Meta stock is set to shed more than $190 billion in market value Thursday, including $24 billion for CEO Mark Zuckerberg, after a disappointing fourth quarter earnings report and the first decline in Facebook users in company history.
Meta Platforms (FB) – Get Meta Platforms Inc. Class A Report shares plunged lower Thursday, potentially wiping more than $190 billion in value from the Facebook parent, after a disappointing fourth quarter earnings report that highlighted competition and technical headwinds to the world’s biggest social media company.
Facebook missed on the Street’s Q4 profit forecast, with a bottom line of $3.67 per share on revenues of $33.4 billion. User growth rates also slowed, and were largely flat to the previous quarter, with founder and CEO Mark Zuckerberg noting increasing competition for social media engagement.
Apple’s (AAPL) – Get Apple Inc. Report App Tracking Transparency (ATT) rules have made it difficult for Facebook to measure the success of some of ad campaigns, resulting in delayed or restricted data.
In response, the group has had to boost spending — which will rise to around $95 billion this year — on AI and machine learnings tools to help define user preferences make targeted ads more attractive. CFO Dave Wehner said the “headwind on our business in 2022 is on the order of $10 billion” from Apple’s iOS changes.
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Daily active users averaged 1.93 billion on average for December, up 5% from last year, while monthly active users rose 4% to 2.91 billion. Both tallies, however, showed declines in users in the U.S. and Canada for the first time in the company’s 18-year history.
“People have a lot of choices for how they want to spend their time and apps like TikTok are growing very quickly. And this is why our focus on Reels is so important over the long-term,” Zuckerberg told investors on a conference call late Wednesday.
“Ultimately, our continued success relies on building new products that people find valuable and enjoy using,” he added. :And in a competitive marketplace, we’re focused on understanding the areas that we need to deliver on for people and executing against this strategy.”
Meta shares were marked 21% lower in pre-market trading Thursday to indicate an opening bell price of $255.10 each each, the lowest since March of last year and a move that would lop $187.5 billion from the group’s market value.
Other social media stocks were pulled into the Meta slump vortex, with messaging app maker Snap (SNAP) – Get Snap, Inc. Class A Report tumbling 16.3% to $26.83 each and micro-blogging website Twitter (TWTR) – Get Twitter, Inc. Report falling 7.2% to $33.88 each. Pinterest (PINS) – Get Pinterest, Inc. Class A Report was also notably lower, down 8.5% to $25.02 each.
Facebook said overall group revenues rose 20% to $33.67 billion for the three months ending in December, just ahead of analysts’ estimates of $33.4 billion, with nearly all of it coming from the new ‘Family of Apps’ division the company created last year.
Reality Labs, the division that will house the company’s metaverse plans, generated revenues of $877 million, but lost $3.3 billion for the quarter and $10.2 billion for the year.
Looking into the 2022 calendar year, Meta said it sees total capital spending in the region of $90 billion to $95 billion, with first-quarter revenues likely topping out at $29 billion, compared to the Refinitiv forecast of $30.15 billion.
Wehner also noted in the company’s earnings release that “we’re hearing from advertisers that macroeconomic challenges like cost inflation and supply chain disruptions are impacting advertiser budgets”.
Slowing user growth and falling ad revenues, alongside surging capital expenditures likely goes a long way towards explaining both the disappointing near-term outlook and the stock’s re-pricing.
“While ATT remains the biggest targeting/measurement headwind and peak impact is likely midyear 2022 when it anniversaries, smaller incremental ones like iOS 15 and Android ID deprecation are piling on and will linger through 2022,” said BMO Capital Markets analyst Daniel Salmon, who lowered his rating on Meta to ‘market perform’, with a $290 price target, following last night’s earnings.
“More incrementally to us, the immediate impact of new advertiser tools and rate of adoption by small businesses are weaker than we anticipated,” he added. “Finally, the outlook for consolidated company margins remains challenging in light of aggressive investing in the Metaverse. All of which add up to a fact pattern than runs counter to our investment thesis, and is compounded by lower MAUs and DAUs than expected and more relative engagement on lower monetizing Reels.”
