Apple and Google shined while social media such as Facebook, Snap, and streaming providers like Netflix pooped. These “distractions” providers had something in common: a loss of users growth or users engagement growth.
But the problem is that Wall Street is looking at these companies through the lenses of the 2020 Covid era. People were home most of the time, watching movies, playing games, having Zoom meetings, and so on. In my opinion, a typical user growth or user engagement was distorted by these days.
The sketch below indicates a theoretical engagement if there was no Covid (the red dashed line). And let’s assume that the growth would have a steady, slow, and upward moving trend:
And then, the Covid hit, and the growth went stratospherically up. Of course, everyone was at home and engaged in all the social media out there. Young Robinhooders were gambling thousands of dollars buying worthless out of the money calls that were expiring the next day and losing it all. And the ole good Wall Street had an orgasm over the rapid growth, ignoring, that it was a distorted growth, not a normal, typical growth (same with overall S&P 500 earnings, by the way). It was obvious that once the Covid goes away and we return back to normal, this growth will slow as well.
And now, Wall Street is surprised that the growth of the distractions was not as they thought originally and pooped. Facebook lost almost 23% after hours. It is definitely an overreaction and tomorrow morning it may recover a bit.
Today’s ADP private payroll drop may impact Friday’s official jobs report for January and combined with the FB earnings miss may have an impact on the S&P500 trading tomorrow. So, expect a down day.
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