The 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.

The Key Facts

Facebook’s parent Meta Platforms shares are set for the biggest drop in one day, with a fall of 25% and an eraser value exceeding $230 billion.

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.

Meta’s shares fell after the release of a poor quarterly earnings report. The company gave weaker than expected guidance for revenue and warned about several business challenges.

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.

Meta also reported that Facebook had lost daily users. This was the worst news in Facebook’s history. The company said its core business was slowing, with executives blaming increased competition like TikTok.

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 SME’ calculations. His current worth is $85.9 Billion, which drops below $100 Billion for the first year.

The most important 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.

The Key Background

Facebook, which went public with an estimated $100 billion valuation in 2012 has experienced share gains almost every year. However, 2018 saw a decline. In 2018, Facebook started this year with close to $1Tillion market capitalization. However, the company’s latest financial results, and its subsequent sale-off are a stunning reversal in fortune. This is after enduring many scandals over years and having a long history of holding teflon stocks. Facebook shares fell sharply in March 2018. This was after the Cambridge Analytica crisis brought the company under severe scrutiny. After a plunge of nearly 20%, shares recovered within two months. Zuckerberg appeared in Congress several times and the company reported solid quarterly earnings. In late July 2018, the stock plunged 19% as Facebook began to shift toward Instagram Stories (away from Newsfeed). The company also posted disappointing quarterly earnings. 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.

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