Meta's stock plummeted over 25% in February 2022, erasing $328 billion in value. The collapse followed a $10 billion metaverse loss in 2021 and declining monthly active users. The company faces pressure from TikTok competition and slowing core app growth.
Questions this video answers
Around 20%.
Over 25%.
About $200 billion.
Over $328 billion.
Over $10 billion.
So a few days ago, Facebook stock had the single biggest drop in the history of the US Stock market. Shares in Facebook owner Meta plunged by around 20% in after hour trading on Wednesday, knocking a massive $200 billion of the company's value. And it was an absolute disaster, making it the largest one day loss by any company ever in history of the stock market. On the morning of February 3, the stock fell over 25%, wiping out over $328 billion of company value in a single day. Now, everybody online is regurgitating the press releases to tell you what happened, but I'm gonna go a little bit deeper to give you a real insight as to what's going on here. One of the main reasons that Facebook, now known as Meta, is blaming for this big loss is because of their large investments in the Metaverse. This division within the company had a net loss of over $10 billion for the year 2021. Now they're telling investors that this is gonna pay off in the years to come, but for now it looks like a huge money pit. Now I know that that's how innovation is created. You have to lose money before you make money. And there is a going into this space right now. But just to put this in context, Google, which is a company of similar size to Facebook, has a division within the company that does speculative things like side bets and different innovations. That division within Google spent about 110 of the amount that Facebook is investing in the Metaverse. So that kind of puts Facebook in a different category going forward because investors typically put Facebook in this Fang category, which is the top tech companies in the NASDAQ 100. Those companies are typically well established and heavy hitters that investors can easily understand. With this huge investment in the Metaverse, Facebook now goes into into a different category because now there's a lot more risk associated with the investment. So the real reason why big investors are selling the stock is because of Facebook's core business. This is the family of apps such as Facebook, Instagram, WhatsApp and a few others. That business showed a few troubling signs. So it looks like some large advertisers are scaling back on their spending on the platform because of lower ROI on their ads. Now this is happening because the daily active user growth has slowed and in fact is shrinking. That was probably the most alarming part of this latest Release for the Quarter 42021 monthly activ of users did not grow. It didn't stay flat. In fact, it shrunk by over 500,000 people. Now, where Are these people going? Well, they're probably fatigued with the platform and maybe they headed over to TikTok. Now TikTok has been exploding and also YouTube has been reporting increased revenues. So the strange thing is that Facebook is seeing a decline here. So basically what's happened is a lot of the innovation and focus was shifted over to Metaverse, virtual reality and things like that. But and the core business, which is where all the money is made, hasn't really had much innovation. Now what they really got good at is copying other apps features and incorporating them quickly in order to continue growth. For example, they launched Instagram Stories to combat Snapchat and then most recently they launched reels, which combats TikTok. Now Zuckerberg did say that they're seeing a lot of growth on Reels and that they're really going to lean into short form video this year. That's going to be the main growth driver going forward and hopefully that can slow down this user decline and increase user time on the app and then bring back those ad doll. And Reels actually seems to be taking off. Unlike IGTV, which they launched in order to compete with YouTube but turned out to not do so well. I think most would agree that IGTV was pretty much a flop and that Instagram Reels has huge potential because it's riding this huge growth wave of short form content. They even launched Reels on the Facebook app to keep users engaged there as well. What made Facebook really cool in the beginning was all of the innovation that happened and all the new features that they kept rolling out. It seems like they kind of lost their way there a little bit and have just been copying things. And hopefully now this serves as a reminder that they really need to focus on the user because the user growth and user staying engaged on the platform is the way that the company pays the bills. They're still bringing in huge revenue. It's a massive business for them. But in order to get investors back into the stock, they're going to have to show some growth in the core business. Not everyone is going to buy the stock and invest in the future prospects of Metaverse because there's so many unknowns there. So again, the big money that really moves this stock, they were primarily investing in Facebook because it was a trusted name within the tech sector. That thesis is threatened now with this whole shift in the business model. So you might be asking, should you buy the stock here after this massive pullback? Personally, I don't own any Facebook or Meta stock right now and I wouldn't buy it here because of all these unknowns and because I really think there's other places where you could invest that money. A lot of times people come out and say, hey, if you liked it at this price, you should love it at this price. Well, the thing is, things are changing at the company and it's okay to change your mind. And could I be wrong? Yes, I guess it's possible that all these investments in Metaverse and virtual reality end up paying off big time and Instagram reels continues to explode and all the investors compiling back in into the stock and it goes all the way back up to all time highs and beyond. I guess that is possible, but I don't think that's going to happen that quickly. It could happen over the long term, but not right away. Another reason why I don't really like the stock is after falling that much and catching so many people off guard, there's going to be a lot of bodies buried. Meaning all the people that bought the stock at prices above where it's trading at now, those are going to be willing sellers as the stock tries to go up. So what happens is if they do have a good piece of news that comes out and the stock rallies, it's going to be met with resistance because there's all these sellers at higher prices. So it's just going to take time to work through all of that. And can the stock move higher long term if all these bets pay off? Sure, it could be a great stock for the long term, but I just think right now there's too many uncertainties. So I'm going to be watching all the news that comes out from the company. A, because I'm interested in the markets in general, but then also B, I'm a heavy user of these platforms. I've built my audience on Instagram. I use Facebook and Instagram for my business all throughout the year. And I'm really interested to see how these new products and shifts in consumer behaviors play out over the coming year. So I'll be bringing you all that information throughout the year and until then, I will see you guys on the next video.
