Our big event is almost here; Meta Is Mostly Back in the Facebook Business; Interesting chart; Fire Sale: $300 Million San Francisco Office Tower; How Tony Hsieh's Friends and Family Milked Millions in His Drug-Fueled Final Months
1) It's almost time for the big event...
At 1 p.m. Eastern time today, we're revealing all the details of our special "whisper trade" project.
If you haven't already, earmark about an hour – I'll have plenty of information to share with you that you won't want to miss.
I'll send you an e-mail with all the details right at 1 p.m. See you soon!
2) Facebook and Instagram owner Meta Platforms (META) – which has been my favorite tech stock ever since I pounded the table on it in six consecutive e-mails from October 31 through November 7, when it was around $90 per share (see summary in my March 30 e-mail) – reported stronger-than-expected earnings yesterday...
The stock is soaring this morning – up about 14% and hitting a new 52-week high of $240 per share.
Here's a summary of Meta's earnings from the Wall Street Journal: Meta Is Mostly Back in the Facebook Business. Excerpt:
Total operating profit of $7.2 billion beat Wall Street's target by 8%, while the operating margin picked up 5 percentage points from the fourth quarter. And operating margins for the company's Family of Apps segment that reflects its core social-network advertising business did even better, bouncing back to 40% following two quarters of a record low 34%. The company noted that its reported head count of 77,114 at the end of the quarter doesn't yet reflect the reductions announced this year, strongly suggesting room for margins to go even higher.
But Facebook can't be all about chopping heads. The quarter also included a surprising return to growth for advertising revenue, which rose 4% year-over-year to $28.1 billion. The company also added 37 million daily active users – nearly three times the additions expected by analysts. Meta also projected total revenue for the second quarter in a range of $29.5 billion to $32 billion, the midpoint of which is nearly 5% ahead of what analysts had forecast for the period.
With Meta up more than 150% from where I pounded the table on it less than six months ago, the stock looks like a comfortable hold.
3) I came across this Bloomberg chart yesterday that tracks earnings forecasts and the S&P 500 over more than two decades:
As you can see, the market tends to follow earnings, which crashed during the global financial crisis... and so did the market... flatlined in 2015 and 2016... and so did the market... and crashed again during the COVID crisis... and so did the market.
This isn't surprising. As legendary investor Ben Graham once said: "In the short run, the market is a voting machine, but in the long run it is a weighing machine."
The reason this chart caught my eye, however, is what has happened in the past year or so. Look closely and you'll see that earnings forecasts have continued to rise (the red line), while the S&P 500 remains 15% below its all-time high reached in January 2022.
In part, this reflects a lower multiple of earnings that investors are willing to pay for stocks in light of sharply higher interest rates. Perhaps analysts are also overly optimistic regarding future earnings in corporate America.
But my bet is that if earnings continue to rise, stocks will follow...
4) Following up on Tuesday's e-mail about the pressures in the commercial real estate market, this WSJ story highlights the troubles in the worst market in the country: Fire Sale: $300 Million San Francisco Office Tower, Mostly Empty. Open to Offers. Excerpt:
Before the pandemic, San Francisco's California Street was home to some of the world's most valuable commercial real estate. The corridor runs through the heart of the city's financial district and is lined with offices for banks and other companies that help fuel the global tech economy.
One building, a 22-story glass and stone tower at 350 California Street, was worth around $300 million in 2019, according to office broker estimates.
That building now is for sale, with bids due soon. They are expected to come in at about $60 million, commercial real-estate brokers say. That's an 80% decline in value in just four years.
This is how dire things have become in San Francisco, an extreme form of a challenge nationwide. Nearly every large U.S. city is struggling, to some degree, with reduced office-worker turnout since the pandemic spurred remote work. No market was hit harder than San Francisco, for reasons including its high costs, reliance on a tech industry quick to embrace hybrid work, and quality-of-life issues such as crime and homelessness.
Many of the city's most prominent corporate tenants, from Salesforce to Facebook parent Meta Platforms, are flooding the office market with space for sublet rather than waiting for their leases to expire. The lack of office workers is rippling throughout the financial district, leading restaurants, retailers, and other small businesses to lay off employees or close.
Nearly 30% of San Francisco's office space is vacant, which is more than seven times the rate before the pandemic hit, and the biggest increase of any major U.S. city, according to commercial real estate services firm CBRE Group.
Today it is hard to know just what office buildings in San Francisco's financial district are worth, because transactions have practically dried up. A sale of 350 California promises to establish new pricing...
Regardless of the building's specific issues, a sale as low as the bids some brokers expect would be bad news for office owners in other U.S. cities too, said Mark Fawer, a partner in the real estate practice group at law firm Greenspoon Marder.
"This could be seen as a bellwether for the value destruction in the urban office market nationally," he said, "especially those markets that are more technology and financial services-centric."
5) On December 30, 2020, I wrote:
I was saddened to hear of the death of Zappos founder Tony Hsieh – and even more saddened to read of the circumstances: a descent into madness that his friends and family were unable to reverse, as these two stories document:
Sadly, it seems that his family and friends contributed to his demise, according to a new book: Wonder Boy: Tony Hsieh, Zappos, and the Myth of Happiness in Silicon Valley. Here's an excerpt from it, How Tony Hsieh's Friends and Family Milked Millions in His Drug-Fueled Final Months (and here's an accompanying 11-minute video):
While Hsieh was initially seen at mealtimes and held meetings in various rooms at the ranch to discuss the stream of projects being pitched to him, he gradually started spending more time in his bedroom, and would hold court while sitting in bed, surrounded by nitrous oxide canisters. "His room looked like a homeless shelter," his brother Andy said later.
"There was feces on the ground. Plants in his toilets. Broken glass, broken plates all over the ground. Rotten food under the bed. Rotten food on the walls... it was disgusting."
His spiral with nitrous oxide came at a time when people were finding new ways to spend his money and Hsieh seemed all too willing to spend himself broke, thanks to a nonsensical incentive scheme he had devised called 10X...
By now, Tony Lee had assumed the role of financial overseer and had a front-row seat as money left his old friend's bank accounts. Unlike the mundane stock performance charts Lee had been overseeing for the Bass family, he was now staring at receipts for investments in gold and real estate properties, hot air balloons and proposals for helicopter tour companies.
Lee could also see those vying for Hsieh's money beginning to fight for it – often motivated by the 10X program...
Lee later claimed he wasn't aware how ill Hsieh was until after he decided to take on the role. After he started working, he soon soured on Andy and came to believe that he was seeking to exploit his brother rather than protect him. At one point, Lee claimed that Andy asked him to divert as much as $100 million to an account he controlled, to put aside for Tony's "retirement," which he refused to do, a claim Andy later denied.
As for Andy's efforts to secure a 10 percent commission on Lee's salary, worth more than one hundred thousand dollars, those fell by the wayside when Tony himself refused the proposal. It didn't seem to matter, though, as Andy had already negotiated his own salary contract with his brother – at $1 million a year.
Best regards,
Whitney
P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.