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The Ratings Game: Facebook owner Meta loses record $232 billion in market value after ‘saying the quiet part out loud’

Shares of Facebook parent Meta Platforms Inc. tanked Thursday after the social-media company fell short with its quarterly outlook and outlined a laundry list of business pressures—from the rise of TikTok, to privacy changes made by Apple Inc., to macroeconomic constraints on ad spending.

The stock plummeted 26% in Thursday trading to log its worst single-day percentage decline on record.

Meta’s FB, -26.39% stock plunge shaved $232 billion off the company’s market value, which was the largest single-day decline in market value on record for any U.S. company, according to Dow Jones Market Data. That loss of market value is larger than the entire market values of Netflix Inc. NFLX, -5.56%, Advanced Micro Devices Inc. AMD, -2.18% and AT&T Inc. T, +0.08%, among others.

See more: Facebook stands to shed more than $200 billion in market value after rough earnings report

Meta’s report and commentary prompted tough questions about the future of the main Facebook platform, which has been losing appeal with younger users but still has an attractive financial profile.

“It’s not a major surprise that core blue is maturing and TikTok is gaining traction among the younger demographic – but following what was one of the roughest Meta conference calls in years, we think investors may start to question whether team Zuckerberg can salvage any growth out of FB, or whether the asset that represents ~2/3rds of revenue is in secular decline mode,” Barclays analyst Ross Sandler wrote.

He rates Facebook’s stock at overweight but cut his price target to $335 from $420.

Meta also highlighted privacy-related changes from Apple AAPL, -1.67%, which the company implied may not be impacting all digital-ad players equally. While the changes require that apps obtain users’ permission before tracking their activity across apps and sites, Apple doesn’t require such prompts for its Safari browser, on which Alphabet Inc.’s GOOG, -3.64% GOOGL, -3.32% Google pays to be the default search engine.

“What that means is that search ads could have access to far more third-party data for measurement and optimization purposes than app-based ad platforms like ours,” Chief Financial Officer David Wehner said on the earnings call.

This discussion was among the “more intriguing” parts of Apple’s earnings call, according to BMO Capital Markets analyst Daniel Salmon, who downgraded Meta’s stock to market perform from outperform following the report, while lowering his price target to $290 from $425.

Opinion: Meta CFO cries ‘wolf’ again with bleak Facebook outlook — but he may be right this time

Apple’s ownership of its platform and partnership with Google are “definitely true, but ‘saying the quiet part out loud’ likely also piles onto to investors’ competitive anxieties near-term,” Salmon wrote.

While Meta’s commentary spooked investors, Salmon suggested that there may have been another audience paying attention to the earnings call.

“The silver lining: Meta put a lot onto the public record tonight that pushes back against the antitrust narrative, with comments on TikTok directly addressing the FTC’s argument that FB has a dominant position in social networking,” he said in his note to clients.

J.P. Morgan’s Doug Anmuth was also worried about the impact to Meta from Apple’s privacy changes and iOS operating system. The company pegged the potential 2022 negative impact at $10 billion on the earnings call, with Wehner calling it “a pretty significant headwind” for Meta’s business.

“Through 4Q, we were optimistic that FB was making tangible progress in recovering lost signal stemming from the iOS ad changes,” Anmuth wrote. “However, we believe management’s tone around iOS impact has deteriorated, and what was once described as ‘manageable’ now appears to be a $10B revenue headwind in 2022.”

Another issue for Meta is that it’s seeing traction with Reels, a video format similar to what TikTok delivers, but the company doesn’t make as much money when users browse the Reels section as it does when users spend time on their main feeds or watching ephemeral “stories” content.

Reels helps Meta keep users engaged, but the risk of its growth in the near term is that these users will be spending less time looking at other types of content that Meta more easily “monetizes.”

Anmuth noted that Meta faced a similar dynamic years back as “stories” gained popularity.

“But that took at least a few quarters to work through, & FB was also growing faster then w/lower overall penetration,” he wrote. “Beyond 1Q, we expect growth to
decelerate further in 2Q against tougher comps, before re-accelerating in 2H22.”

Elsewhere, many bullish analysts were willing to keep the faith following the report.

“While we anticipate a multi-quarter path to recovery amid what we view as one of the more challenging operating environments FB has encountered since its IPO, we view FB’s challenges as ultimately surmountable—tactical mitigations, social commerce, regulatory intervention, and the Metaverse should blunt upstream platform risk,” wrote Wells Fargo analyst Steven Cahall.

He cut his price target to $350 from $415 but kept an overweight rating on Meta shares.

Bernstein’s Mark Shmulik keyed in on Meta’s light revenue outlook for the first quarter, which came up about $2 billion shy of the consensus view at the midpoint.

“Whether you like the company or not, Meta built a reputation of continuous execution and was expected to follow the strong prints of Apple, Microsoft MSFT, -3.90%, and Google,” he noted, but the company instead delivered an outlook that “feels like a hangover from the digital ad party of the past 18 months.”

Still, Shmulik saw value in Meta shares.

“We get that the story may be too hard for investors to get behind given the lack of buying at these depressed prices, and fixes/answers to these questions take time,” he wrote. “But we continue to believe in the company, and the value investor in us can’t help but look at this price and believe that the risk/reward remains one-sided and we would be buying the stock here.”

He has an outperform rating on the stock but reduced his price target to $350 from $400.

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