Meta Platforms (NASDAQ:FB) stock fell hard after earnings, taking the whole market with it.
Meta Platforms shares that traded at $323 before the earnings report were at $242 a half-hour after the market opened Feb. 3. For those scoring at home that’s almost a 25% drop.
Meta, the company formerly known as Facebook, reported net income of $10.28 billion for the fourth quarter, $3.67 per share, on revenue of $33.67 billion. That sounds good, but income was down 8% from a year earlier and revenue was below forecasts.
More important, Meta’s own forecast is for revenue of $27 billion to $29 billion for the first quarter. Analysts had expected a projection of $30 billion.
The Impact of Mark Zuckerberg’s Vision on FB Stock
Technology has built a mythology around heroic founders who defied skeptics, maintained absolute control over their companies and ultimately worked toward building the future. Bill Gates, Steve Jobs and Elon Musk didn’t need “adult supervision,” and Wall Street was foolish to try and rein them in.
Meta CEO Mark Zuckerberg is all that and a bag of chips. He is still just 37, but he has been dominating the tech world for over a decade. A movie about his life, The Social Network, is nearly 12 years old.
Zuckerberg is known for buying Instagram, WhatsApp and building a dominant social networking company. All of these moves have helped power FB stock higher over the years.
But his real genius was to start building hyperscale “cloud” data centers in 2011, before he had the cash flow to do it, and to share his designs through the Open Compute Project. Clouds, built with open source software and commodity hardware, at enormous scale, have changed the world.
Now he believes the “metaverse” will change it again. Convinced that people will want to work, play and interact in virtual 3D worlds, Zuckerberg has renamed the company and doubled capital spending, to $29-34 billion. Total expenses are due to come in at $90-95 billion. It’s the biggest bet in the history of business.
Facebook’s Dropping Fortunes
Despite Zuckerberg telegraphing his futuristic vision to all and sundry, analysts claim to have been blindsided.
Older projects, like Diem digital currency, have been scrapped under pressure from regulators. Advertising is under pressure from Apple (NASDAQ:AAPL), which introduced “privacy changes” that limit Facebook’s ability to target them.
The belief Facebook is responsible for Donald Trump and the rise of autocracy is finally generating serious blowback. The headset operation around which it’s building its new interfaces is under investigation by the Federal Trade Commission. Its entry into the market for “Non Fungible Tokens” (NFTs) looks ill-timed.
Meanwhile, auhtorities are surrounding the House of Zuck. A larger suit against what is called its “buy or bury” approach to competition is moving ahead. Europe and the European Union also have ongoing antitrust investigations.
Analysts haven’t given up, with 27 of 35 at Tipranks still listing buy ratings, with a price target of nearly $334. But in volatile markets, analysts are lagging indicators.
The Bottom Line on FB Stock
Traders began nibbling on Facebook around 10:30 a.m. on Feb. 3, limiting losses to 23%.
A conventional analysis says FB has become a cheap stock. You’re paying just 17 times earnings for a company that grew 36% last year, at scale. This with the S&P 500’s price-to-earnings ratio at nearly 26x.
Meta Platforms has gone from being a growth stock into a “belief stock.” Mark Zuckerberg is asking investors to believe in him, and his vision, the way Elon Musk did 5 year ago, before Tesla (NASDAQ:TSLA) learned how to scale production.
If you believe in Zuck, if you believe in the metaverse, now is the time to put your money where your belief lies.
On the date of publication, Dana Blankenhorn held long positions in AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack.
