Tech worries resurfaced after the bell on Tuesday after quarterly results from Alphabet and Microsoft dented the recent rally on Wall Street. Futures linked to the Nasdaq (COMP.IND) tumbled as much as 2.4% in overnight trading, while contracts tied to the S&P 500 (SP500) declined over 1%, challenging some who had already wagered that this year’s massive stock selloff had hit a bottom. Further volatility is inevitable as sentiment remains extremely fragile, while the wild market moves are making trading conditions all the more difficult.
Commentary: “The global economy is at a tipping point,” noted Jessica Amir, market strategist at Saxo Capital. “The stronger dollar will continue to hurt businesses’ forward earnings, at a time when consumer demand is likely to fall with the reverse wealth effect expected to grip markets. Pressure remains on riskier asset classes such as tech.”
Alphabet: Shares of the Google parent (GOOG, GOOGL) slumped 6.6% AH following results that missed expectations on both the top and bottom lines. Slowing sales growth continued as YouTube was whacked by the sharp global downturn in online advertising, with the division’s ad revenue falling for the first time since the company began reporting its financial performance in 2020. “Times like this are clarifying,” CEO Sundar Pichai declared, adding that Google is pushing to become more efficient “by realigning resources to invest in our biggest growth opportunities” and that “Q4 [employee] headcount additions will be significantly lower than Q3.”
Microsoft: The company behind Windows saw its stock tumble 6.7% AH following a mixed bag of results that was stained by tech rival Alphabet. Revenue from Intelligent cloud computing, including Microsoft’s (MSFT) Azure and other cloud services, was the biggest piece of the company’s revenue puzzle, and totaled $20.3B, up 20% from last year’s quarter. However, a decline in PC sales and the dollar’s strength continued to weigh on profits and growth, while the C-suite said that some rough weather could be coming in the months ahead.
Saudi Arabia has fired off a warning shot aimed at the U.S. as a high-level standoff over crude oil and supply agreements goes public. Prince Abdulaziz bin Salman, the Kingdom’s oil minister, accused unnamed countries of using their emergency oil reserves to “manipulate markets rather than helping with shortages of supply.” The remarks come after the Biden administration authorized the release of another 15M barrels of crude from the U.S. Strategic Petroleum Reserve as it tries to curb elevated gasoline prices in the wake of production cuts from OPEC+.
Quote: “We, as Saudi Arabia, decided to be the maturer guys,” he told the Future Investment Initiative Forum, otherwise known as Davos in the Desert. “It is my profound duty to make it clear to the world that losing emergency stock may become painful in the months to come. Running out of capacity has a much dearer cost than what people can imagine.”
Following some rushed diplomacy ahead of his summer trip to the Middle East, President Biden finally met with Saudi Crown Prince Mohammed bin Salman after previously pledging to make a “pariah” out of the Kingdom over the killing of U.S.-based columnist Jamal Khashoggi. There was an apparent understanding that the summit and a notable fist bump would lead to additional Saudi crude production, but things seem to be going the other way despite reported assurances. Riyadh first scrapped a paltry bump to OPEC+ production of 100K bpd on Sept. 5, and a month later deepened its cuts by a whopping 2M barrels per day, or about 2% of global supply.
Where things stand: The Saudis say the cuts are an attempt at balancing the market, which is not lacking any more crude, but is rather suffering from a lack of refining capacity, a crisis in the natural gas market and too rapid of a transition to renewables that weighs on current hydrocarbon investment. The American side is still in the middle of formulating a clear policy stance, though Biden has said “there will be consequences” for U.S.-Saudi relations. The administration is particularly concerned about the Kingdom’s growing ties with Russia and China, as well as market volatility that is expected once a European oil embargo goes into effect on Dec. 5. (18 comments)
Investor pessimism has seen the IPO market dry up in 2022 after a record year of more than 1,000 offerings in 2021. Some companies are still taking a stab at going public, like Intel (INTC), which is spinning off its Mobileye division today (trading under ticker symbol “MBLY”). The unit develops autonomous driving technologies, as well as advanced driver-assistance systems containing cameras, computer chips and software.
Backdrop: Intel scooped up Mobileye for $15.3B in 2017, marking the biggest-ever acquisition of an Israeli tech company. At the time, Intel was reportedly aiming for a market cap of as high as $50B when it re-listed the firm, but much has changed since then. Pricing the IPO at $21 per share, the offering will exceed a targeted range of $18 to $20, but would only end up raising $16.7B, a far cry from its original targeted valuation.
“For the IPO market to come back with any strength, uncertainty needs to come down, whether that means inflation coming down, rate rises stopping, or at least having a better understanding of where we’re at,” said Kyle Stanford, venture capital analyst at PitchBook. “I think there’s still a lot of chips to fall on this downturn so it could be a while.”
By the numbers: Intel will sell at least 41M shares of Mobileye (about 5% of shares outstanding) to raise $861M, and also agreed to a $100M private placement with General Atlantic, taking the total raised to at least $961M. Two dozen underwriters, led by Goldman Sachs and Morgan Stanley, have a 30-day option to purchase up to an additional 6.15M of MBLY common shares, which could push the amount raised to more than $1B. Only two offerings this year have raised over $1B, including private-equity firm TPG (TPG) and AIG spinoff Corebridge Financial (CRBG). (6 comments)
It seems like it’s happening. Reports suggest that Elon Musk told a video conference of his bankers (funding some $13B in debt financing) that he would close a deal for Twitter (TWTR) by Friday, bringing an end to the drama-filled acquisition process. The Tesla (TSLA) CEO is even prepared to help market the debt once the deal is completed, while Musk’s lawyers have submitted paperwork to equity investors in preparation for closing the $44B take-private transaction.
Market confirmation? Twitter shares rose 2.5% to $52.78 on Tuesday, notching their highest level since Musk agreed to pay $54.20/share to buy the social media platform in April.
If the deal doesn’t close by 5 p.m. ET on Friday, litigation between the two sides will resume. Chancellor Kathaleen McCormick, the judge presiding over the case in Delaware, has previously rebuffed efforts by Musk to delay the trial and fast-tracked it at Twitter’s request. If Musk dilly-dallies again, and tries to close the deal a few days later, he would need separate permission from the judge to put another stay on legal action.
Is Twitter dying? Internal research shows the company is struggling to keep its most active users engaged, according to Reuters, pointing to another challenge for presumptive buyer Elon Musk. The news service cited an internal Twitter research document titled “Where did the Tweeters Go?” suggesting that “heavy tweeters” – those who log in 6-7 days per week and tweet about 3-4 times a week – have been in “absolute decline” since the start of the COVID pandemic. Those heavy users make up less than 10% of the overall number of users, but generate 90% of all tweets and half of Twitter’s global revenue. (45 comments)
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