META LOSES $232 BILLION AS FACEBOOK SHARES SUFFER RECORD COLLAPSE

NEW YORK, 2022-02-03. — Facebook’s parent company Meta suffered a historic stock-market collapse today, losing approximately $232 billion in market value after warning that its advertising business faces a combination of slowing growth, tougher competition and restrictions on tracking customers. Shares closed at $237.76, down 26.4 per cent, in the largest one-day destruction of market value yet recorded by an American company. The sell-off followed results released after yesterday’s closing bell and spread across technology stocks, dragging the principal Wall Street indices sharply lower. For investors who have long treated Facebook’s enormous audience as a dependable engine of expansion, the figures delivered an unusually abrupt challenge.

The most striking warning came from Facebook’s daily audience, which declined slightly in the final three months of 2021. The service reported an average of 1.929 billion daily active users, against 1.930 billion in the preceding quarter, its first quarterly fall on that measure. The movement is small beside the platform’s worldwide reach, and does not mean that Meta’s entire family of applications is shrinking. Nevertheless, it punctures an important assumption behind the shares: that the original Facebook service can continue adding users almost automatically. Facebook’s monthly audience stood at about 2.91 billion, broadly unchanged from the previous quarter.

The financial results showed a company still generating immense revenues, but facing a more difficult balance between income and expenditure. Fourth-quarter revenue rose 20 per cent from a year earlier to $33.67 billion, while net income fell 8 per cent to $10.29 billion. Earnings of $3.67 a share disappointed market expectations. More troubling to investors was management’s forecast for the opening quarter of 2022: revenue of $27 billion to $29 billion, representing annual growth of only 3 to 11 per cent. That range marks a substantial slowing for a business whose valuation has rested heavily on the prospect of sustained, rapid increases in advertising sales.

Mark Zuckerberg, Meta’s founder and chief executive, acknowledged the pressure from rival services during the results call. “People have a lot of choices for how they want to spend their time, and apps like TikTok are growing very quickly,” he said. Meta is placing increasing emphasis on Reels, its short-video format, as users devote more attention to that kind of entertainment. But the transition carries an immediate commercial difficulty: Reels currently earns less advertising revenue than the established Feed and Stories formats. Drawing people towards a product intended to defend Meta’s competitive position may therefore restrain revenue growth while the company develops its advertising business around it.

Another major obstacle comes from Apple’s changes to privacy controls on its devices. Applications must now ask users for permission to track their activity across other companies’ apps and websites, weakening some of the information used to target advertisements and measure their effectiveness. Meta’s chief financial officer, David Wehner, put the expected revenue effect this year “on the order of $10 billion”. That estimate gives investors a measure of how consequential the dispute over personal data has become. Meta is working on alternative advertising tools, but management’s forecast makes clear that it does not expect a quick or complete escape from the disruption.

The company also pointed to pressures among advertisers themselves. Supply-chain difficulties and rising costs are affecting businesses that buy advertising, limiting their appetite for spending even as the wider economy recovers from pandemic disruption. These constraints arrive as Meta faces stronger competition for advertising budgets as well as for users’ attention. The result is not a single explanation for today’s fall, but several concerns reinforcing one another: a mature flagship network, a changing mix of content, less effective measurement and customers with their own financial problems. Investors have consequently marked down the price they are willing to pay for Meta’s future earnings.

Today’s rout also puts a harsher spotlight on Zuckerberg’s costly ambition to build the metaverse, a proposed collection of immersive digital environments for work, entertainment and social interaction. The company changed its corporate name from Facebook to Meta last October to underline that ambition. Its latest accounts separately disclose the performance of Reality Labs, the division responsible for virtual- and augmented-reality projects. That operation recorded an operating loss of approximately $10.2 billion in 2021 on revenue of about $2.3 billion. The advertising businesses remain the financial foundation supporting this investment; their slowing momentum makes the scale and uncertain returns of the new undertaking more conspicuous.

The shock was felt well beyond Meta’s shareholders. The Nasdaq Composite fell 3.7 per cent, the S&P 500 declined 2.4 per cent and the Dow Jones Industrial Average lost 1.5 per cent. Shares in other advertising-dependent internet companies, including Snap and Pinterest, were also sharply lower during the regular session as investors considered whether Meta’s difficulties signalled wider trouble. Technology shares have already been unsettled this year by expectations that the Federal Reserve will raise interest rates. Higher rates can make the distant earnings promised by fast-growing companies less attractive, leaving disappointing corporate forecasts exposed to especially severe punishment.

The approximately $232 billion erased today represents a fall in the stock market’s valuation of Meta, not an equivalent cash withdrawal from its accounts. The distinction matters: the company remains highly profitable and operates services used by billions of people. Even so, the scale of the repricing is extraordinary, exceeding the total market capitalisation of many major corporations. Zuckerberg, whose wealth is closely tied to his holding in the business, has suffered a substantial paper loss alongside institutional investors and other shareholders. For portfolios heavily exposed to the largest American technology companies, the session demonstrates how a disappointment at one dominant enterprise can reverberate through the wider market.

Meta now faces the task of showing that it can strengthen its advertising systems, make more money from short-form video and retain users while financing a substantial technological expansion. None of those tests will be settled by a single quarter, but the immediate benchmark is the subdued revenue guidance management has just supplied. Investors will be watching whether the small decline in Facebook’s daily audience proves temporary, whether advertisers adapt to the new privacy environment and whether expenditure produces measurable commercial gains. At tonight’s close, Wall Street’s verdict is emphatic: Meta’s enormous reach is no longer enough, by itself, to sustain confidence in the pace of growth ahead.