What Just Happened To Meta (Facebook) Shares?!

Okay, hope you're doing well. It is Thursday, 3rd of February, and of course I had to jump on and say a quick word about Meta or Facebook after their shares got absolutely slammed in aftermarket trade yesterday. So there's plenty of memes going around about Zuckerberg at the moment, but I wanted to get up to speed on some of the main numbers and why there's been such a dramatic drop in their shares. So let's take a look at this. This is the aftermarket session last night when their numbers hit the tape. In fact, I couldn't keep up, I couldn't do it quick enough to capture really the bottom where they were down as much as 23%. I must also say that in pre-market trade now, some early indications would say they're off these worst levels, but only by a couple of percentage points. So still looking for a deep negative open for Facebook on the street later on today. So you can see here the with the stock price trading in close proximity to $250, having traded $325 prior to the earnings coming out last night. So what exactly was the rationale here? What were the numbers? And what is it that investors are so worried about with Facebook? So a couple of things, looking at the actual quarter and how they performed. First off, their revenues actually came in just slightly above expectations, in fact, at $33.67 against $33.43 billion. Their EPS though was a miss at $3.67 against $3.84. Those numbers not so much to focus though. What the market was really concentrating on are metrics such as DAUs and MAUs, which is daily and monthly active user numbers, because of course then this is where they derive most of their income is from advertising and active users are absolutely critical for them to continue to make money. and the daily figure came in below expectations of $1.95 billion at $1.93 billion. We'll look at those and we'll circle back to that in a moment. The other thing is obviously there's a lot of conversation, of course, brought about by the shift from Facebook to Meta, and of course as they position themselves for Web3 and so forth, and their Reality Labs operating loss was a pretty sizable $3.3 $10 billion. And actually, I saw some interesting comments that the new disclosure of Reality Labs segment's operating loss, um, as overall was $10.2 billion for 2021. And analysts on the tech side are suggesting that that's going to point to at least a 10 percentage point drag on overall operating margin, which could obviously get worse in the near to medium term because, as we're going to look at, as the demographics are shifting quite violently against Facebook and there's multiple other challenges that they're facing through pandemic, currency headwinds, through the regulatory environment, through Apple's operating software and the ability for them to be able to target through their advertising model. There's going to be a massive emphasis for them to try and really push in to get ahead. First to market advantage, if you like, in some ways, given the user size of the user base for this positioning of the metaverse. The problem is that's super expensive, and as then just, just mentioned there, what it is going to lead to most likely is that overall operating margins are going to change quite dramatically. So it's another burden pressure point for the company going forward. The outlook was pretty disastrous. They see Q1 revenues at $27 to $29 billion. The Street was looking for over $30 billion, and they see year-on-year growth in Q1 to be impacted by headwinds both to impression and price growth. So a double whammy. Now, one of the key interesting metrics that obviously a lot of people look at are daily active users, as I mentioned. And this is a super interesting, uh, graphic because it starts to break down by geographic area. So not only can we see the total number, which as you can see here has definitely plateaued at 1.93 billion, what you can see is the rest of the world and also US and Canada, those numbers albeit to a small degree, have declined. But important is they've declined here for the first time in those key regions. And that's what makes people particularly nervous. So we've actually declined in some of their key areas. And looking at this on a different basis, this goes back to the last 10-year performance of— I was looking at last night monthly active users on Facebook. And you can see here there is the context, of course, as well, that competition is another major challenge that the company needs to confront, which we'll get to in a moment. And obviously, as the market starts to become saturated of users who have access to mobile applications and so forth and internet connection, obviously this number will start to slow. But you can see here these numbers have been declining quite rapidly, continuously for a long part, a long period of time. And the other thing, of course, that's really challenging for them at the moment is teen and young adults. Daily active users, they've actually— if you look at that demographic segment of the DAUs or MAUs, they've been declining pretty much for a decade. I mean, we all know, right? I mean, who uses Facebook apart from your uncle and your auntie and maybe your grandma? So this is a big problem for them, and hence a lot of rationale with the pivot, particularly coming on the back of all that negative press last year about how that algorithm specifically targets and can create mental harm to young individuals. So this is really where it gets interesting because the CFO on the conference call covered a number of points, challenges that the company faces on the impressions side. He said that they continue to face headwinds from growth, increased competition for people's time, and a shift of engagement within their apps to, to things that are more akin to what young people use, like TikTok. So moving away from those more traditional news-based type feeds into something more short and snappy in the form in which they're delivered. Apple's iOS changes were not in effect, and so the company, according to CFO, anticipate modestly increasing ad targeting and measurement headwinds from platform and regulatory changes. So they're still to come. And then they're hearing from advertisers— this is what the CFO said— that macroeconomic challenges like cost inflation and supply chain disruptions they're continuing to have an impact on companies' abilities to advertise. So advertiser budgets are being pressured at the same time as well. And then there's the foreign currency headwind to year-over-year growth. So as you can see here, it's a whole list of, of things that have really contributed to why there's been such a bearish reaction to their shares. I think Mark Zuckerberg was also on the conference call last night. He really summed it up. He said people have a lot of choices on how they want to spend their time, and apps like TikTok are growing very quickly, as everyone knows. And he warned on the call that competition would put short-term pressure on Meta's advertising business. And remember, that comes, as I said, as operating margins are going to be pressured as they try to really hyperspeed because out of necessity, the push into their Reality Labs division and some of those other areas that would be facilitating the structure around their Web3 and metaverse idea. Quite hilariously, the calls on Wall Street— you can see here there's a lot of jokes going around last night. This is all of the major analyst teams from across the street, and when they're asked about what their current rating is— buy, hold, so forth— and nearly every analyst on the street has a buy rating on Facebook at the moment. And yeah, just goes to show you shouldn't put all of your, your trust in what these analysts say because it doesn't always materialize. But yeah, on that point, I hope that was useful. Just a super quick update. And yeah, remember to subscribe to the channel, um, if you like what you hear. We've got more things coming out. In fact, I'm going to jump on later and do a Bank of England one on the macro front as well. So I'll see you then. Thanks very much.