Facebook Faces An ‘Existential Moment’ After $230 Billion Stock Crash

Topline

Shares of Facebook-parent Meta fell over 25% on Thursday—erasing over $230 billion in market value for its worst trading session in history—after the company’s dismal quarterly earnings report showed declining users and surging expenses related to the company’s metaverse project.

Facebook’s stock had its biggest drop ever, losing a quarter of its value in one day.

Josh Edelson/AFP via Getty Images

Key Facts

Shares of Facebook-parent Meta Platforms are on pace for their biggest one-day drop ever, falling over 25% and erasing more than $230 billion in market value.

The sharp drop in the company’s market capitalization, which now stands at around $670 billion, is on pace to be the biggest wipeout ever in U.S. market history, according to Bloomberg data.

Shares of Meta plunged following a dismal quarterly earnings report in which the company issued weaker than expected revenue guidance and warned of several challenges to its business this year.

Investors dumped shares of the tech giant after being alarmed by both declining user growth and rising expenses tied to the company’s focus on augmented and virtual realities.

Making matters worse, Meta reported that Facebook lost daily users for the first time in its history as business on its core platform slowed, and executives blamed increased competition from the likes of TikTok for its decline.

What’s more, Zuckerberg has shifted more of the company’s resources into building out his idea of the metaverse: Facebook spent over $10 billion along these lines last year and is expecting a “meaningful increase” in similar expenses for 2022.

Big Number: $28.6 Billion

That’s how much Facebook cofounder Mark Zuckerberg’s net worth plunged on Thursday, according to Forbes’ calculations. He is now worth $85.9 billion, dropping below the $100 billion mark for the first time since last year.

Crucial Quote:

“This isn’t simply a disappointing quarter but rather an existential moment for Meta,” says Vital Knowledge founder Adam Crisafulli. “Investors will be forced to take a long and hard look at the company’s competitive position and consider whether it isn’t heading into a prolonged period of subpar performance – this will make it hard for the stock to quickly rebound.”

Contra:

While Meta’s near-term growth outlook was “disappointing,” 2022 will be a significant year for the company as it ramps up its foray into the metaverse, according to analysts at Bank of America who maintain a “buy” rating on the stock. While factors like increased competition from TikTok, challenges related to Apple’s iOS advertising changes and bigger investments in the metaverse will impact earnings, Facebook should bounce back in the second half of 2022, they predict.

Key Background:

Since going public at around a $100 billion valuation in 2012, Facebook has posted share gains every single year except 2018, starting off this year with a market capitalization close to $1 trillion. The latest financial results and subsequent sell-off, however, is a dramatic reversal of fortune for a company that has long had a teflon stock and weathered many years of scandals. The last time Facebook shares plunged dramatically was in March 2018, when the company came under fire for its handling of private user data in the Cambridge Analytica debacle. Shares plunged nearly 20% at their low point during that episode, but fully recovered less than two months later after the company posted solid quarterly earnings and Zuckerberg made several Congressional appearances. The stock also plunged 19% in late July 2018, as the company was shifting toward Facebook and Instagram stories (away from Newsfeed) and posted quarterly earnings which disappointed investors. The stock made back most of its losses over the following year, however: “We have witnessed this happen back in 2Q18 as Facebook transitioned from Feed to Stories. … Revenue growth decelerated for three quarters before re-accelerating again,” says Mizuho’s James Lee in a recent note.