Why did Facebook parent Meta's stock plunge by more than US$200 billion in a day?

SINGAPORE: Internet giant Meta, the parent company of Facebook, made headlines after its stock tumbled 26.4 per cent on Thursday (Feb 3), erasing more than US$200 billion from its market value. 

Though the company - which also owns Instagram and WhatsApp - has previously been in trouble over concerns about user privacy as well as its platforms' role in spreading misinformation, Reuters said Thursday marked not just its worst one-day loss ever, but the biggest single-day slide in market value for a US company.

Meta's stock slide invoked memories of the bursting tech bubble in 2000, spreading to the wider market and dragging the Nasdaq down 3.7 per cent, its worst day in 17 months.

The fall saw Meta chief executive Mark Zuckerberg's personal net worth plunge by US$29.8 billion - the second-largest single-day loss ever after Tesla CEO Elon Musk's loss of US$35 billion in November last year. 

How did this happen and where will Meta go next? 

WHAT WAS THE TRIGGER?

Meta saw investors flee on Thursday after the tech giant issued a dismal forecast, blaming Apple's privacy changes and increased competition.

In reporting fourth-quarter results late Wednesday, Meta forecast weak guidance for the March quarter, saying it expected first-quarter revenue in the range of US$27 billion to US$29 billion. Analysts were expecting US$30.15 billion, according to IBES data from Refinitiv.

In Meta's earnings call, Zuckerberg said competition for users was one factor impacting the business, mentioning short video app TikTok by name. 

Facebook saw its user numbers drop for the first time in its 18-year history last quarter, falling by about half a million to 1.929 billion daily active users. 

Research firm Insider Intelligence has also said it expects Instagram's growth in monthly users to fall to 5.8 per cent this year and 3.1 per cent by 2025, from 16.5 per cent last year. 

CHANGES BY APPLE

Another change that Meta said would hit its bottom line was Apple's privacy changes to its iOS operating system. The changes require apps such as Facebook to ask users for explicit permission to track their activities “across other companies’ apps and websites”.

With many choosing to opt out, this translates into less user data for the platform and in turn impacts targeted ads, one of Facebook's main sources of income. 

Meta's chief financial officer, Dave Wehner, told analysts on a conference call that the impact of Apple's privacy changes could be "in the order of US$10 billion" for 2022.

"So, that is a pretty significant headwind for our business," he said.

UNPRECEDENTED COMPETITION FROM TIKTOK

After 18 years of having users "like" their platform, Facebook is now facing increasing competition from other social media applications, particularly from TikTok.

A Bloomberg report said Zuckerberg told staff on Thursday that the company was facing an "unprecedented level of competition" from TikTok, which now has more than one billion users worldwide. 

WHAT IS IN META'S FUTURE? 

Zuckerberg also said Meta will focus on Instagram Reels, a short video feature that is similar to TikTok.  

Reels users can record short mobile-friendly vertical videos, then add special effects and soundtracks pulled from a music library.

Zuckerberg has also portrayed the metaverse as the future of life on the Internet. In that spirit, the tech company changed its name to "Meta" in October last year.

The metaverse is a term coined in the dystopian novel Snow Crash three decades ago. It refers broadly to the idea of a shared virtual realm which can be accessed by people using different devices.

However, making the immersive online world of the metaverse is expected to take many years and cost many billions.

A "Reality Labs" unit at Meta devoted to technology for intermixing actual and virtual worlds reported a loss of US$10 billion last year, according to an earnings release.