As Snap shares fell (43% closed) during the New York trading session on Tuesday, disaster was already on the walls of social media companies since last week.
Or since the release of consecutive sluggish earnings in the first quarter of 2022 (1Q22).
There are three main points to this:
1st) CFOs began to have a clear forecast of corporate earnings in the middle of the period. Thus, the extraordinarily depressing letter written by CEO Evan Spiegel to his staff, filed 8-K with the US SEC, arrived on the 45th day of the 90-day quarter.
Snap’s financial picture was clear. Note that this also applies to other companies.
Wetbush Securities analyst Dan Yves, an enthusiastic Tesla, was very surprised last week when he lowered his price target for the share of electric car maker to $ 400 billion (by market margin).
Ives has naturally made a name for himself by sending information from internal sources at Tesla to the market.
He was informed last week that the company would be too high to cope with the loss of production due to a malfunction at Tesla’s lingam plant in China due to the Govt zero policy.
I believe Tesla’s global deliveries will drop by at least 25% in 2Q22 from 310,000 vehicles in 1Q22 in a row.
When the CFO finds out, he starts calling in investigators. I have been an automotive analyst at Lehman DLJ and UBS for over a decade. I got these calls.
2nd) The social media business is supported by advertising ும் if advertisers spend less it is due to the fear that US consumption will fall… but This is what Target told us last week.
Therefore, I believe that as advertisers reduce costs, consumer-advertising will be more effective, and new product releases and purchasing opportunities will be less.
The two most important purchases compared to US home balance sizes are homes and cars.
The portfolio of my short models (sold, stocks falling) is packed with car OEMs (manufacturers) – Stellandis, Ford and GM. I do not think Tesla, despite having more affluent customers, will survive the fall of the American consumer.
Short home builders include DR Horton and Lenar and the banks that finance these costly acquisitions (in short, in the case of BAC and WFC).
3rd) The profitability of any manufacturing company is based on increasing the volume and, therefore, better absorbing fixed costs.
In the US economy, which is currently in recession, all units will be sold in small quantities.
This is the key lesson, hammered out by Digit last week. Therefore the profit margins in the S&P 500 companies are expected to decrease significantly.
However, according to John Butters of FactSet, the market expects the S&P 500’s profit margin to be followed by 2022.
According to FactSet Profit Consensus Insight:
The current 12.5% net profit margin for Q2 2022 is lower than the 12.7% estimate for March 31, while the current 12.6% net profit margin for 2022 is lower than the March 31 estimate of 12.7%.
According to FactSet consensus estimates, the S&P 500 will have a net profit of 12.6% in 2021, up from 12.6% in 2022.
Will global firms be able to sustain these margins, driven by unprecedented supply chain pressures, low gross demand in the US and abroad, Russia’s invasion of Ukraine and long-term investment costs and rising labor costs everywhere? How?
To stay in US stocks for a long time now, you have to believe this… and have no understanding of the underlying economy.
Bottom line: Until the markets correct these miscalculations, US stocks will not be able to invest.
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