“What a” disaster
Long-term readers will know I’ve tried to warn people for some time about this “great company”
But even I was taken aback at the level of faceplanting
Daily Active Users were flat / marginally up in all regions
ARPU was only down 4% q/q worldwide
Yes, revenue declined 4% but that shouldn’t have been surprising to anyone with more than a grade 0 in currencies
The key problem was employees: up 28% y/y
But why was this a surprise because WATA has been disclosing quarterly employee numbers for years?
Here’s the scary bit, if they don’t hire another single employee, numbers will be up 21% y/y next quarter
Now that’s a big problem when the mid-point of revenue guidance is -7% (and that’s a minus, not a hyphen)
Who wants -7% revenue decline when inflation is +9%?
But haven’t all the growth and quality managers been trying to calm investor nerves by saying
“great businesses are perfect in times of inflation because they have, “pricing power”
Yes, many have
But do you see either- pricing or power?
Nope
Now to drop employees in line with inflation -7% and give the clingons any hope of earnings stability, they’re going to need to fire 20,000 employees
20,000?
Yip
Terrible for morale
Terrible for sentiment
But the good news is that it will make no difference to free cash flow
How come, don’t they have to pay redundancy payments?
Probably, but they’ll just say it’s “once off” and add another reconciling item to their Free Cash Flow table
After all, it’s Non-GAAP so Auditors don’t care
Only nerds like me
And it keeps the analysts away because it doesn’t seem many re-calc the number anyway,
they just take the company’s numbers at
Face value
I mean
“Wata Value”
Speaking of which, Free Cash flow this quarter was disclosed as only $173m
AFTER adding back $3bn of stock-based compensation
But their market cap is $350bn
So if you annualise that, the free cash flow yield is only 0.2% ($173m x 4 / $350bn)
But weren’t people saying this company was cheap?
Yes, some were but as I’ve been saying, it’s only cheap if they make the expected earnings
And they didn’t
So it’s not
But don’t be too harsh, it’s in the Russell Value AND Growth indices meaning the associated Passives own it
Now we’ve discussed Value,
But do you see any Growth?
Negative
Still, at least cash on the balance sheet rose by $173m
Umm no
Net cash fell by $7.9bn to $16bn only 4.6% of their market cap
How?
Because they spent $7bn buying back stock in Q3
$21bn in the past 9 months buying 101m shares
But that’s an average price of $208 per share
when I see it’s plunging 23% pre-market to $100
Wow!
Well Zuckerberg did ask for patience
from his “patients”
As I said, WATA