Tech Newsround – Meta & Semis.

Meta Platforms Q1 22 – Short squeeze

• Meta Platforms reported good results and has returned to low user growth, but the current tough outlook leads me to think that the 19% jump in the shares in after-hours trading was driven by short positions scrambling to cover their exposure rather than a fundamental turnaround in the stock.
• Q1 2022 revenues / EPS were $27.9bn / $2.72 ahead of expectations of $ / $2.56
• Critically, users have started growing again with the company adding 31m new DaUs during the last three months.
• It was this that really got the shorts worried as sentiment on Meta Platforms has been awful to date and this data point indicates that there may be life in the old dog yet.
• Guidance for the coming quarter was soft as the headwinds are causing short-term difficulty to which Meta has responded by slowing OPEX growth.
• Q2 2022 revenue is expected to be $28bn – $30bn compared to forecasts of $30.7bn causing Meta to cut OPEX for 2022 to $87bn – $92bn from its previous forecast of $95bn.
• On the positive side, Reels, which is Meta’s answer to TikTok, is gaining a lot of momentum but Meta hasn’t figured out how to best monetise this yet.
• This is further complicated by Apple’s policy changes which means that targeting and performance measurement are now much more difficult.
• The good news is that this is forcing Meta to improve its AI and move away from the social graph towards anonymous data-driven advertisement targeting.
• This is something that TikTok via its parent ByteDance does exceptionally well and so in the long run this will help Meta push back against ByteDance’s incursions into its markets.
• As a result of the short to medium-term outlook remaining pretty tough, I do not think that this is the beginning of the turnaround for Meta Platforms and would not be surprised to see the shares come back under pressure once these results have been digested.

Semiconductors – Party on!

• Great results from both Samsung and Qualcomm indicate that the supercycle currently being enjoyed by the sector is still in full swing meaning that semis is a pretty safe bet for now.
• Samsung reported revenues / EBIT of KRW77.8tn / KRW 14.1tn up 51% YoY while Qualcomm beat expectations and raised revenue guidance for FQ3 2022 to $10.5bn – $11.3bn compared to expectations of $10.0bn.
• Despite the fact that smartphone shipments are a bit soft due to the lockdown-driven malaise in China (and I suspect inflation), demand elsewhere such as from automotive and the cloud have remained exceptionally strong.
• Qualcomm is doing an excellent job of diversifying into these areas while Samsung sells fairly generic products that be used across a wide range of device categories.
• While there are some signs of demand softening in some sectors and companies completing their inventory builds, the shortages and supply chain problems as well as general demand are overpowering the weakness for now.
• Consequently, the outlook for semis for 2022 remains pretty robust although I would take a more cautious position when investing.
• There is a large range of valuations despite the common drivers and consequently, I think that the best value to be had in the sector is probably in Qualcomm and MediaTek which offer the best value for the growth that they offer over a 3-year period.
• This is where I would be looking if I was going to have a position in semiconductors.