The Nasdaq Composite Index (^IXIC 0.51%) is down almost 238 points, or 2%, as of 1:18 p.m. ET on July 22, as earnings season ramps up. One of today's biggest losers is social media behemoth Meta Platforms (META -0.76%), down 7.8%. Joining it in the sell-off are Intuitive Surgical (ISRG 1.27%) and SVB Financial (SIVB.Q 0.50%), after reporting quarterly results that fell short of expectations. Those two are down 5.5% and 16.7%, respectively, as of this writing.
Social media stocks report declining ad revenues, rattle recession-fearing investors
Meta Platforms, the company behind two of the world's biggest social media platforms in Instagram and Facebook, is seeing its shares fall today after two of its peers, Twitter and Snap, reported second-quarter results that paint a worrisome picture. Snap's revenue increased year over year, but fell from the first quarter, while Twitter saw revenue fall from last year and last quarter.
Investors now are expecting to see similar struggles from Meta. The company is coming off a rough couple of quarters -- at least by its incredibly high prior standard -- and barring a surprise, is unlikely to return to revenue and profit growth in the face of ad buyers pulling back from spending as consumers deal with the pressure of rising interest rates and four-decade-high levels of inflation.
Earnings misses send Intuitive Surgical, SVB Financial shares sharply lower
Shares of robotic surgery giant Intuitive Surgical are down more than 5% today, a relatively strong recovery from the open, when they were down by double-digits. The company reported second-quarter results after market close yesterday, with 14% growth in procedures (it makes money selling consumables for its da Vinci system), but a 15% decline in the number of new da Vinci systems sold in the quarter resulted in "only" 4% revenue growth. Both GAAP and adjusted earnings per share declined from last year. After the market's initial big negative reaction, Intuitive shares have regained some of their losses, as investors see the longer-term opportunity, as represented by continued double-digit procedures growth.
SVB Financial, the parent of Silicon Valley Bank, reported second-quarter earnings of $5.60 per share after market close yesterday, well below the $7.68 per share investors expected. Fee-based income also fell sharply in the quarter, as the company's private equity and venture capital businesses continued to report weak results. But the biggest reason for the earnings "miss" was credit losses the bank took in the quarter, as it -- along with most large banks -- prepared for potential defaults from borrowers if we do see a recession in coming quarters. As much as the results themselves, today's big decline is likely the product of messaging. Management has been very optimistic in prior quarters, with the lowering of full-year guidance coming barely three months after raising when it reported first-quarter results.
The common thread is recession and economic fears, but the future remains bright
Earnings season is always volatile. When you add in some of the highest inflation in living memory for many, and a sharp increase in interest rates, you have a perfect recipe for fear-driven volatility. And that's likely to remain the case for the weeks to come as more and more companies report. And let's be honest -- many of those companies will report even worse numbers than we have seen so far, falling well short of expectations, cutting guidance, and maybe raising the veil on whether a recession is coming even more.
But when we look beyond today's numbers, or even the rest of this quarter and this year, investors should take heart. Stocks are indeed risky and volatile (that's where the risk comes from) in days, weeks, and months. But when you stretch that time horizon out to years, the power of diversified ownership of great businesses pays off. If you're working with capital you'll need to pay for your life in the weeks, months, or even next couple of years, stocks might not be the right thing to own.
But when it's deployed to meet financial goals that are multiple years into the future, the sell-offs of some of these companies, like SVB Financial and Intuitive Surgical in particular, look like great opportunities for buyers.