Are You in the Metaverse?

MARKETS

The Short Term vs. The Long Term

There’s a vision to be carried out here, people.

Meta Platforms $META – still better known by its Facebook, Instagram, and WhatsApp brands – sank in after-hours trading on Wednesday after management said capex is expanding beyond what it had previously budgeted and revenue is tracking below Wall Street’s forecast.
META was down more than 12 percent shortly after its post-close earnings release.
The stock has been a market leader this year even as “The Magnificent Seven” has encountered more trouble than last year in its ride to glory, posting a gain of nearly 40 percent so far in 2024.
META reported revenue growth of 27.3 percent to $36.5 billion, slightly ahead of a consensus estimate of $36.1 million.
Management said second-quarter revenue would be $36.5 billion to $39 billion, while analysts were thinking more along the lines of $38.2 billion.
Management also said it will spend $35 billion to $40 billion on servers as well as AI hardware and data centers, up from prior guidance of $30 billion to $37 billion.
Competition with Microsoft $MSFT and Alphabet $GOOGL for AI dominance is fueling the capex expansion. META announced an $800 million data center in January, and it’s also developing its own AI chip as well as new iterations of its large language model.
CFO Susan Li said META will continue to accelerate its infrastructure investments to support its AI roadmap.
META didn’t provide figures beyond this year but Li said management expects capex will continue to increase in 2025 to support its “ambitious AI research and product development efforts.”
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Meta Platforms $META sank in after-hours trading on April 24 following the release of its first-quarter earnings.

Li said the first quarter was “a good start to the year,” citing strong momentum within META’s apps and “important progress” on its longer-term AI and Reality Labs initiatives.
Investors, traders, and speculators seemed to be having a harder time seeing the potential for those efforts to effect the transformation management still sees coming.
What’s weird about the post-earnings release price action is that META is pushing out on the margins early in the execution phase of what will be a years-long project, or series of projects, the ambiguous timeline of which is ironically clear.
Is that capex budget expansion that big a deal? Management’s full-year forecast for total expenses remains largely fixed, so not really. Zuckerberg and company are simply pushing just a little bit harder.
That’s no indication either way of long-term success or failure.
The S&P 500 opened higher, trended lower through the morning and bottomed after lunch, rebounded and went green, softened and turned red, then closed on the upswing to continue its mini-rally here in the last full week of April trading.
All the major indexes had that same basic, healthy shape. Ryan Detrick of Carson Group reiterated on Wednesday a point he’s been making since March: Late April tends to be strong.
There are interesting – and positive – developments beneath the surface, including strong breadth data.
Even attention-grabbers like the “fear gauge” are easing – the CBOE Volatility Index is back down in the 15s after poking up into the 19s as recently as April 15, though it did surge late Wednesday toward the 16s.
This META thing, though, is a replay-in-opposite of Tuesday’s post-close Tesla $TSLA (which we’ll dig into a little deeper below), where the stock soared by more than 10 percent, with a lot less substance behind the move.
As hyper-reductive and even ridiculous as it may be, perhaps people just like Elon more than Zuck.
To think, we might have even more opportunity to observe silly price action when MSFT and GOOGL report after today’s close.

DEEP DIVE

This Company Needs a Rescue

Can new management get Boeing out of its spin?

Boeing $BA is co-featured along with TSLA and Visa $V in a Wednesday Deep Dive into notable companies that have reported earnings this week.
But there’s something about it that demands even a little more attention. Boeing is an American institution, a connection to the past still viable in the present but struggling for its future.
Its 737 MAX and 787 Dreamliner planes have been fraught with literal disaster in the first instance and mere quality control issues in the second.
And, on Wednesday, management said BA burned through nearly $4 billion during the first quarter on its way to a $355 million loss. Revenue was down 8 percent, as commercial airplane deliveries declined by 36 percent.
BA has also slowed production at key facilities, including the Renton, Washington, plant where it builds 737 MAXs, as it tries to regain control of quality.
The numbers actually beat consensus estimates, but BA was still down nearly 3 percent, extending its slide in 2024 to nearly 37 percent.
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Boeing $BA declined 2.86 percent on April 24 and is now down nearly 37 percent in 2024.

Outgoing CEO Dave Calhoun acknowledged as much in a recent message to BA employees: “Near term, yes, we are in a tough moment.
“Lower deliveries can be difficult for our customers and for our financials,” Calhoun said. “But safety and quality must and will come above all else.”
Brad Setser, a senior fellow at the Council on Foreign Relations, wrote in an April 15 entry on his website The Liberal Patriot “how some public assistance can help get America's vital but beleaguered commercial aircraft industry back in the air.”
“Boeing, once a leading example of American engineering excellence and manufacturing skill,” Setser wrote, “is in serious trouble.”
The crux of his case for a “bail-in” is as follows:

‍To right the corporate ship and regain a reputation for competence, Boeing needs a new design to show that it remains capable of building the world’s best airplanes. But Boeing’s capacity to afford the $15-20 billion it takes to develop a new clean sheet design is unfortunately an open question.

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Boeing’s new CEO and management team accordingly need to make a set of critical, bet-the-company type decisions.

Setser, a former staff economist at the US Department of the Treasury, argues, “Put simply, the United States has a stake in Boeing’s success.”
Fundamentally, Boeing must return to being an engineering company.

Automakers

When Elon Speaks

Analysts are not necessarily picking up what he’s putting down.

Analysts are not necessarily picking up what he’s putting down.From the Research Desk, we hear that an unofficial tally shows 17 analysts rate TSLA a “buy.” Another 22 rate the stock a “hold.”
And 11 rate Elon Musk’s contraption a “sell.” That’s actually a pretty high number. Perhaps they too track TSLA via Motorhead, the nom de plume of independent auto industry analyst Brad Munchen.
Muchen has identified some “shady” elements in TSLA’s first-quarter earnings report, particularly management’s treatment and use of deferred revenue from subscriptions to its Full-Self Driving software service.
According to Munchen’s calculations, TSLA booked $281 million in deferred FSD revenue during the three months ended March 31.
Stripping that out, TSLA's real earnings per share of $0.34 was lower than the consensus adjusted EPS estimate compiled by its internal IR staff by 24 percent.
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Tesla’s $TSLA reported earnings per share numbers were boosted by deferred Full-Self Driving software subscription revenue in the first quarter, according to Motorhead.

Munchen noted that despite continued price cuts, a one-month shutdown of production at its German factory, and 20 percent lower deliveries than in the fourth quarter, TSLA posted roughly flat automotive gross margins of 18.5 percent versus 18.9 percent in the fourth quarter.
“Imagine having flat gross margins despite 20 percent lower volumes and roughly 5 percent lower prices,” Munchen wrote.
“This sounded alarm bells in my head, and it turns out to be the biggest takeaway from the Q1 results: deferred FSD revenue recognition must have been huge.”
Munchen, who is not one of the analysts included among the 11 with “sell” ratings, explained that TSLA uses FSD to boost its top line during difficult quarters.
Others, including John Murphy of Bank of America and Dan Ives of Wedbush Securities, are more sanguine.
Murphy, who raised TSLA from “hold” to “buy,” said Elon “essentially knocked out the recent negative catalysts with facts or reasonable explanations.” Wedbush reiterated his “buy” rating and said TSLA’s CEO had emerged as “an adult in the room.”
Goldman Sachs and UBS remain skeptical, sticking with “hold” calls and questioning the durability of Elon’s recent realizations.
Wells Fargo and JPMorgan are riding with Motorhead on this one, saying TSLA is still a “sell.”