HOT AIR BALLOON FLIGHT

By Julia Horowitz • Friday, February 4

Good morning. In today's newsletter: Facebook's earnings caused a scare. Amazon has come to the rescue. Plus, the US jobs report could show the impact of the Omicron variant, and this policymaker doesn't want you to ask for a big raise.

 

US stock futures are mixed as tech shares stabilize. Markets in Europe dropped in early trading, while stocks in Asia rose.

 

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MARKET FLASH

Amazon is the anti-Facebook

Amazon and Facebook's Meta are two of the market's biggest players. Both have come under pressure during a recent sell-off in tech stocks.

 

But this morning, the direction of these companies and their stocks couldn't look more different.

 

What's happening: Facebook's earnings report triggered a 26% collapse in its stock on Thursday, shaving almost $240 billion from its market value. The historic implosion was one of the roughest days for a public company ever, and dragged the Nasdaq to its worst performance since September 2020.

 

Enter Amazon, which reported results after the market closed that are generating the opposite reaction.The internet giant, whose shares are up almost 12% in premarket trading, could be worth nearly $170 billion more when markets open.

While Amazon's results weren't perfect, investors are relieved it's not following in Facebook's footsteps, James Cordwell, an analyst at Atlantic Equities, told me.

 

"It was a lot better than what people had feared," he said.

 

The company's cloud business, Amazon Web Services, continues to grow at an eye-popping rate. The unit reported a 40% year-over-year increase in revenue to $17.8 billion.

 

"There's probably not another business in the entire economy that's as attractive at that," Cordwell said, emphasizing how fast AWS is expanding despite its already huge size.

 

Its advertising business is gaining strength, too, with sales jumping 32% year-over-year last quarter.

 

Amazon also announced that it would raise the price of its annual Prime subscriptions from $119 to $139 per year in the United States, a sign of its market clout and the loyalty of its customer base.

 

The company has been working hard to expand one-day and same-day delivery while boosting the amount of original programming on Prime Video, according to analysts at JPMorgan. They put the annual value of a Prime membership at roughly $1,000, and "expect little pushback from the $20 [per] year increase."

 

Taking note: Amazon continues to grapple with higher labor and transportation costs and supply chain pressures, and it generated a big chunk of its profits last quarter from its investment in electric truck maker Rivian, which had a blockbuster public market debut in November.

 

But the big difference between Amazon and Facebook (we broke down the social media company's earnings yesterday) is that the former has way more lines of business to pad profits and keep investors hooked. Amazon is an online retailer — but it's also a massive cloud business, advertising revenue, streaming content and a loyal subscriber base.

 

Facebook, meanwhile, still generates around 99.5% of its total revenue from its core advertising business. While the company is trying to pivot to virtual and augmented reality, those investments could take years to pay off.

 

Not everyone on Wall Street wants to stick around until then. Tech companies face a lot of skepticism as the Federal Reserve rolls back its support for the economy, which is pushing investors to get pickier. Right now, they'd rather bet on Amazon.

 

VOICES

What's really driving shortages of workers

"We found that lower participation among older workers not returning to work is the common thread, and matters most."

 

IMF ECONOMISTS

 

Read more from CNN Business.

ECONOMY MONITOR

Jobs report could show the impact of peak Omicron 

The Omicron variant has been a massive speed bump on America's road to recovery. The first signs of trouble could show up in the January jobs report arriving Friday, my CNN Business colleague Anneken Tappe reports.

 

The latest: Economists polled by Refinitiv predict 150,000 positions were added during the month, compared to 199,000 in December. That would make it the weakest report since December 2020.

 

The White House prepared Americans for disappointment earlier this week. Adviser Jared Bernstein told CNN the number of jobs added at the start of 2022 could be "unusually low" because of Omicron.

 

"It turns out that the peak of Omicron cases coincided with when the payroll data was being collected," he said.

 

On the radar: On Wednesday, the ADP Employment Report, which tracks private payrolls, showed an unexpected drop of 301,000 jobs last month. That's boosting anxiety about what Friday's data will reveal.

 

The economy is expected to quickly bounce back as Omicron cases drop. Still, Bank of America has warned of a significant risk that America's economy will shrink in the first quarter because of the effects of the highly contagious variant.

 

Goldman Sachs echoed that sentiment this week, forecasting an abrupt slowdown in growth and consumer spending.

UP NEXT

Royal Caribbean and Sanofi report results before US markets open. 

Also today: The US jobs report for January arrives at 8:30 a.m. ET.

 

Coming next week: Earnings season continues with BP, Pfizer, Chipotle, Uber and Disney.

WHAT WE'RE READING AND WATCHING

▸ Facebook results show the impact of Apple's privacy push (WSJ)
▸ US oil hits $90 a barrel for the first time since 2014 (CNN Business)

▸ Ford earnings drop as the chip shortage bites (CNN Business)
▸ Is this a sign the pandemic-fueled gaming boost is cooling? (Reuters)
▸ Dog-walking startup Wag will go public via SPAC (CNN Business)
▸ Everything Hershey makes is getting more expensive (CNN Business)

FINAL WORD

This policymaker says don't ask for a big raise

Inflation is skyrocketing at a rate not seen in decades, which means in countries like the United States and the United Kingdom, paychecks aren't going as far to cover bills and other expenses. But Andrew Bailey, the governor of the Bank of England, thinks workers should exercise restraint so policymakers can get the situation under control.

 

Bailey told the BBC that the Bank of England is working to make sure inflation doesn't become "more ingrained in the system." Asked if he was "trying to get into people's heads" and implicitly asking workers not to demand big pay rises, he responded: "Broadly, yes."

 

"We do need to see a moderation of wage rises," Bailey continued. "It is painful. But we need to see that in order to get through this problem more quickly."

 

Step back: Policymakers are increasingly worried about prices spinning out of control. The Bank of England raised its main interest rate to 0.5% on Thursday. Nearly half of the decision-making team wanted an even bigger rise, with UK inflation set to top 7% in April.

 

The European Central Bank also generated surprise when it created some room on Thursday for an interest rate hike this year following the news that inflation in the euro zone had hit a record high.

 

Wages are a big part of the puzzle. Economists have been closely watching for signs of a "wage-price spiral," in which workers demand higher wages to cover rising costs, which in turn puts pressure on companies to raise prices again — creating a vicious cycle.

 

Yet requesting that workers who have slogged through the pandemic not ask for higher compensation as the cost of food and heating jumps is (unsurprisingly) generating backlash.

 

"Workers don't need lectures from the governor of the Bank of England on exercising pay restraint," the head of the UK's Unite union said Friday. "Why is it that every time there is a crisis, rich men ask ordinary people to pay for it?"