Investors Cheer Meta’s Slimmed-Down Ambitions

Big wins for Mark Zuckerberg

Ahead of a mammoth day for tech earnings, investors already like what they see.

Meta shares are popping in premarket trading this morning — up nearly 20 percent at 7 a.m. Eastern — after the social networking giant reported revenues above analysts’ expectations and detailed a $40 billion stock buyback plan.

Comments by Mark Zuckerberg, Meta’s C.E.O., about 2023 being the “year of efficiency” also appear to be reassuring investors that Big Tech companies, which have announced a string of layoffs recently, are serious about rethinking their spending priorities in an uncertain economy.

Up today are Apple, Amazon and Google’s parent Alphabet. Shares of all three were trading higher in premarket; Nasdaq 100 futures were up 1.3 percent as of 7 a.m. Eastern. Wall Street hopes that Meta’s earnings will prove part of a wider trend that the digital advertising market, the lifeblood of so many tech firms, is beginning to rebound.

“Meta’s solid 4Q22 results/1Q23 guide is a big relief for the stock but also for the digital ad market at large, showing that ad demand has not fallen off of a cliff amid macro headwinds as feared,” analysts at Truist Securities wrote to investors on Wednesday. After falling 64 percent last year, Meta shares have risen more than 27 percent this year, based on Wednesday’s close.

Still, Meta’s bet on the metaverse remains expensive. Costs rose by 22 percent for the quarter, compared with last year, and the company has had to trim elsewhere partly to compensate for its spending on virtual reality. It took a $4.2 billion restructuring charge for the fourth quarter, including the cost of severance for employees it laid off last year.

Meta isn’t backing off on the metaverse. “I think it would be a mistake for us to not focus on any of these areas, which I think are going to be fundamentally important to the future,” Mr. Zuckerberg told investors last year. Another key to Meta’s future: further investments in artificial intelligence to improve business operations.

Meta also scored a big legal win. A federal judgerejected the F.T.C.’s request to stop the company acquiring a virtual reality start-up called Within — a decision seen as a blow to the Biden administration’s merger enforcement strategy under Lina Khan as F.T.C. chair. The case is the first developed entirely under Ms. Khan, a Biden appointee who has sought to expand the boundaries of antitrust law.

The F.T.C. relied on a little-used legal argument that the deal would threaten future competition in a nascent sector. The ruling is still under seal, but that hasn’t stopped legal experts from speculating on the fallout. William Kovacic, a former F.T.C. chairman, told The Times that it would be particularly problematic for the F.T.C. if the judge has panned the arguments underpinning the challenge. A better result would be that those theories were considered plausible, but the facts came up short.

HERE’S WHAT’S HAPPENING

Investors are on central bank watch after the Fed’s modest rate increase. The Fed raised interest rates by a quarter percentage point yesterday, the smallest increase since March, as it acknowledged that inflation has cooled. The Bank of England raised its prime lending rate by half a percentage point; the European Central Bank is forecast to do the same later on Thursday.

Shell joins oil giants in reporting record profit. The British oil producer earned roughly $40 billion last year, its highest profit in 115 years, as fuel demand after Russia’s invasion of Ukraine sent energy prices soaring. Chevron and Exxon Mobil reported similarly rosy figures earlier in the week.

The E.U. reportedly advances its inquiry into Microsoft’s deal for Activision Blizzard. The European Commission sent Microsoft its objections to the $69 billion takeover proposal on Tuesday, according to Bloomberg. Next come negotiations over potential remedies; the commission is considered less opposed to the transaction than the F.T.C., which has sued to block it.

The F.T.C. accuses GoodRx of leaking users’ health data. The popular drug discount app shared sensitive information about customers’ prescriptions and illnesses with companies like Facebook and Google without authorization, according to the F.T.C. GoodRx settled the charges without admitting wrongdoing.

A new, paid version of ChatGPT is announced. OpenAI, which created the A.I. chatbot, said it was introducing a $20-a-month app offering round-the-clock access; the free version is frequently overwhelmed by demand. Microsoft reportedly plans to soon update its Bing search engine with a faster version of ChatGPT, according to Semafor.

Gautam Adani fails to reassure markets

Shares in companies tied to the Indian tycoon Gautam Adani fell again today, after his flagship company unexpectedly pulled a $2.5 billion stock offering despite securing support from investors. And comments by the billionaire today defending his business empire failed to stop the financial bleeding.

Adani companies have now shed some $108 billion over the past eight days, with the flagship Adani Enterprises falling nearly 29 percent today alone. That carnage began after the American short seller Hindenburg Research accused the Adani Group of market manipulation and fraud. Among Hindenburg’s central accusations is that the conglomerate inflated its companies’ share prices through a maze of offshore tax shelters.

Mr. Adani himself, until last week ranked as Asia’s wealthiest man, has personally lost an estimated $48 billion in wealth in the past month.

Investors may be spooked by the pulling of Adani Enterprises’ offering. The sale, which ended on Tuesday and would have set a fund-raising record for an Indian company, was meant to lower the company’s debt burden while drawing new top-flight investors, especially from abroad.

Adani Enterprises has described withdrawing the offering as the “morally correct” thing to do given its volatile stock price: By this morning, its shares traded at just 1,565.30 rupees ($19), around half the offering’s floor price. And in a four-minute video address posted online today before Indian markets opened, Mr. Adani said pulling the deal would insulate the company’s investors from steep losses: “The interest of my investors is paramount.”

But scrutiny of the Adani empire is growing. India’s Securities and Exchange Board is reportedly looking into Adani Enterprises’ stock drop and potential issues with the now-withdrawn offering, according to Reuters.

And investors are looking into both the Adani Group’s corporate governance — given the tight control that Mr. Adani and his family exert — and the conglomerate’s debt load, including over $2 billion in debt payments that are owed this year and more than $700 million due this quarter alone.

“The biggest risk is that the matter escalates such that onshore banks and investors lose confidence in the group, and that it impacts their access to financing,” Leonard Law, a credit analyst at Lucror Analytics in Singapore, told DealBook. He added that could most affect highly indebted parts of the Adani universe, including Adani Green Energy, whose shares have fallen 10 percent this morning, and have halved over the past three weeks.

“A cryptocurrency is not a currency, not a commodity, and not a security. Instead, it’s a gambling contract with a nearly 100 percent edge for the house.”

— Charlie Munger, Berkshire Hathaway’s vice chairman, in a Wall Street Journal opinion piece calling on U.S. lawmakers to ban cryptocurrencies.

Investing in China skepticism

China’s reopening last month and its swift market turnaround have stoked hopes for a worldwide economic recovery, and prompted cautious renewed interest from global business players.

But geopolitical tensions between Beijing and the West, and lessons drawn from sanctions imposed on Russia during the Ukraine war, have some policymakers and investors alike warning that the U.S. should be minimizing exposure to China over the long term.

Some investors are seeking to capitalize on that tension. Strive Asset Management, the investment firm co-founded by the self-described anti-woke campaigner Vivek Ramaswamy, recently set up a $100 million exchange-traded fund that focuses on 24 emerging markets but excludes China.

Mr. Ramaswamy told DealBook that China was an underappreciated geopolitical risk, and that few big institutional investors had been willing to risk offending its authoritarian government by making criticisms — even as many of them embrace the environmental, social and corporate governance movement that he has attacked. That said, he argued Strive’s new fund was not aimed specifically at conservatives, citing bipartisan wariness about China.

Concerns over Beijing are indeed widespread. Both Democrats and Republicans in Congress have called on President Biden to create a way to oversee American investments in China, much as it already reviews foreign investment in the U.S. The White House is reportedly working on an executive order along those lines, and is deliberating about how broadly to apply it.

E.U. governments are also considering restrictions on companies’ investments abroad, driven largely by worries about China. And pension funds around the world are reconsidering, or withdrawing, their investments in the country.

American deal making in China has dried up. Only about 0.4 percent of global private equity investment from the U.S. went into China last year, according to the American Investment Council, down from 1.2 percent in 2017. About 2.3 percent of U.S. venture capital investments were made in China last year, down from 10 percent in 2017.

Deal-makers say that trend is likely to persist as long as tensions with China do.

THE SPEED READ

Deals

• Bed Bath & Beyond failed to pay interest on its bonds, a week after lenders said it was in default on its credit lines; the retailer could file for bankruptcy soon. (WSJ)

• The private equity giant Silver Lake is weighing a full takeover of Qualtrics, the maker of corporate survey software that’s majority-owned by SAP. (Bloomberg)

• Tiger Global Management has reportedly reduced the fund-raising target for its next venture capital fund to $5 billion, less than half its initial goal. (WSJ)

• Blackstone appointed three women to leadership roles in its core real estate, private equity and credit businesses. (Bloomberg)

Policy

• Jones Day, the giant law firm that has long advised Donald Trump, reportedly won’t work on his 2024 run for the presidency. (Bloomberg Law)

• Marty Walsh, the labor secretary, has reportedly been approached to run the N.H.L. players’ union. (Politico)

• “The Problem With Taking TikTok Away From Americans.” (NYT Opinion)

• The F.B.I. is said to be investigating Representative George Santos’s role in a purported GoFundMe scam involving a disabled veteran’s dying dog. (Politico)

Best of the rest

• Tom Brady is retiring, again. (NYT)

• Gawker is closing down, again. (NYT)

• Netflix has reportedly told advertisers that subscriptions to its new ad-supported tier of service doubled in January from December. (The Information)

• Organizers of this year’s Women’s World Cup in Australia and New Zealand said they were blindsided by reports that Saudi Arabia would sponsor the tournament. (NYT)

• The activist investor Nelson Peltz is known for taking on the likes of Disney and Procter & Gamble — but now he’s also taking on his daughter’s wedding planners. (Insider)

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