outperform rating on Tesla stock.

For Twitter to reach anywhere close to the valuation Musk paid for it, it’s going to need a ton of attention from a focused leader, but how can Musk be that leader and give Tesla the attention it deserves? The answer is he cannot, and is very likely to give the attention that Tesla needs to Twitter instead after committing $44 billion (not all of it his) to that endeavor. Tesla investors will be left staring at the sea of red that this year has wrought, and wondering if its leader is about to sell more shares to fund his other effort.



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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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