Facebook faceplants, a bombshell Rio Tinto report and a 2022 rate hike 'plausible': What we learned this week
Natural gas gets a boost from an unlikely source and a million Australians stare down the barrel of their first rate hike.
Who uses Facebook anymore?
Facebook owner Meta Platforms plummeted 26% on Thursday as young people desert an app used by their parents. The damage? More than US$200 billion wiped off the technology company’s market capitalisation, roughly the total value of McDonalds. Investors dumped shares after fourth-quarter earnings showed user and revenue growth slowed. Big investments in the metaverse, a proposed virtual reality world, also hit margins. Morningstar analysts spot a buying opportunity, with shares in the wide-moat tech company trading at a 20% discount. Senior equity analyst Ali Mogharabi says the core operating business continues to perform well and lower ad revenue growth will be short term.
Westpac limps through another quarter
Australia’s oldest bank reported modest jump in profit in the first quarter as its large book of fixed-interest loans weighed on margins. Westpac reported first quarter profit of $1.58 billion, a 10% jump before impairments compared to the second half of FY 2021. Morningstar senior equity analyst Nathan Zaia labelled the result “ok”, blaming falling margins on the bank’s prior decision to increase market share by issuing fixed rate loans. Loan growth has slowed as Westpac walked back that strategy. Zaia remains optimistic about the four-star stock, saying continued cost cutting and rising interest rates will boost the bank’s fortunes. Shares rose 2% on the day and closed the week up 5.4%.
Brussels says gives natural gas the "green" light
Natural gas is set to get the green energy tick after the European Commission published the final text of its “taxonomy for sustainable finance”, which labels industries according to their environmental sustainability. To qualify, the natural gas must replace coal power and have CO2 emissions below a certain threshold. The Australian Petroleum & Exploration Association is using the decision to argue for more oil and gas exploration, even as the sector comes under attack from environmentalists for its emissions.
Doves are looking scarce
Monetary policy screws are tightening. The Bank of England raised its benchmark rate to 0.5% on Thursday, with several committee members voting for an even larger increase. Reserve Bank Governor Philip Lowe acknowledged an increase in the cash rate is “plausible” in remarks Wednesday. His remarks follow a speech in December where he said the conditions for a rate hike would not be met in 2022. That could mean a nasty surprise for the 1.1 million Australian homeowners who’ve never experienced a rate hike before. Australia’s central bank has cut the cash rate eighteen times since 2010, a period where 1.1 million first time home buyers inked new loans, according to data from RateCity.
Rio Tinto hits the headlines again for all the wrong reasons
Almost two years on from the Juunkan Gorge destruction, Rio Tinto has careened into a second scandal. The miner stands accused of a culture of bullying, sexism and racism in addition to multiple reports of rape and sexual assault at work, according to a bombshell review conducted by Australian Sex Discrimination Commissioner Elizabeth Broderick on the company’s behalf. More than 10,000 people were surveyed in the eight-month study that uncovered large chunks of the workforce had experienced sexual harassment and racism at work. The review uncovered 21 cases of women reporting actual or attempted rape or sexual assault. Rio Tinto plans to implement all of the report's 26 recommendations. Shares fell 2.7% Tuesday after the report was released but ended the week 2.9% higher.
Don’t go home when the bells ring
Some of the hottest action in US markets this week took place after the closing bell. Shares in Amazon leapt 14% in after it reported strong earnings in cloud computing and announced a price rise for its popular Prime membership scheme. Social media company Snap fell 23% during trading hours only to reverse losses once markets closed, jumping 59% after hours after announcing its first ever quarterly profit. After hours trading occurs between brokers and other financial institutions via electronic communication networks (ECNs) separate from the exchanges.