Meta Platforms - A Warning or an Outlier?

The fourth-quarter earnings report from Meta Platforms (FB), previously known as Facebook, caused the stock to plunge. A decline in users and bearish forward guidance caused the stock to lose over one-quarter of its value in a matter of hours.

The chart highlights the decline from $328 on February 2 to a low of $216.15 on February 8. At just below the $220 level at the end of last week, FB was 33% lower than the February 2 high and was at the lowest level since June 2020. FB’s decline caused more than a bit of fear through markets. However, other leading stocks have gone the other way.  Alphabet’s (GOOG) announcement of a twenty for one stock split and earnings sent the stock soaring.

FB is making a huge wager that the metaverse is the next technological wave and is positioning as a leader in the network of 3D virtual worlds focused on social connection.

Time will tell if FB stands along or is sending a signal for the high-flying technology sector.

FB faces mounting issues on the business and regulatory fronts

• Mark Zuckerberg has not been the most popular technology executive with regulators and legislators worldwide.
• Meta Platforms has been in a series of disputes with Apple (AAPL), the world’s leading company with an over $2.8 trillion market cap.
• FB’s CFO Dave Wehner suggested that Apple’s ad tracking privacy changes would cost the company $10 billion in ad revenue in 2022.
  

Congress and others seem to see Mr. Zuckerberg as a pinata

• There is growing support for the US Congress to break up FB because of privacy issues.
• Congresswoman Alexandria Ocasio-Cortez recently said, “Facebook should be broken up. We should pursue anti-trust activity on Facebook.”
• There is some growing bipartisan support as Republican Bill Huizenga (R-Mich.) said breaking up Facebook is “worth the conversation.”
• Representative Madison Cawthron (R-N.C.) said breaking up FB would make a positive difference.
• After FB said Facebook and Instagram might be shut down across Europe, European leaders responded that life would be “very good” without the social media company.
  

The tech sector continues to provide innovation and profits for shareholders

• The evolution of the technological revolution continues to improve lives worldwide.
• Amazon’s (AMZN) Q4 revenue climbed 9%, and EPS was $5.80 compared to an expected $3.57.
• Alphabet (GOOG) announced a twenty for one share split, and Q4 earnings were $30.69 per share compared to consensus estimates of $27.51.
• Apple (AAPL), the 800-pound technology gorilla, earned $2.10 per share in Q4, beating the $1.89 estimates.
   

Asset prices rarely move in straight lines

• Even the most aggressive bull markets rarely move in straight lines.
• Corrections can be healthy when asset prices become overextended.
• FB could be a unique case as technology continues to thrive.
• FB was down 33% from the February 2 high at the end of last week, while the tech-heavy NASDAQ composite was under 5% lower.
  

Picking winners depends on innovation, profits, and sustainability

• Meta Platforms and Mr. Zuckerberg are likely to be examples over privacy and anti-trust issues.
• FB has been a highly profitable success story, but it could wind up a victim of its success.
• FB is a case study for other tech companies on privacy and anticompetitive issues.
• Technology will continue to thrive, but FB looks like an outlier in the sector based on the recent price action.

While the stock market was weak at the end of last week, FB seems to be the weakest link in the technology sector.

Thanks for reading, and stay tuned for the next edition of the Tradier Rundown!