Meta Crash?

  1. Meta just suffered the largest one-day wipeout in US corporate history. Its valuation slumped by…
  2. Meta plunges and sets off Wall Street's worst drop in nearly a year.

By Shreyas Yadalam Harikishore

Bits by BITS: SPRING ’22, Issue 02

Mark Zuckerberg, the Founder, and CEO of Facebook announced the change in the company’s name to Meta to emphasize the company’s plan for the future ‘Metaverse.’ It is expected that this industry has the potential to reach $800 billion in revenue by 2025. As a result, many companies in the gaming industry and social networks are working towards making considerable strides in this industry.

However, stocks of various companies on Wall Street saw a major dip, with Meta leading the way with a drop of approximately 26.4%. Wiping out nearly $230 billion off of Meta’s market value, this plunge is considered one of the worst one-day losses ever. The losses significantly impacted the NASDAQ composite (which fell by 3.7%) and S&P 500, which declined by 2.4%. Facebook is one of the five tech giants, which account for about 20% of the S&P 500’s value. Therefore, a decline is bound to have a huge impact on the index’s value.

Meta’s fourth-quarter earnings of 2021 indicate that Facebook witnessed a decrease in its daily active user base for the first time since inception. The reports also claimed that Meta suffered a staggering loss of $10 billion in operating costs from the nascent metaverse business.

Many analysts link Meta’s loss to Apple’s changes, which has, in turn, made it difficult for the company to track iPhone users’ digital habits, which cost Facebook about $10 billion in ad revenues. Apple’s privacy features are also a massive blow to several other advertisers as the effectiveness of targeted ads has reduced drastically. Several other social media companies witnessed a dip too. Twitter dropped by 5.5%, Snap fell by 23.6%, and Pinterest was down by 10.5%.

While Meta has shifted its focus onto the metaverse, which the company believes is the broader vision for the internet, it faces stiff competition from apps such as TikTok and several others. The company’s market capitalization dropped from $ 898.5 billion to $ 668.5 billion, indicating a massive loss of $230 billion. Surprisingly, Facebook previously held the record for the most significant one-day loss in value in July 2018 when the company shed $119 billion in market cap.

The decline in Meta’s market cap has caused a butterfly effect, as it has impacted the stocks of multiple companies beyond the social media industry. Shares of companies like Google, Microsoft, and Apple were also down on the same day.

via New York Times