Fed Chief Jerome Powell signals further rate hikes
All three indexes ended more than 3% lower on Friday as Jerome Powell warned of ‘some pain’ ahead
The summer rally seems to have fizzled out, with the markets ending another week in red and confirming that volatility is here to stay. Jerome Powell’s much-awaited speech at the Jackson Hole conference warned investors of ‘some pain’ ahead, as he signalled that the Federal Bank would continue to raise interest rates to tame inflation.
While all three benchmark indexes ended more than 3% lower on Friday, they were down about 4% for the week. The tech-heavy Nasdaq posted its worst daily decline since June 16 as the high-growth stocks tumbled the most on interest rate hikes fears.
Big tech stocks like Google-parent Alphabet (GOOGL) and Microsoft (MSFT) fell 5.4% and 3.9%, respectively, on Friday. Amazon (AMZN) dipped 4.8% that day.
Nvidia (NVDA) dropped 9.2% as it reported weak quarterly earnings and gave a downbeat forecast for the current quarter. The company attributed the results to lower sales of its gaming products.
On a positive note, the Fed’s preferred inflation measure, the personal consumption expenditures price index (PCE), fell 0.1% month over month in July. It showed that prices increased 6.3% year-over-year in July, lower than 6.8% in June.
Excluding volatile food and energy prices, core PCE rose 0.1% in July against 0.6% in June, showing signs of inflation easing out.
For the week, the S&P 500 ended lower with a reasonable fall of 4%, the blue-chip Dow dropped by 4.2%, and the Nasdaq Composite fell the most, by 4.4%.
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Facebook to settle Cambridge Analytica lawsuit
As per a court filing on Friday, Facebook-parent Meta Platforms (META) agreed to settle a data privacy lawsuit that accused the company of giving third parties, like Cambridge Analytica, access to private user data.
However, Facebook users who sued the company did not reveal any financial details of the agreement.
The four year old lawsuit claimed that Facebook violated user privacy laws by improperly sharing its user data with Cambridge Analytica – a now-defunct British political consultancy.
Both Facebook and Cambridge Analytica have denied any wrongdoing. However, Facebook agreed to pay a $5 billion fine to the Federal Trade Commission in 2019. The company also agreed to restructure its board of directors to improve its data privacy practices.
Ever since the mass data misuse came to light in 2018, Meta has been reeling under data privacy issues from the home government in the United States and in Europe as well.
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To add on to the data privacy challenges, Meta is facing several challenges in the business.
Meta Platforms reported a worse-than-expected second quarter as its net income fell by a whopping 36% to $6.69 billion. Quarterly revenue reduced by 1% to $28.82 billion, failing to meet market expectations of $28.94 billion.
Moreover, this was Meta’s first ever year-on-year revenue decline since going public in 2012, as its decade-long revenue growth streak came to an end.
One of the main challenges for Meta is the exponential growth of TikTok, which is luring users and taking the lion’s share of the ad market. Adding on to Meta’s woes are troubles from Apple’s privacy feature and the current slowdown in the ad market.
All of this combined caused the social media giant to report that the average price per ad fell by 14% year-on-year in the second quarter. While Mark Zuckerberg is trying hard to build a metaverse company, the virtual reality unit is still far from turning profitable.
Palo Alto’s sunny outlook and a 3-for-1 stock split
Palo Alto Networks (PANW) knows how to cheer its investors. The cybersecurity specialist reported robust quarterly results and laid out a brighter outlook. That’s not all! The company also announced a three-for-one stock split, giving two additional shares for each of its stock held.
As a result, the stock jumped 12% the next day and is up 3% so far this year. Over the past year, Palo Alto stock has gained more than 22%, driven by solid performance and increasing demand for cybersecurity solutions.
For the quarter ended July 31, the company’s revenue increased by 27% to $1.6 billion, ahead of market expectations of $1.54 billion. Excluding items, its adjusted earnings per share increased 50% to $2.39 a share. Wall Street was expecting earnings of $2.28 per share.
Palo Alto’s wide-ranging product offerings helped it gain market share in the firewall segment, coupled with an increase in demand for cloud security solutions.
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Does the stock split make Palo Alto shares attractive?
Palo Alto stock will start trading on a split-adjusted basis on September 14, 2022. Should you buy the stock before the split?
Well, a stock split, in general, is a cosmetic move aimed at increasing the liquidity of shares by making them more affordable. A company enacts a stock split when it feels its shares are trading too high.
Palo Alto shares closed at $508.05 on August 22, but ended the week at $560.69. A stock split usually drives the stock price up, though temporarily, as investors want to buy the stock before it gets cheaper and attracts more investors thereafter.
However, a stock split does not change the company’s fundamentals and should not be the only reason to buy a stock. In fact, Palo Alto’s robust quarterly performance makes for a compelling case for the company.
In the fiscal year 2022, Palo Alto released 49 key products as against 29 products in the fiscal year 2021. Numbers of active contracts worth over $1 million jumped 26% to 1,240.
Remaining performance obligations (RPO), or the value of contracts yet to be delivered, increased by 40% to $8.2 billion. In addition, the company’s upbeat outlook of 25% revenue growth in 2023 to $6.85 billion to $6.9 billion supports Palo Alto’s future growth prospects.
Intuit’s upbeat quarterly earnings
Financial software company Intuit’s (INTU) quarterly results beat market expectations on topline and bottomline. While quarterly sales of $2.41 billion exceeded market expectations of $2.34 billion, adjusted earnings of $1.10 per share came above analysts’ estimates of $0.98 a share.
However, Intuit’s sales fell 6% compared to last year while earnings dropped 44%, as the year-ago quarter benefitted from delayed federal tax-filing deadline.
The company is known for its QuickBooks small business accounting software and TurboTax tax preparation software. QuickBooks online accounting sales jumped 34% in the quarter.
Inuit spent over $20 billion to purchase Credit Karma and Mailchimp who are generating new growth for the company. While Intuit’s core business involves tax return and financial management software, MailChimp offers marketing tools for small businesses.
Credit Karma, on the other hand, helps people find credit cards based on their credit profile. Credit Karma revenue increased 17% to $475 million during the quarter due to strength in personal loans and credit cards, partly offset by home loans and auto insurance troubles.
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For the quarter ending October 31, Intuit expects revenue growth of 23% to 25%. Guidance for quarterly adjusted earnings of $1.14 to $1.20 per share came below Wall Street’s estimates of $1.86 per share in earnings.
However, the full fiscal year sales forecast of $14.49 billion to $14.7 billion, against analysts’ predictions of $14.51 billion in revenue. Intuit sees full year adjusted earnings of $13.59 to $13.89 per share while market estimated earnings of $13.76 a share.
The management also hiked its long-term sales growth target to 15-20% for the Small Business segment. It also approved a quarterly dividend of 78 cents a share, a 15% increase from last year. The dividend is to be paid on October 18.
Intuit is trying to cross-promote the newly acquired Credit Karma on its popular TurboTax service for a company trying to build profitable tools for consumers and small businesses. The intention is to raise consumer engagement across other services.
Post the quarterly earnings release, Barclays boosted the price target for Intuit stock to $585 with an overweight rating. As of last close on August 26, the stock was down about 29% at $448.46.