Weekly Brief: Facebook on the slump

Background

In October of 2021, Facebook decided to change its name to ‘Meta’, which will include formerly serviced social networks such as Facebook and Instagram. As a pioneer of the new world, the metaverse, Meta was projected to be a highly profitable company. Wall Street and analysts were calling highly bullish on the prospect of the stock. Both Monthly Active Users and Average Revenue per user were on growth until the 3rd quarter of 2021. What can possibly go wrong with such good forecasts?

Wall Street Rating and Analyst Consensus on Dec 29, 2021

Escalation

On February 2nd, Meta announced a slowdown in revenue growth in its earnings report. There are roughly 4 factors that caused the crash. Facebook’s daily users' number in the United States decreased compared to the previous quarter for the first time in history. Furthermore, ad revenue was hurt by Apple’s privacy restriction. Apple enabled the option for users to cut off apps from tracking their behaviors on other apps in IOS. This limited Meta’s way of collecting advertising data, which ultimately led to a decline in ad revenue. While Meta had to compete with TikTok, the sharp rise in expense for its investment into metaverse pulled down Meta’s profit further. As the company constantly provided spectacular growths, the announcement of the slowdown disappointed the investors. The investor sentiment which does not prefer uncertainty expressed itself by showing a historical plunge in the stock right after the announcement of the report.

Source: Axios

The Plunge

On February 2nd, after the report was announced, Meta’s stock plummeted 26.4% which wiped out about $230 billion of the market capitalization.

The S&P dropped about 2.4% and the Nasdaq Composite (COMP) fell 3.7%. Despite not including Meta, Dow Jones Industrial Average was also down 1.5%. This is recognized to be the biggest day plunge in the history for the United States company, overtaking Apple’s record of -$182.39 in September 2020 with -$210.0.

What does it mean to you?

Investors care a lot about how volatile the market is. Last year, the market was very volatile with big swings. Ryan Detrick, the chief market strategist for LPL Financial, predicted even wider swings and more volatility this year due to the midterm election of 2022. Sam Stovall, chief investment strategist at CFRA concurred as similar swings might occur due to concerns on interest rates, Russia-Ukraine conflicts, and the midterm election. So hold on tight, it’s going to be a bumpy ride this year.

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References

Harris, C. (2022, February 3). Facebook's historic stock drop spurs market slide. what's that mean for your 401(k). USA Today. Retrieved February 4, 2022, from https://www.usatoday.com/story/money/2022/02/03/facebook-meta-stock-falls-stock-market-dow/6656532001/

Gilbert, B. (2022, February 3). Facebook blames Apple after a historically bad quarter, saying iphone privacy changes will cost it $10 billion. Business Insider. Retrieved February 4, 2022, from https://www.businessinsider.com/facebook-blames-apple-10-billion-loss-ad-privacy-warning-2022-2

Lin, J. (2021, December 29). Meta Platforms Stock: What is the outlook for 2022? (NASDAQ:FB). SeekingAlpha. Retrieved February 4, 2022, from https://seekingalpha.com/article/4477138-meta-platforms-stock-outlook-2022

Ortutay, B. (n.d.). Meta, formerly Facebook, faces historic drop as stock tanks. ABC News. Retrieved February 4, 2022, from https://abcnews.go.com/Business/wireStory/meta-facebook-faces-historic-drop-stock-tanks-82656546

Fischer, S. (2021, October 26). Apple's privacy changes eat rivals' businesses. Axios. Retrieved February 4, 2022, from https://www.axios.com/apples-privacy-changes-eat-rival-businesses-e951d3aa-d112-4b0b-8074-78010a5189a6.html

Smith, C. (2022, February 3). Meta Platforms Stock Ends day in historic market capitalization plunge. Meta Platforms Ends Day in Historic Market Capitalization Plunge | Barron's. Retrieved February 4, 2022, from https://www.barrons.com/articles/meta-platforms-stock-facebook-market-capitalization-51643908656