Facebook’s parent company Meta saw stocks fall more than 26% on Thursday, wiping out $240 billion in its value in the largest one-day loss by a US company ever.
The huge drop, which also erased about $29 billion from CEO Mark Zuckerberg's net worth, spilled over to Silicon Valley, where other tech giants also lost a lot of value: Spotify was 16% lower; Twitter was down about 6%; and even companies that were relatively safe, such as Apple and Microsoft, saw hundreds of billions of dollars erased from their market value.
Many of Facebook’s problems are of Zuckerberg’s own making, Kevin T Dugan writes for Intelligencer.
“It wasn’t even six months ago that the billionaire tech developer decided not only to change the company’s name but to go even further — to hijack its reason for existing and create a whole new digital reality, the metaverse, amid one of the most damaging, long-lasting scandals of the company’s existence right here on planet Earth,” he wrote.
Meta spent more than $9 billion to build this metaverse last year, it was revealed in securities filings. This is an astronomical sum, especially since Zuckerberg has tried to warn investors that it could be as late as 2031 before he really gets it right, according to Dugan.
“It is the kind of leap of faith that, ironically, tends to get a more sympathetic hearing from smaller, scrappier companies, such as Magic Leap, that have far less money and resources at their disposal — except that the money comes from venture capitalists who can handle companies going bust, not the public stock markets that fuel people’s retirements.”
Tech shares recover, but Meta still down
Growth and technology stocks rebounded on Friday, as traders weighed stellar results from Amazon.com Inc against an unexpectedly strong US employment number that propelled Treasury yields higher.
The Nasdaq Composite index, which is heavy on tech and other growth stocks, was recently jumping about 2% a day, reports Reuters.
Shares of Amazon, which delighted investors by hiking its Prime subscription rate, were recently up over 15%, on track to increase its market value by more than $200 billion. Shares of social media platform Snap Inc rose more than 50%, after tumbling by a quarter in the previous session.
But Meta stocks have yet to recover.
While many of the big tech-focused stocks are often thought of as a single group, "the divergence between Amazon and Meta Platforms' earnings is an important reminder that each company is unique with its own set of problems and opportunities," wrote Julian Koski, chief investment officer of asset management firm New Age Alpha in a note to investors.
"The best stocks are those that deliver the growth that is implied in their stock price, no matter what group or category the stock may be part of," he said.
Is the Metaverse bet paying off?
There are other structural reasons for Meta’s rout, and the weight of those changes has suddenly registered with the rest of the world, writes Dugan.
The first is Apple, which allowed its users to opt out of ad tracking, “kneecapping” Facebook’s business model.
“Facebook is one of the avatars of surveillance capitalism, an economy that diminishes privacy in order to make a company more money. By last summer, consumers had decided they didn’t want to be tracked… Now not only does Facebook get almost all of its money from advertising, but people who have iPhones — and Apple products more generally — are a much more appealing audience for advertisers since they tend to have more money than Android users,” he adds.
During the last three months of 2021, when inflation picked up and advertisers started to pull back on spending, Apple’s move hit Facebook hard.
As a result of Apple’s ad-tracker-blocking feature “and other privacy initiatives that are imminent,” Eric Benjamin Seufert wrote on the tech blog Mobile Dev Memo, “Meta’s advertising infrastructure must be replaced completely.”
Seufert argued that Meta executives have to change their entire advertising system — the whole reason the company was considered so bulletproof just a few years ago. But it’s not as if advertising or surveillance capitalism are going away: Other Silicon Valley giants such as Google and Amazon have reported big-bang earnings because advertising was actually so good.
“The problem for Zuckerberg is his style as a CEO is not about coming up with brilliant or creative new things. It’s about doing those things better than his competitors, at least from a business perspective,” Dugan writes.
Zuckerberg bought Instagram for $1 billion in 2012; two years later, he purchased WhatsApp for $16 billion. Along the way, his properties have copied TikTok and Clubhouse, and set up a version of Craigslist through the Facebook Marketplace.
“The success has varied, but clearly the playbook is no longer working,” he writes.
Even if Facebook could buy its way out, it is facing an impasse in Washington, where one of the few bipartisan positions is regulating Big Tech.
“The companies’ lobbyists are getting no traction, and the Federal Trade Commission has been giving them no quarter — in fact, it’s a very real possibility that Meta could be forcibly broken up,” according to Dugan.