Facebook parent Meta Platforms’ share price plunged more than 20% in after-hours trading due to a disappointing fourth-quarter earnings report and first-quarter guidance.
It is the second time the company missed on quarterly earnings expectations. The share price is now 35% down from its all-time high at $283 in September 2021, when the company’s market value hit $1tn.
How did Meta miss on earnings?
In the earnings report, the company said the business was affected by a combination of macro factors, such as supply chain disruptions, Apple’s iOS privacy changes, and inflation, all of which are temporary issues. Inflation and supply chain issues will be resolved when the pandemic containment measures are lifted. Apple has said it will allow "Facebook and Snap to share user-level signals from iPhones, as long as that data is anonymised and aggregated…" in December.
Users spent more time on the Reel videos, which do not generate much income. Today’s sell-off was not only driven by the missed earnings, but also by the recent US Federal Reserve-induced tech share-dumping due to valuation downgrades. Investors might have overreacted to those companies that did not give positive future guidance.
The bright side of future development
Looking forward to new business development, there is still room for the company to grow. Meta led VR hardware sales against rivals Apple, Microsoft, and Google in 2021, with a 75% market share. The company invested over $10bn in its VR business. The company is in the early stages of its transformation to the “Metaverse”. Rising costs in employment and money-burning sales to take market shares are the challenges. But the company still has a healthy cash flow of $48bn, according to the fourth-quarter report.
After the drop today, the price to earnings ratio (P/E ratio) will be at a more reasonable level in the technology industry of around 20. Meta’s full-year growth in 2021 was at 37%, and net income was at 35%. It is still on pace to be a fast-growing business.
The biggest risk for Meta Platforms is the ongoing anti-trust lawsuit. According to the New York Times, “nearly four dozen states … asked a Federal appeals court to reconsider an anti-trust lawsuit against Facebook”. Facebook took over competitors including Instagram in 2012, and WhatsApp in 2014, which is considered as predatory to crush the competition. The lawsuit is aiming to split the Meta group to reduce monopoly power. The appeal is likely to be dismissed considering the economic impact on one of the mega-cap companies.