🎙️ True Costs

The panic subsided a bit — for now. Wall Street’s fear gauge, the CBOE Volatility Index, has fallen sharply, and most global indexes have risen since Monday’s global selloff. But it’s still been a whirlwind:

• Monday: Major global selloff, worst day for S&P 500 since 2022

• Tuesday: Rebound, recouping of some losses

• Wednesday: More gains until lunchtime, then a turn lower fueled by renewed recession fears and the unwinding of the yen carry trade

Meanwhile, the Bank of Japan said it would not raise rates while markets are unstable, helping drive the Nikkei 225 index higher again. It’s now not far off from where it began the week.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• Breaking down Disney, Uber, and Airbnb earnings

• The true cost of layoffs

This, and more, in just 5 minutes to read.

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In The News

✍️ Earnings Wrap: Disney, Uber, Airbnb

Disney, Airbnb, and Uber posted earnings this week, offering a window into their growth prospects, the economy, and the consumer. Here are the highlights:

Disney

Disney reported mixed earnings: a strong streaming division that posted its first-ever quarter of profitability, while the theme parks unit showed signs of strain.

Great progress: Disney's streaming segment, which includes Disney+, Hulu, and ESPN+, reported an operating income of $47 million on revenues of $6.38 billion, a turnaround from a loss of $512 million last year. 

• Disney swung to a profit of $2.62 billion, up from a loss of $460 million a year earlier. “We’ve made great progress,” its CFO said. “We were losing $1 billion a quarter not that long ago.”
  

• Disney’s Experiences division, including its theme parks and cruise lines, reported a slight revenue increase to $8.39 billion. Operating income fell by 3.3% to $2.22 billion thanks to rising costs and declining consumer demand. 

Sub growth & outlook: Meanwhile, Disney+ gained about 700,000 new subscribers, bringing its total to about 54.8 million in the U.S. and 63.5 million internationally. 

• Disney raised its full-year adjusted earnings growth forecast and plans to implement another round of price increases for its streaming services in October. 

Disney shares are down 4% this year and nearly 40% over the past five years. 

Uber

Uber reported strong performance, returning to profitability with a net profit of $1.02 billion, exceeding analysts' expectations of $654 million. The profit was bolstered by a $333 million gain from equity investments and solid growth in its ride-share and food-delivery sectors. 

Key metrics include:

• Gross Bookings: $39.95 billion, up 19% year-over-year
  

• Revenue: $10.7 billion, a 16% increase
  

• Monthly active consumers: 156 million, rising 14%
  

• Total trips: 2.7 billion, reflecting a 21% increase 

Despite facing challenges earlier in the year — including a loss in Q1 from equity investment setbacks and legal expenses — Uber's core operations remained profitable. 

CEO Dara Khosrowshahi noted the resilience of Uber's consumer base, saying there has been no big decline in spending among users across income levels, even though many of its customers are high earners. The company has also shifted toward profitability by raising prices and expanding into high-margin in-app advertising, which generated over $1 billion last quarter.

In recent years, Uber has eliminated thousands of jobs, postponed self-driving tech plans, and raised prices. The strategy is working: Shares are up 16% this year and about 51% in the past 12 months.

Airbnb

Airbnb's shares aren’t trending in the right direction. The company, which went public in 2020, just had a record plunge after a dismal third-quarter outlook and warnings of slowing demand from U.S. travelers. 

Airbnb reported an 8.7% increase in bookings and anticipates more deceleration.

Airbnb’s downbeat forecasts for the third consecutive quarter are a sign of the broader travel industry's troubles. Booking Holdings has also recently provided weaker-than-expected guidance.

Key points from Airbnb's report include:

• Second-quarter revenue increased by 11% to $2.75 billion, beating estimates.
  

• Airbnb noted shorter booking lead times globally and signs of slowing demand from U.S. guests.
  

• Latin America and Asia Pacific remain the fastest-growing regions for the company.

Airbnb did see strong growth in bookings for larger groups, with nights booked for parties of more than five people increasing by 16%. The company is investing in less mature overseas markets, which may impact near-term margins because of increased marketing expenses.

The disappointing outlook has raised concerns about slowing growth in the travel sector. Airbnb stock has been down about 20% since going public in 2020. 

Read more

More Headlines

❗ Wall Street economists say fears of a recession are overblown

🤔 The popular 'carry trade' is unwinding

🌴 The stock market didn't just fall out of a coconut tree

☕ Why Starbucks is losing customers

📈 Japan’s Nikkei sees best day since October 2008

😵 New Goldman Sachs index shows financial stress relatively normal

💼 The best large companies for high school grads to start careers

💼 The True Cost of Layoffs

The jobs report last week, which showed a pronounced weakening in hirings, kicked off the market turbulence that has defined this week on Wall Street. The unemployment rate is at its highest level in about three years, and companies — mostly in tech — are laying off workers to cut costs. Over the past couple of days, Dell and Axios were the latest big companies to announce layoffs.

It begs the question: What is the true cost of layoffs?

Bloomberg found that severance isn’t the only cost. While layoffs may seem like a cost-cutting measure, other expenses arise, and the indirect costs can be substantial. Many metrics hadn’t been calculated until now, As you’ll find, the costs can even outweigh the immediate savings. 

Five noteworthy costs of layoffs:

Severance payments

Meta paid an average of $88,000 per person in severance for 11,000 laid-off employees in November 2022. But only about 25% of U.S. companies offer severance to all employees. The most common average package is around $40,000. 

Reduced productivity 

After layoffs, remaining employees often experience reduced productivity because of stress and low morale.

One analysis showed that productivity could drop by nearly an hour per day per employee, potentially costing a 100-employee company over $50,000 a month in lost productivity.

“So much of the response to a layoff is cultural,” one CEO said. 

Voluntary departures 

Layoffs can trigger increased voluntary turnover. A 10% downsizing can lead to a 49% increase in voluntary turnover, costing a 10,000-person company over $75 million in replacement costs. Replacing such employees is expensive and can cost about 1.25 times their salary, according to Bloomberg. 

As Bloomberg reports: “While a layoff promises substantial savings in labor costs, the authors said, that promise is undermined ‘by the considerable costs associated with unanticipated increases in voluntary turnover.’ Those include the costs of being hobbled by understaffing and the expense of recruiting and training replacements for the departed.”

Increased unemployment insurance tax 

In the U.S., unemployment insurance gives temporary help to eligible workers who lost a job, mostly funded by state taxes on employers. 

Bloomberg found that companies face higher unemployment insurance tax rates following layoffs. For example, a Texas-based company laying off 5% of its workforce might pay an additional $93 per remaining employee the following year.

Legal fees 

Companies often spend money on statisticians and lawyers (about $500 per hour) to analyze the demographics of those being laid off and ensure compliance with labor laws to avoid discrimination lawsuits. 

As one labor economist said, “If the correlation between being female and being laid off is too strong to be random, it’s statistically significant, and that’s important because it can be used by courts to create an inference of discrimination.”

Read more

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Quick Poll

On Monday, we asked: If I were Warren Buffett right now, I'd...

— Many investors would simply keep sitting on that massive cash pile, waiting for the right opportunity to pounce. “The market will drop more and more stocks will become a better deal if he waits further,” one investor said.

— One reader wrote, “He will know when to deploy his cash hoard. The right opportunity at the right time (as with Apple a few years back) or to repurchase BRK shares if the price drops sufficiently. Maybe the rest of OXY at some point as shares are below 60? He surely doesn't need my input.” 

— Though Buffett himself wouldn’t do this, one reader said they’d start a new position in a digital currency. “Get the Oracle some BTC!”

See you next time!

That's it for today on We Study Markets!

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