Facebook, recently renamed Meta, saw its market capitalization slump on Feb. 2 after the tech giant announced its first-ever decline of average daily and monthly active users in the fourth quarter, which was underscored with “very disappointing” metrics and a grim outlook.
Meta shares crashed 26 percent after the company released fourth-quarter financial report showing that it had missed the earning per share (EPS) target set by the Wall Street Journal.
Its EPS came in short 5 percent at $3.67 per share, compared to Wall Street’s $3.82 expectation. Revenue came in about expected at $33.7 billion.
As a result, Meta’s market value sunk by upwards of $230 billion, signifying the largest single-day selloff in stock market history.
“For so long, Meta has been the indomitable bully on the block,” Loft Capital Management wrote in a note published on Seeking Alpha.
“Well, the tide might be turning – Meta referenced the rise in competition as a key ingredient to its fourth quarter underperformance and not-so-impressive guidance for the first quarter of 2022.”
Meta shares are not expected to rebound anytime soon due to competition the company is facing from rising video platforms such as the Chinese short-video-making app TikTok. Maybe that is why Meta executives are looking more to Facebook’s short-video product, Reels, as a growth area and the company’s savior.
Shares have dropped 32.2 percent since the Q4 result announcement and are currently trading at $219.55 each, the lowest since June 22, 2020, according to Yahoo! Finance data.
“From a trading perspective, maybe there is enough damage on sub-$200,” said Josh Brown, CEO of Ritholtz Wealth Management, during a CNBC ‘Halftime Report’ show.
“I really don’t think that this stock can recover back to where it was for a very long time. They have never taken on a competitor has big as TikTok,” Brown said.
TikTok owner ByteDance, based in Beijing, has been on a meteoric rise as young users prefer its features to Meta’s Instagram. It was the most downloaded app of 2021 and overtook Meta’s Instagram in popularity among coveted young users.
In 2021, TikTok reached 63 percent of Americans each week between the age of 12 and 17, up from 50 percent a year prior, according to a November survey by Forrester. Instagram declined from 61 percent in 2020 to 57 percent in 2021.
Here are seven things you need to know about the slump in Meta shares:
Meta’s market value crashed more than $230 billion in a single day after it announced its fourth quarter results — the largest single-day selloff in U.S. stock market history. Meta’s drop eclipsed a record drop set by Apple Inc on Sept. 3 2020 when it declined $182 billion amid broad profit-taking.
Meta shares gained for five straight trading days ahead of the social media giant’s earnings report for the fourth quarter of 2021, trimming the decline since the stock’s record close on Sept. 1, 2021, to about 15 percent.
Facebook’s global daily active users declined by 1 million from the previous quarter for the first time, to 1.929 billion. Meta said it took a hit from Apple’s privacy changes to its operating system, which have made it harder for brands to target and measure their ads on Facebook and Instagram.
Facebook also reported 2.91 billion monthly active users in the fourth quarter, showing no growth compared with the previous quarter.
Even Meta bulls such as long-time tech analyst Mark Mahaney are cautious on the stock price in the near term. “Shares are probably dead money at this level of growth for at least the next three months,” Mahaney said on Yahoo Finance Live.
TikTok just managed a feat that advertiser boycotts and years of complaints about toxic content on Facebook could not pull off—it loosened Meta Platforms’ grip on advertisers. Now it’s the greatest threat Meta has faced in its 18 years existence.
As more and more people, especially the millennials and Generation Z, watch videos on social media, both Meta and Snapchat have indicated that the future of social media looks more like TikTok.
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Meta’s shrinking market cap could hold one silver lining for the tech giant: the possibility of skirting new antitrust liability, according to a CNBC report. Its share price crash has dragged Meta’s market cap to below the $600 billion threshold set by Congressional House legislators for a “covered platform” under a package of competition bills designed specifically to target Big Tech.
If Meta remains below that threshold, it could avoid the additional hurdles the bills would install for how it can conduct its business and make deals, while larger peers such as Amazon, Alphabet, Apple and even Microsoft become subject to the rules.
This is not the first time Facebook has faced a popular and fast-rising competitor. Faced by the threat of WhatsApp and Snapchat, Facebook either bought out its competitor or — failing several attempts to buy Snapchat — it launched a similar product, such as the status photos and videos, which disappear after 24 hours.
“Rolling over Snap was kind of like pushing your little sister down when she’s 1 and you’re 4,” Insider Intelligence Principal Analyst Debra Aho Williamson told WSJ.
Photo: Alphabet and Facebook stock values are shown on a screen at the Nasdaq MarketSite, Tuesday, July 25, 2017, in New York. (AP Photo/Mark Lennihan)