Earlier this month, Meta Platforms (otherwise known as Facebook) lost over a quarter of the share value with an earnings meltdown, after the fourth-quarter earnings report came in far below expectations. This raises questions as to why and whether these problems are here to stay.
Current Position
As of the recent news, Meta is now trading at its lowest level since mid May 2020. With a significant position in the compromising of the S&P 500 and Nasdaq (6th largest company), this reduction of around $220bn in market-cap amounts to the largest single-day market value decline on record amongst US firms (according to Dow Jones Market).
Quarterly Earnings Report
It is common practice for firms to release quarterly earnings reports, even more so for there to be a slight disappointment with the actual figures. Facebook expected first-quarter revenue to be in the range of $27bn to $29bn- a growth of 3%-11%. Conversely, Wall Street were slightly more optimistic with an anticipation of around $30.2bn.
Stock Impact
As a result of the figures, Meta’s stock plummeted 26.4% to close at 237.60 on the first day. However, it has fallen further to around 214 as of today- a fall of 36.79% for 2022 so far. This drop didn’t only affect Meta, while other social media platforms experienced slow trading days. In particular, the Nasdaq Composite Index felt the drag, where the figures spilled over into the broader technology sector.
Meta's Problems
Increasing Competition from Rivals
Zuckerberg claimed that the firm’s sales growth has been stunted by the recent competition from rivals (with the likes of Tiktok) taking younger users.
Tiktok has seen a rise in revenue from $350m in 2019 to $1.9bn. The app has been downloaded over 3bn times and as of January 2022, has 1bn monthly active users. Clearly, the app has posed a significant threat to Facebook, particularly attracting younger audiences.
However, this isn’t the extent of the issues. It is clear that Meta are facing a multitude of problems which have played a role on the recent figures.
Apple's App Tracking Transparency Policy
With the changes in iOS 14.5, including new Apple policy changes, this has created issues for advertisers who rely on Facebook to sustain their business. Facebook expected far less money to be spent on their advertising and marketers to seek alternatives. This reduced traffic has been irreparable to Facebook’s ad business.
This plays a significant contributory factor in the downturn of the quarterly figures. Apples’ policy changes (introduced late last year) enables users to choose whether they wish to be tracked whilst on the internet by companies (such as Meta) who can then sell that information to advertisers. Undoubtedly, this came as a significant problem for Facebook- who primarily generates revenue by gathering personal data and selling it to advertisers. This clear reduction in advertising income was evidenced in the quarterly figures.
But why are People Opting Out?
It comes as no surprise that Facebook’s reputation is slightly tainted, being known for collecting intrusive personal data. Put simply, people no longer trust the company with their data after years of mounting evidence of distrusting behaviour. According to a Business Insider survey, nearly a third (32%) of US Facebook users at least somewhat disagreed that they had confidence in the platform to protect their data and privacy. This is drastically different to 10% of LinkedIn’s users. That said, Tiktok wasn’t much different in terms of sentiment, with 22% of US users disagreeing- most likely tied to concerns about the Chinese government's use of their data.
All credit to Facebook, it has progressed and made relevant changes to give users more control over their data through opt-in and opt-out features as to what data is shared and the ads shown, as well as increased transparency into the data that is collected. Nonetheless, it appears that this is futile in changing the US user sentiment.
Other Tech Firms Impacted?
Apples’ privacy changes with the operating system has also impacted Meta with it being more difficult to target and measure their advertising on Facebook and Instagram. Meta stated that this could have an impact “in the order of $10bn” for this year.
Frighteningly for Meta, it appears that they are the only media to have been negatively impacted. Sachin Mittal, head of internet sector research at DBS Bank, stated that Meta has clearly been more negatively impacted as opposed to its rivals, meanwhile "other social media like Snap posted healthy results”. Despite Meta’s share price slump dragging other social media platforms, such as Twitter, Snapchat and Pinterest during the trading session of the drop, Snapchat’s shares jumped by around 60% in the after-hours market as it reported its first ever quarterly profit.
Wider Economic Impacts
In the winder context of the economy, US tech firms are under increasing pressure as investors anticipate policy tightening, by the US Fed, which may erode the industry’s exponential valuations following the recent trend of crucially low interest rates. With plans being announced to phase in higher rates, the Nasdaq (an index dominated by tech and other growth stocks) fell more than 8% in January- the worst monthly drop since the COVID-19 induced market crash in early March 2020.
What does this mean for the future?
With the heightening protection of personal data, this could leave social media targeted advertising in the past. Apple’s tightening of privacy for users definitely won’t be the last of restrictions on targeted ads, therefore Meta’s problems may only be the beginning. This combined with the increasing pressures with interest rates may see a potential decline of tech stocks this year.
By Max Davies
Penultimate Year Law Student
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