Oh dear, it looks like the Mag 7 could lose another one to the Grizzlies as Meta dropped 15% after hours ~ 21% below their highs

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O

A quick Mag 7 recap before Meta

-Tesla is down 36% ytd, 61% off its 2021 high
-Netflix is down 21% below its 2021 high
-On Friday Nvidia fell 22% below its high but is hanging in after a two-day bounce
-Apple is down 15%
-Alphabet, Amazon and Microsoft look safe, for now

So let’s go with “Fabulous Five” but just know that we’re only one bad conference call comment away from the “Fantastic Four” or “Terrific Three” (works in Ireland 😉)

So what’s with the 20% level?

Just a rule of thumb, but here’s the important point, it brings a new factor into play – behavioural

Meaning?

When a stock hits new highs, every single investor enjoys “pleasure” because everyone is holding a profitable position

BUT when it’s 20% off the highs, “pain” enters the realm because some people bought at the highs and are down 20% on their in-price

Now people act very differently in the “house of pain” than they do in the “house of pleasure”

Because they stop thinking, “How much can I make?” – Greed

And start thinking, “How much can I lose?” – Fear

And what moves markets?

Fear and Greed

Correct

So how much cash did Meta make?

They generated $12bn of free cash flow in the quarter and $49bn over the past year

Great, and what did they do with that cash?

They spent $15bn repurchasing shares in the quarter and $35bn over the
past year

Wonderful, and how much did their shares in issue decline?

Fully diluted shares in issue on the income statement INCREASED by 1% from 2.596bn to 2.625bn

Wait, “increased?” and what’s “fully diluted?”

They include the “Restricted Stock Units” in the denominator – share awards to staff that convert into shares over a period – makes sense

And how many of these are there?

There were 149m RSU’s that had not yet vested in December, granted to employees at a $210

So if Meta had to repurchase these at the after-hours price, they’d pay $62.5bn and leave employees $31bn richer – nice gig if you can get it

Wait, so almost all the free cash flow that Meta generated over the past year was spent buying back shares from employees who were then awarded new shares?

And if all those RSUs vested, we’d have more shares now than we did last year, despite spending $35bn?

Yes

But when do shareholders get their free cash flow?

They don’t unless you think a 0.1% dividend yield is appealing

So is that why the share is down 15% after hours?

Oh no, I think their capex comments spooked people

Surprising really, surely people know the other side of Nvidia’s revenue, is Mag 7 capex  …?

We’ve had the greed, maybe it’s time for fear

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