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Can Meta Platforms reverse the course of a massive decline?

meta platforms

Facebook parent Meta Platforms suffered a massive selloff on weakened growth in the final quarter. But a broader tech selloff sparked by rising interest rates and geopolitical tensions also contributed to the social platform’s meltdown, with its shares shedding 44% year to date. The social platform faces challenges regarding server competition, growing social issues, and rising expenses. At the same time, progress is seen in its development of the metaverse segment, which is a key factor that could lead the company’s advance into a new era.

Metaverse development is in focus

Since the name change, the Reality Labs has become a key business segment driving future growth, which includes Metaverse, augmented, and virtual reality. However, this segment is still at the money-burning stage despite rapid revenue growth. In 2021, the company invested $10 billion to develop the Metaverse-centring business, 54% up from 2020. One positive is that its Occulus Quest 2 headsets sold 8.7 million units in 2021 according to International Data Corporation, to gain 78% market share, which will be a big contributor to its Reality Labs revenue growth in the first quarter. Meta also brings in 3D advertising to Facebook and Instagram with development from Vntana, an augmented reality company. Whether the company can increase its profit margin in the Reality Labs will be a key focus in its upcoming earnings report.

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A continuous growth slowdown

Meta Platforms’ first quarter revenue is expected at $30.15 billion according to Refinitive, or 15% year on year vs 37% the previous quarter, while the EPS is forecast at $2.54, or a 23% decline from the fourth quarter.

Slowing growth in user numbers and negative guidance are the two factors that slashed Meta Platforms’ outlook. Meta Platform’s Daily Active Users (DAUs) recorded at 1.93 billion, slightly down from the previous quarter, which is the first time of negative growth in the DAUs. Due to severe competition from TikTok and Snap, Meta Platforms expects to continue losing steam in its user growth, while analysts forecast its DAUs growth is steady at 4% yearly. Apart from that, Apple’s iOS privacy policy change will also negatively affect its advertising revenue. Plus, Russia banned Instagram and Facebook in March by labeling the social media as “extremist”, which could have caused a 1.5% loss in Meta’s advertising revenue.

However, these two factors might have been priced in, which could be the adverse elements to support upside sentiment if the first-quarter results beat the already lowered expectation.

An ongoing regulatory issue

The regulatory issues are the ongoing negative factor that damages the brand of Facebook despite a name change to Meta Platforms, from the whistle-blower of a former employee regarding its algorithm tracking of users, to an antitrust lawsuit of acquisitions of Instagram and WhatsApp. In response to the issues, Meta Platforms introduced the parent’s control over teens' usage of the social apps, such as Facebook, Instagram, and Oculus Quest Virtual reality.

Meta Platform's medium-term downtrend phase remains intact

Source: CMC Markets as of 25 Apr 2022 (Click to see the enlarged chart)

Since its current all-time high of 384.31 printed on 1 September 2021, the share price of Meta Platforms (FB) has plummeted by -53% to a low of 181.67 on 25 April 2022; that includes a single day drop of -24% on 3 February 2022 due to its dismal Q4 2021 earnings result. Overall, FB has underperformed year-to-date against the S&P 500 and its Communications Services sector by 4X and 2X significantly.

Its medium-term downside momentum is not showing any clear signs of abating as the daily RSI oscillator has staged a recent bearish breakdown from its corresponding ascending support from its oversold region on 21 April 2022.

If any corrective bounces can be contained below the 248.00 key medium-term pivotal resistance, FB may shape another impulsive down move within its medium-term downtrend phase in place since 1 September 2021 all-time high towards the next supports at 153.10 and 137.10 (18 March 2020 swing low area, lower boundary of the accelerated descending channel from 28 December 2021 high and a cluster of Fibonacci extension levels) before a potential consolidation sets in.

On the flip side, a clearance above 248.00 negates the bearish tone for an extension of a corrective rebound towards the 294.60/308.15 long-term pivotal resistance zone (the former swing low area of 24 January 2022 before the post-Q4 2021 earnings release gapped down & 200-day moving average).  

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