The Rundown - Meta’s AI Costs Balloon, Chipotle Tops Earnings Expectations

Episode Date: April 25, 2024

Stock market update for April 25, 2024. Check out the ⁠⁠⁠⁠⁠⁠⁠Leading Indicator⁠⁠⁠⁠⁠⁠⁠ podcast by Public.com. Get started with Public: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠��⁠⁠⁠⁠⁠⁠⁠Click here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ The content of the podcast is for general and informational purposes only. All views presented in this show reflect the opinions of the guest and the host. You should not take a mention of any asset, be it cryptocurrency or a publicly traded security as a recommendation to buy, sell or hold that cryptocurrency or security. Guests and hosts are not affiliated with or endorsed by Public Holdings or its subsidiaries. You should make your own financial and investment decisions or consult respective professionals. Full disclosures are in the channel description. Learn more at Public.com/disclosures. Past performance is not a guarantee of future results. There is a possibility of loss with any investment. Historical or hypothetical performance results, if mentioned, are presented for illustrative purposes only. Do not infer or assume that any securities, sectors or markets described in the videos were or will be profitable. Any statements of future expectations and other forward-looking statements are strictly based on the current views, opinion, or assumptions of the person presenting them, and should not be taken as an indicator of performance nor should be relied upon as an investment advice.The content of the podcast is for general and informational purposes only. All views presented in this show reflect the opinions of the guest and the host. You should not take a mention of any asset, be it cryptocurrency or a publicly traded security as a recommendation to buy, sell or hold that cryptocurrency or security. Guests and hosts are not affiliated with or endorsed by Public Holdings or its subsidiaries. You should make your own financial and investment decisions or consult respective professionals. Full disclosures are in the channel description. Learn more at Public.com/disclosures. Past performance is not a guarantee of future results. There is a possibility of loss with any investment. Historical or hypothetical performance results, if mentioned, are presented for illustrative purposes only. Do not infer or assume that any securities, sectors or markets described in the videos were or will be profitable. Any statements of future expectations and other forward-looking statements are strictly based on the current views, opinion, or assumptions of the person presenting them, and should not be taken as an indicator of performance nor should be relied upon as an investment advice.

Public.com presents the rundown. Your daily market update in five minutes. My name is Zadadmani, and today is Thursday, April 25th. In today's episode, we recap Meta's Q1 earnings. The numbers were pretty good, but the stock was still down. Also, TikTok is on the clock. They now have 269 days to divest or be banned in the U.S. And stick around to the end of the show to find that about new rules

that will make flying slightly less miserable. All right, let's go. Well, after a strong start to the week, the stock market did lose some steam on Wednesday. Stocks were still up, but just barely. The NASDAQ was up 0.1% while the S&P was flat. Like, it literally just added one point. Investors are probably just taking a midweek break as they get ready for more data to be released this week. We had meta earnings drop last night, more on them in a bit, and Microsoft and Google are reporting earnings after market closed today.

And we're also supposed to get Q1 GDP data today as well. estimates have GDP growth at 2.2% annualized growth for Q1. So we'll see how the market reacts when that number comes out. All right, let's run through some headlines. Starting with Meta, the company formerly known as Facebook. They reported their Q1 earnings last night and kind of a mixed bag. Let's start with the good stuff first. Meta's Q1 numbers, pretty solid.

Their Q1 revenues were up 27% to over $28 billion. Then their profits more than doubled to over $12 billion. Both those numbers beat Wall Street estimates, but yet meta stock dropped more than 15% after they reported earnings, losing over $150 billion in market cap. And that's probably because Meta said they're going to invest billions of dollars in AI over the next couple years. And the cost for that is going to be more than what they initially expected. CEO Mark Zuckerberg even told analysts on their earnings call that their focus on AI is going to increase the amount of capital invested before Meta saw much of an ROI on their AI investment. I think investors got some deja vu when they heard these comments from Zuck. Because Zuck said something pretty similar back in Q3 of 2022.

Back then, META announced a massive increase in Metaverse spending. And actually, that's one of the reasons why Meta stock was down so big back in 2022. And honestly, all this investment in the Metaverse continues to drag on their financials. In their Q1 earnings report, Meta said that the Reality Labs division, which is like the Metaverse division, recorded a $3.8 billion operating laws, bringing the total loss for reality labs to over $45 billion since the end of 2020. Meta has spent over $45 billion on the Metaverse. And what has Meta gotten for all that investment? Well, today, the Reality Labs Division only accounts for 1% of the company's total revenue. So it's possible that investors are

nervous that all this investment in AI isn't going to have much of an ROI either. Now, on top of the increased spending in AI, Meta also delivered a softer than expected revenue guidance. Meta expects their Q2 revenues to come in lower than what Wall Street was expecting. So all this combined just spooked investors and meta stock is down pretty big today. It's a pretty big contrast from the last time Meta reported earnings where meta had the largest one-day market cap gain in history. Meta was one of the best performing stocks in the S&P 500 this year. But I think investors are coming to terms that Meta's AI ambitions is going to be pretty

expensive and it might take a few years before Meta sees any positive ROI or they might not see much of any ROI, like the Reality Labs Division. So we'll see what happens. It could be an overreaction by the market. Let's talk about another social media company dealing with some difficult news. TikTok. It's official, guys, President Biden signed into law a bill that will force a sale of TikTok or ban it in the United States. They have 270 days from yesterday to find a buyer if it wants to continue operating in the U.S. See, lawmakers saw TikTok as a propaganda tool for the Chinese government, which reportedly

has access to sensitive data of over 170 million U.S. users. through Bight Dance, which is the Chinese parent company of TikTok. So U.S. lawmakers ban the app because of concerns over national security. But despite this law being passed, there are a couple hurdles with this for sale. First of all, TikTok is expected to challenge this bill in court. They argued that this forced sale is a violation of free speech. But the other challenge might be that there might not be any buyers that can write a big enough check to buy TikTok. I mean, TikTok is expected to be worth tens of billions, maybe over $100 billion.

And big tech companies that could write a big enough check like meta or Google, probably wouldn't be allowed to buy TikTok because of anti-trust restrictions. So who's going to buy TikTok then? Maybe we'll see a private equity group raise a ton of money and scoop it up. So there's still a lot to figure out. In the meantime, TikTok still works and they expect to fight this ban on court. So we'll keep you guys in the loop of all this TikTok drama on the rundown. All right, let's talk about some stocks making moves today. Starting with Chipotle, their stock is up more than 4% in pre-market trading after reporting solid Q1 earnings. Chipotle beat estimates on both revenue and earnings in Q1. Looks like they sold a ton of burritos because their revenues were up

14% to $2.7 billion in Q1 and their profits were up 24% to $359 million. Some more tidbits from their earnings. Traffic to their restaurant was up 5.4% and the average check was up 1.6%. So they got more people coming in and spending more money, which is a good combination to help boost earnings. Investors were loving that and Chappole is one of the winners for today. Stock not doing so good this morning is IBM. Their stock is down more than 8% this morning after missing quarterly revenue estimates. They also announced a $6.4 billion acquisition of HashiCorp. It's a company that I've never heard of, to be honest. Now, this is IBM's third revenue miss in the past five quarters, but the company thinks that the addition of HashiCorp, which makes products that

helps clients build cloud infrastructure, can bring new business and accelerate sales growth in their existing segments. So we'll see how it plays out, but can I be real with you guys? I don't really know what IBM does. Like, I know they're an OG. tech company. I don't really know what they do, but maybe that's just me. Glad I got that off my chest. All right, let's wrap the show with a fun fact. Today's fun fact is about the Department of Transportation. They just announced new rules that will require airlines to refund passengers directly if there are flight delays or your luggage gets delayed. This sounds pretty sweet. If your flight is delayed by more than three hours, the airline now has to refund the passenger directly without the

passenger having to request it themselves. And look, I've been there. Trying to get a refund from these lines were it's a brutal process with emails, paper trails, waiting for hours on the phone. No more of that. These new rules by the Department of Transportation will require these airlines to refund you directly. It also applies for things like delayed luggage. And even for Wi-Fi, if you pay for Wi-Fi and it's unavailable during your flight, the airlines have to refund you for that too, automatically. Pretty sweet rules. These new rules are going to apply to all flights in the U.S. and airlines have six months to implement this. So hopefully the holiday travel season is going to be a little bit less miserable this time. Well, all right, that's the

for today. Hope you guys enjoyed that show. If you guys want to learn more about Tesla's earnings from earlier this week, public.com is another podcast called Leading Indicator. We have two great interviews breaking down Tesla's earnings and the importance of cheaper EVs and whether if Elon Musk is the right person to continue leading that company. Go check it out. We'll put the link for the podcast in the description and give it a five-star rating if you learned something new. All right, thank you guys so much for listening. We'll see you guys back here tomorrow. This is the rundown, your real-time resource for news events and trends in the market All views presented in this show reflect the opinions of the guests.

You should not take any mention of a publicly traded security as recommendation to buy, sell, or hold that security. Run-down guests are not financial advisors and are not affiliated with public holdings or its subsidiaries. You should make your own financial and investment decisions or consult. Respective professionals. Learn more at public.com disclosures. In partnership with Zayidemani, brokerage services for U.S. listed, registered securities are offered by Open to the Public Investing Incorporated, member Finra and SIPC.