Investors got a reminder over the past week that stocks don’t go up all the time, and that there is a dark side to handing so much data over to the ‘cloud’, after a worldwide Microsoft (MSFT:NASDAQ) Azure outage following a software update from virus defender Crowdstrike (CRWD:NASDAQ) caused chaos.
Amid a busy earnings season, there was more tough talk from both the Biden and Trump camps on restricting technology, and especially computer chip sales to China, leading to 10% sell-off in Dutch semi-equipment maker ASML (ASML:AMS), despite its robust quarterly results. It certainly adds to the pressure building on an already-weakening US tech sector which led to a mid-week rout in the Nasdaq 100 and the S&P 500.
Interestingly, the sell-off extended to the Russell 2000 index of small-caps which until now had been the beneficiary of the ‘rotation trade’ with a gain of more than 10% in the five sessions prior to Wednesday’s snap reversal.
Meanwhile, the Dow Jones Industrial Average, often dismissed by global investors as an anachronism due to its heavy bias towards ‘old-school’ sectors like financials, manufacturing and healthcare, sailed serenely on extending its string of all-time closing highs.
It makes the coming week's quarterly reports that bit more loaded, with a string of big tech firms set to reports, including Microsoft, Alphabet (GOOG:NASDAQ), Amazon (AMZN:NASDAQ), Meta Platforms (META:NASDAQ) and Tesla (TSLA:NASDAQ).
BEYOND MEAT
Investors have lost their appetite for Beyond Meat (BYND:NASDAQ), the plant-based meat producer whose growth has failed to live up to the hype that accompanied its May 2019 IPO and which continues to burn through cash.
The meat-free mania that surrounded Beyond Meat’s market debut has dissipated and shares in the Ethan Brown-bossed business have lost their sizzle. At just $7.20, the stock now trades some 70% below its $25 IPO price following a further bout of selling this week, triggered by reports Beyond Meat is in talks with bondholders over a potential balance sheet restructuring.
People in the know reportedly said the group of bondholders, which own some of Beyond Meat’s $1.1 billion of convertible notes, are working with law firm Akin Gump Strauss Hauer & Feld on the matter. First quarter results (8 May) from the company revealed an 18% year-on-year drop in sales to $75.6 million and a net loss of $54.4 million. Beyond Meat also warned its operating environment continued to be affected by macroeconomic issues including ‘ongoing, further weakened demand in the plant-based meat category’.
MATCH
Online dating app group Match (MTCH:NASDAQ) jumped close to 9% on Tuesday (16 July) after activist investor Starboard Value revealed a 6.6% stake in the Tinder and Hinge owner.
The shares have struggled since the pandemic and remain 80% below their 2021 highs. Paid users at popular dating app Tinder have declined for four consecutive quarters, creating a drag on overall group sales. Starboard’s managing partner Jeffrey Smith said Match has not capitalised on its ‘enviable market position’ and should initiate more aggressive share buybacks.
‘If performance fails to improve, we believe changes must be considered, which should include a thoughtful examination of whether Match's best path forward would be as a private company’, added Smith.
Starboard is the third activist investor to take aim at Match following Elliot Investment Management and Anson funds with both pushing for change. Match appointed two Elliot directors to the board in March.
WARNER BROS DISCOVERY
Warner Bros Discovery (WBD:NASDAQ), the US media giant behind CNN and HBO, is in discussions to spin-off its streaming service and film studio, according to reports.
Warner Bros is the fourth largest streaming giant by market cap at $19 billion trailing behind competitors Netflix (NFLX:NASDAQ) and Walt Disney (DIS:NYSE). People familiar with the matter said chief executive David Zaslav was examining several strategic options, ranging from selling assets to hiving off its Warner Bros film studio and Max streaming service into a new company.
This news comes as no surprise considering the US media giant’s ailing share price, which is down 34% over the past year and the group’s debt – about $39 billion as of 31 March 2024.
Earlier in May, Warner Bros reported a 7% fall in first quarter revenue to $9.95 billion bigger than expected and a 13% fall in studios revenue to $2.82 billion due to fallout from the Hollywood strikes.
Warner Bros is due to report its second quarter earnings on 7 August.
Bank of America estimates the US media giant will report $40.2 billion revenue and $9.67 billion in EBITDA (earnings before interest taxation depreciation amortisation) for full year 2025 and reduced EBITDA estimates for full year 2025 and 2026 by roughly $600 million each.
