FB Stock Pummeled By Apple Ad Changes

Facebook has set a number of records in its 18-year existence, but the latest threshold eclipsed by parent company Meta Platforms (FB) is more scar than beauty mark. And that blemish — a free fall that cratered FB stock this week — will live on for a while.

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Following its quarterly earnings report that was short across-the-board, FB stock on Thursday set a record when shares collapsed by 26.4%. In the process, its market valuation plunged by more than $232 billion.

That’s the biggest one-day drop in market value for any company in the history of the U.S. stock market. It took the top spot from Apple (AAPL), which lost $182 billion in market value in September 2020.

FB stock dipped 0.3%, closing at 237.09 on the stock market today.

It was “a disaster quarter that will remembered for ages on Wall Street,” Wedbush analyst Dan Ives told clients in a note this week.

FB Stock: Apple’s Role In Facebook’s Face Plant

In a cruel twist of fate, previous record holder Apple had a lot to do with Facebook’s face plant.

When Apple added new user privacy controls to its operating system last April, it threw the advertising business into disarray. The changes gave users more control over privacy. And it’s now harder for advertisers to track ad performance, causing them to pull back on spending.

Meta estimates changes to Apple’s ad tracking policy will cost the company $10 billion this year.

The changes by Apple also have brought headaches for other social media stocks, especially Snap (SNAP), because advertising accounts for almost all of its revenue.

Ahead of earnings, Wall Street hoped Facebook had figured out ways to lessen the impact from Apple. When that wasn’t the case, investors worried other social media companies faced the same problems.

FB Stock Collapse Reverberates

As FB stock collapsed on Thursday, so did other social media stocks. Snap stock plunged 23.6%, Pinterest (PINS) sank 10.3%, and Twitter (TWTR) fell 5.6%.

But other social media stocks got beyond the advertising woes. Late Thursday, a day after the Meta earnings report, Snap reported earnings that topped estimates, as did Pinterest. Amazon (AMZN) which has a big advertising business, also exceeded expectations with its earnings report.

“Snap results were better than feared, as the company is navigating iOS platform headwinds and achieving solid revenue growth,” KeyBanc Capital Markets analyst Justin Patterson wrote in a note to clients

Amazon broke out its advertising revenue for the first time ever in its fourth-quarter earnings. It said ad revenue was $31 billion for 2021.

On Friday, Snap stock catapulted 58.8% to 38.91. Amazon stock jumped 13.5% to 3,152.79. Pinterest surged 11.2% to 27.25.

Snap Progress On Privacy Changes

Snap Chief Financial Officer Derek Andersen said Snap “began to recover from the impact of the iOS platform changes quicker than we anticipated.”

It will still take some time for the platform to fully adjust to Apple’s new guidelines, he said. He added the company was “pleased with the early progress.”

Facebook also pointed to macroeconomic challenges. It blamed lower-than-expected growth in part on inflation and supply chain issues impacting advertisers’ budgets.

In addition, Chief Executive Mark Zuckerberg said competition from rival TikTok weighs on Meta’s ability to monetize its Reels product. TikTok’s short-form video product is more popular than Meta’s.

“Meta shocked us with a weak first-quarter outlook and a step function increase in characterization of TikTok as a competitive force,” FB stock analyst Lloyd Walmsley of UBS wrote in a note.

“Never has Meta gone up against a 1B+ user platform significantly ahead of them in an engaging new format,” Walmsley went on to say. “We believe the sharply decelerating revenue growth combined with a fierce TikTok battle is likely to weigh on the stock near-term.”

Positive Tech Earnings Reports

Ives at Wedbush believes Facebook results caused an overreaction on Wall Street.

“FB stock being crushed made sense to the Street (and us) as the business model has potentially changed with the Apple headwinds,” Ives wrote.

“However, the rest of tech being sold in a panicked risk-off moment is another cautionary tale for those throwing in the towel on tech when 24 hours later Amazon’s print and a host of strong software/cyber results paint a much different bullish picture for the tech sector,” Ives said.

“The robust (earnings reports) from tech titans Amazon, Apple, Alphabet (GOOGL), Microsoft (MSFT), AMD (AMD), and Qualcomm (QCOM) are starting to paint a clear growth story for the tech space in 2022 that we believe is very important for the Street going forward,” Ives said.

Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.

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