Is losing $200B in One Day, Bad?
Facebook (Meta) shares are in a free fall today (down 24%+) and are on track for the largest one-day plummet the tech giant has ever experienced. The fall comes on the back of a weak earnings report, coupled with a new iOS privacy policy. Investors are concerned for the short term, and seem to be selling off.
While not completely unprecedented for Facebook, its close. They saw a similar dip in July of 2018 (-19%), but it looks as if today will eclipse that. In fact, Meta is expected to wipe nearly $200 Billion (with a B) off their market cap, today. That number would signify the largest one-day collapse in value for a US company, in market history… And I was upset about having to walk my dog in the rain this morning? Perspective.
So what is going on?
Revenue Miss
Meta reported Wednesday what they anticipate will be a wide miss on Q1 revenue (now forecasting roughly $27B vs an initial expectation of $30B+ in Q1) which was the initial alarm bell for investors.
Much of Meta’s family of apps revenue is generated from advertising, and they have seen a drop in ad revenue over the course of the COVID pandemic. Many of their advertising customers have struggled with a slowed economy and more recently with massive delays in the supply chain. Retail businesses are continuing to be crippled by their inability to access inventory, which is driving down advertising spend across the board.
Meta’s apps are also starting to see more competition, namely TikTok. The relatively new player is gaining massive market share where Facebook has historically dominated. As of January, TikTok was reporting more than 100 million monthly users in the US (38% of America’s mobile phone users) which is an increase of 800% over 20 months. TikTok’s meteoric rise has, and will continue to, syphon valuable advertising revenue away from Meta’s platforms.
iOS Privacy Policies
It appears consumer concerns around privacy has finally been addressed by Apple, and Facebook is feeling it. iOS 15 (which is now running on more that 70% of all iPhones) includes a robust privacy update that disables the ability of mobile ads to track a consumer’s purchase habits unless explicitly allowed by the user. They can no longer track activity across multiple apps or see when a purchase or app download is executed – Pretty significant data for any advertiser, as well as ad platforms (Facebook/Instagram). In Wednesday’s earnings call, Meta’s CFO indicated that the privacy update would have a negative revenue impact of $10B in 2022 as a “best guess”.
The Metaverse
When Zuck released the very odd video of his virtual-self interacting with the metaverse, in parallel with launching the new parent company name (Meta), we knew that investment in the future was coming, but we weren’t quite sure to what degree. We have now learned that Facebook is investing (or, betting) heavily on the future of the Metaverse.
Reality Labs (Facebook’s Metaverse development arm) generated roughly $877M in revenue last year but lost north $11B. Those losses are continuing to pile up with no sign of slowing. It is very obvious that Meta putting many of their eggs in a virtual basket. It will be interesting to find out just how diamond-handed investors are over the course of this development.
In Summary
Losing $200B in one day: Bad
Q1 Revenue: Bad
Advertisers: Spending less, migrating to TikTok
Privacy: A problem for Meta, a win for us
Zuck: Virtually unfazed (that’s a pun)