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The Bigger They Are, The Harder They Fall

Why Meta Just Had the Largest Single Day Loss of Market Cap in History

The company now known as Meta Platforms (NASDAQ: FB) was known as Facebook, Inc. for most of its existence, with good reason: While the company has several other brands, including Instagram and WhatsApp, it still derives the bulk of its revenues from ads on Facebook.

Due to its outsized influence on their overall company, when there is a perceived weakness with the Facebook platform, it can drag the rest of the company down with it. This appears to be what happened when Meta released their earnings report, and the stock sold off to the tune of 26%, wiping out more than $230 billion from their market cap, the largest single-day drop for a company in history.

While Meta’s financial results of $33.67 billion in revenues and $3.67 earnings per share were short of analysts’ consensus ($33.4 billion in revenues, $3.84 earnings per share), the miss was a relatively modest one and would not typically account for such a significant drop in the share price.

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The sell-off was likely related to Facebook’s user engagement numbers. Since Facebook derives its revenues from ad sales, it needs as many people online as possible. Unfortunately, the company’s reported daily active user and monthly active user count fell short of analysts’ expectations (1.93 billion DAU’s/2.91 billion MAU’s said vs 1.95 billion DAU’s/2.95 billion MAU’s expected). Additionally, Facebook reported that its daily active users decreased for the first time in its history, losing about 1 million DAU’s between Q3 2021 and Q4 2021.

Meta’s management team had a number of reasons behind the disappointing user numbers, including increased competition from other social media platforms and changes to Apple’s privacy settings on their phones. One competing social media platform, in particular, appears to have gotten the attention of company executives. Meta CEO and Facebook founder Mark Zuckerberg commented,

“People have a lot of choices for how they want to spend their time, and apps like TikTok are growing very quickly.”

To stave off TikTok, Zuckerberg is focusing more resources on Facebook’s Reels feature, which is basically a clone of TikTok. Whether this focus on Reels is enough to avoid a second consecutive quarter of user loss remains to be seen. If the company returns to user growth and this is just a temporary blip, the stock might be an opportunity to buy one of the largest companies on Earth at a substantial discount.

Meta last traded at $229.26, down -32.28% YTD.

Learn more about Meta: Website | Investor Deck | FB Chart

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Ryan Troup

Ryan Troup is the Editor in Chief of Wealthy VC and TCI. Ryan has 15+ years of investing experience. Twitter | Email

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