Meta Platforms (NASDAQ:) is no longer a growth stock. At least that was the message investors received when the parent company of Facebook, Instagram and WhatsApp released its last message last week.
The reaction of investors to the company's disappointing earnings report has been swift and fierce. The stock plunged 26% in Thursday's trading, wiping out about $251.3 billion in market value. history of the stock market and resulted in the largest loss in market value ever for a US company. the report shows that Meta is struggling on a number of fronts and that the best days for its stock in the current cycle are over.
The stock closed Friday at $237.09, down about 30% for the year. In the same period, the benchmark index fell by 10%.
The most disappointing element of the Q4 release: For the first time, Facebook's user base has stopped growing. It even shrank in some markets. According to Menlo Park, California-based Facebook, its daily user base fell from 1.93 billion to 1.929 billion in the fourth quarter. The news, combined with a forecast of lower-than-expected revenue growth in the current quarter, undermined investor confidence and caused stocks to tumble. Meta said it expected revenue growth to slow as users spend less time on its more lucrative services. It also blamed soaring inflation hampering advertisers' spending. With these headwinds, the company is unable to neutralize the impact of changes to Apple's privacy settings (NASDAQ:), which give users the choice to prevent apps from tracking their Internet activities, hurting profitability for companies that Selling targeted ads, one of Meta's biggest revenue streams. These changes could cost Meta as much as $10 billion this year. for Chief Executive Officer Mark Zuckerberg. He told investors in a conference call that the social networking giant has faced an "unprecedented level of competition" with the rise of TikTok, the rival viral video platform.
Another major hurdle that could hurt FB's future revenues: the company's shift towards virtual reality headsets, augmented reality glasses and virtual worlds, also known as the metaverse, in which users can live and work . Meta plans to invest heavily in this project whose success is not guaranteed. Meta's Reality Labs, which is shaping this venture, lost $10.2 billion in 2021.
This major adjustment suggests that Facebook's final growth phase is over and investors may have to wait for the stock to regain lost ground. Argus Research, while demoting Facebook for not buying, said in a note:
"The fourth quarter results were modestly disappointing, although it was the company's outlook that both disrupted the market and led to our downgrade. While Meta has often been the subject of controversy, 2022 will see the company face a long list of issues, with increased competition and pressure from Apple's new ad-tracking policies most notable.”
While the current outlook clearly shows the company, which is the darling of growth investors, is running out of gas, we believe Zuckerberg has the ability and financial strength to reverse course.
On a Wednesday conversation with investors, Zuckerberg said Instagram's Reels, a TikTok copycat, is the best opportunity to recruit more young people to the site. The company will invest to grow it as quickly as possible. In addition, the company's pivot to the metaverse is a long-term bet that could reward patient investors. Plus, it's not the first time Meta stocks have seen a dramatic drop. The stock plunged 19% in July 2018 due to a slowdown in user growth. At the time, it also set the record for the largest single-day loss of value for a US-traded company. But over the next three years, the stock resumed its upward trajectory, nearly doubling in value until last fall.
Bottom Line
The plunge in Meta stocks signals a massive adjustment in investor expectations. That downward move could have even more room to turn. But it's important to remember that Zuckerberg's company has been here before and could reverse course again.
