Someone needs to pay the bill and this time it’s the growth investors – Sean Peche on mega-cap risk  

Ranmore Fund Management founder Sean Peche shares his insight on US mega tech stocks Meta (previously Facebook) and PayPal sliding more than 20% following disappointing earnings guidance and lower-than-expected growth forecasts. Peche believes the sell-off is a culmination of several macro- and micro-economic headwinds all coming together at once. Earnings season in the world’s largest economy has seen mixed results, with the likes of Apple and Alphabet outperforming while a number of the pandemic winners have seen big growth reversions and re-ratings by Mr Market. Amazon announced earnings after the bell in New York today and with the market at a tipping point, these results could sway sentiment in the weeks to come. – Justin Rowe-Roberts

Sean Peche on Meta’s sell-off in after-hours trade

It was a big move. I think more than just the percentages – because 20% sounds big – the problem is these companies are absolute giants. If you look at Facebook, I mean it fell $200bn after hours. We haven’t even seen that wiped out from investors’ savings. PayPal lost $50bn the day before, $200bn since July 2021. Netflix $65bn last week, Tesla $100bn. These are massive numbers and they are really hitting investors. Investors are going to find out in the next fact sheet. What drove it? There are a few factors. One is that these companies are so large. If you think there are 7.8 billion people on the planet – and you take out China and the very young and the very old – Facebook, with 2.9 billion users, is pretty saturated. Look at the daily number of users in pretty much every region, it has flatlined or down. That is slowing users. Then think about how much time those users are spending on the platform. I mean, I don’t know about you, but I am spending less time on Facebook than I did a few years ago. My children aren’t spending any time on Facebook … it’s all on Snapchat and TikTok. The problem is these companies are just so big.

On the concentration risk in passive investing

The problem is this doesn’t only affect the people living in California. Look at how much money South Africans have taken overseas – either directly or indirectly – into feeder funds in South Africa. It has been a tricky time because, as I’ve said before, the winds have been blowing in one direction for 14 years. There are few funds out there that don’t own these large companies because it has been a career risk not to. These companies have just been getting better and the ratings have been going up; interest rates have been low and it’s been really hot. You even find value funds – funds that call themselves value, that purport to be value – that have capitulated and own these companies. That is often the sign you are at the turning point. I think it is a case of everybody who has been sitting at the restaurant ordering very expensive bottles of wine because quality costs; the bill has arrived and everyone is rushing off to the bathroom trying to avoid having to pay it. However, the bill must be paid and it is being paid but not by value investors. I can tell you that.

On Amazon’s results tonight

I’m not expecting good things from Amazon. I’m amazed that 100% of analysts rate the company a buy. I think you’ve got wage inflation, you’ve got steel inflation and you’ve got fuel inflation. I think people are out shopping a little bit more. I think there is more competition for the advertising budgets. Content costs have gone up more for Amazon Prime. We have seen that with Netflix. So, I find it hard to believe that Amazon is going to beat on the upside. Actually, last quarter wasn’t so good anyway. It is rather ironic that at the same time Jeff Bezos is unveiling his massive yacht that they’re building, they have to dismantle some bridge in Holland to get it out. I wouldn’t hold my breath for Amazon’s results tonight, and we certainly don’t own it.

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