Shares of Facebook owner Meta fell 26% on Thursday in what could be the worst single-day wipeout in market value for a U.S. company, after the social media giant issued a dismal forecast, blaming Apple Inc’s privacy changes and increased competition.
The huge drop, erasing over $200 billion from Meta’s market capitalization, spilled over to the broader technology sector and dragged the Nasdaq Composite Index lower.
If losses hold, it would mark the company’s worst one-day loss since its Wall Street debut in 2012.
“Meta CEO Mark Zuckerberg may be keen to coax the world into an alternate reality, but disappointing fourth-quarter results were quick to burst his metaverse bubble,” said Laura Hoy, an equity analyst at Hargreaves Lansdown.
Big U.S. tech-focused companies have come under mounting pressure in 2022 as investors expect policy tightening at the U.S. Federal Reserve to erode the industry’s rich valuations following years of ultra-low interest rates. The Nasdaq, which is dominated by tech and growth stocks, fell more than 9% in January, its worst monthly drop since the coronavirus-induced market crash in March 2020.
“The downgrade in the earnings outlook by Meta and other companies took markets by surprise,” said Kenneth Broux, a strategist at Societe Generale in London.
“The tech selloff spilled over to broader equity markets this morning and with the Fed preparing to raise interest rates, we could see more volatility going forward,” he said.
The stock’s drop was a boon for investors betting on a decline in the company’s shares. Short sellers in Meta were poised to increase their potential 2022 gains to more than $2 billion with Thursday’s plunge, according to S3.
With Big Tech firms like Apple and Microsoft ballooning in valuations in the past few years, they have also become more susceptible to investor whiplash, often resulting in losses worth tens of billions of dollars in a single day of trade.
Meta reported a decline in daily active users from the previous quarter for the first time as competition with rivals like TikTok, the video sharing platform owned by China’s ByteDance, heats up.
Meta said about 3% of worldwide monthly active users in the fourth quarter consisted solely of violating accounts while duplicate accounts may have represented about 11% of usage.
The disappointment over Meta’s earnings and the subsequent stock fall raised memories of the bursting tech bubble in 2000.
Investors seem to be becoming highly selective after the sector’s record-breaking run in recent months.
According to research firm Vanda, purchases from retail investors in late 2020 and early 2021 were focused on expensive tech, EVs and so-called “meme” stocks. In the past week purchases of large-cap tech have skyrocketed while speculative assets have seen very little demand.
At the same time, several hedge funds including Wellington Management Group, Sanders Capital and Tiger Global Management were among the funds that declared positions in Meta Platforms at the end of September, and could potentially have been hurt by the wipe-out in shares.
The so-called FAANG group of Facebook, Amazon, Apple, Netflix and Google’s Alphabet has seen around $400 billion in market capitalization wiped off in the opening weeks of 2022 as cheaper segments of the markets become more attractive while central banks taper stimulus.
Other social media stocks were also hit hard on Thursday, including Twitter, Pinterest and Spotify. Spotify has been beset by a row over COVID-19 vaccination misinformation and also released disappointing results.