Facebook stands to shed more than $200 billion in market value after rough earnings report

Facebook stands to shed more than $200 billion in market value after rough earnings report

In first quarterly report as Meta, competition and Apple’s iOS changes are blamed for a holiday-earnings miss and weak first-quarter guidance

Shares of Facebook parent Meta Platforms Inc. plunged more than 20% in extended trading Wednesday after detailing a holiday-earnings miss, weak guidance and intensifying competition.

Meta FB, +1.25% shares declined nearly 23% in the extended session, which would wipe away more than $200 billion in market cap were the declines to hold through Thursday’s trading session. With Meta’s shares in freefall, other social-media stocks were badly bruised — Snap Inc.’s SNAP, -4.72% shares fell 17% in after-hours trading Wednesday, while Twitter Inc. TWTR, -4.22% and Pinterest Inc. PINS, -8.93% were each down nearly 10%. Snap is scheduled to announce its results on Thursday.

The company formerly known as Facebook reported fourth-quarter earnings of $10.3 billion, or $3.67 a share, down from $3.88 a share last year, on sales of $33.67 billion, up from $28.1 billion a year ago. Earnings fell short of the average forecast for profit of $3.85 a share but sales beat the consensus of $33.4 billion, according to analysts polled by FactSet.

Meta also missed in its first-quarter revenue forecast, which calls for sales of $27 billion to $29 billion, while analysts were forecasting $30.2 billion. In the release, Facebook executives blamed increased competition from services such as TikTok, as well as changing consumer behavior toward Facebook’s TikTok-like offering and changes Apple Inc. AAPL, +0.70% made to its mobile operating system.

“We expect continued headwinds from both increased competition for people’s time and a shift of engagement within our apps towards video surfaces like Reels, which monetize at lower rates than Feed and Stories,” the company said in a statement.

In Meta’s first results since the former Facebook changed its name in late October to reflect its pursuit of “metaverse” technology, the company cautioned it expects to be “negatively impacted by a few factors,” specifically mentioning “Apple’s iOS changes,” and “ad targeting and measurement headwinds from platform and regulatory changes.”

Chief Operating Officer Sheryl Sandberg also referred to “headwinds” associated with Apple’s changes during a conference call late Wednesday, and Chief Financial Officer David Wehner put a price tag on it, estimating the Apple “substantial headwind” will cost Meta an estimated $10 billion in 2022 when pressed by an analyst during the call. He also expressed concern over future versions of iOS and regulatory issues in the U.S. and abroad.

For more than a year, Meta has repeatedly denounced the impact of Apple’s privacy change that makes it harder to track ads. Meta also faces a continuing investigation by the Federal Trade Commission into its acquisitions of Instagram and WhatsApp, as well as legislation aimed at curbing the influence of its vast digital platform.

During an hour-long conference call, Meta Chief Executive Zuckerberg acknowledged competition from TikTok for younger audiences.

“People have a lot of choices,” he said, necessitating short-term videos from Reels as a critical component in Meta’s future growth, he added.

“It’s clear that there are many big roadblocks ahead as Meta faces tough new competition for ad revenue such as TikTok, and as it contends with ongoing ad targeting and measurement challenges from Apple’s iOS changes,” Insider Intelligence principal analyst Debra Aho Williamson said in an email message.

The results arrive on the heels of blockbuster numbers from Google parent Alphabet Inc. GOOGL, +7.52% GOOG, +7.37% on Tuesday, creating concerns that advertisers may be turning to Google instead of Facebook for online ads. While Alphabet blew away holiday expectations, executives did not provide a forecast.

Daily active users, or DAUs, a crucial metric for Meta’s growth globally, increased 5% to 1.93 billion, shy of analyst expectations of 1.95 billion. But they also declined sequentially and the actual number of DAUs has been met with skepticism after internal documents strongly suggest Meta is struggling to detect and deal with users creating multiple accounts on its flagship platform.

Meta makes almost all of its revenue from advertising ($32.6 billion), but is trying to focus more on non-advertising revenue with its push for the “metaverse.” Revenue for Facebook Reality Labs — the virtual-reality-focused division at the heart of Mark Zuckerberg’s metaverse ambitions — was $877 million during the fourth quarter, but it reported a $3.3 billion operating loss. Meta disclosed it is developing a high-end Oculus headset for later this year.

Meta shares have slipped 4% so far this year, while the broader S&P 500 index SPX, +0.94% has dipped 3.7% in 2022.

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