After reporting “disappointing” earnings for the just-completed quarter, Meta, the parent company of Facebook, stock plunged 20%:
losing around US$ 200 billion in market capitalisation, which is more than the total market cap of 452 of the Standard & Poor’s 500 index companies. This is largest single-day drop in market value of any U.S. company in history.
During Meta’s earnings call, both CEO Mark Zuckerberg and COO Sheryl Sandberg pointed to Apple’s App Tracking Transparency feature, introduced in April 2021, as the chief problem facing the company’s ads business.
App Tracking Technology asks users if they want their apps to have the ability to track their activity across the web. Turning the feature off keeps company’s like Meta from being able to learn more about its users, which impacts ad targeting.
Without accurate ad targeting, advertisers will shift away from services like Meta and spend their advertising budgets on other platforms or services.
“Apple created two challenges for advertisers,” Sandberg explained. “One is that the accuracy of our ads targeting decreased, which increases the cost of driving outcomes. The other is that measuring those outcomes became more difficult.”
At this writing (2022-02-03 16:09 UTC) Meta stock is down 24.5% from its close yesterday.
How useful is stock market capitalization? It is a metric rather than a real value. Obviously, if every holder of a company’s stock tried to sell right now at the current stock price, that stock price would collapse before their sales could be completed. Instantaneous supply of stock would far exceed the instantaneous demand.
The people who potentially lose money in Meta/Facebook are those who decide to sell today. But, except for speculative day traders, many of them bought the stock some time ago when its price was lower. They make a smaller gain by selling today than they would have by selling yesterday. The loss of a potential gain is not really the same thing as an actual loss.
Meta/Facebook executives will see the value of their stock options decline – but those options will probably still be worth something, since the strike price on issuance is usually low. They took the risk of taking their compensation in options rather than cash. Welcome to the Big City!
Facebook got its cash long ago when they sold the stock. If the executives acted legally but inappropriately by buying their own stock to goose the price, then more fool the shareholders who allowed that.
I confess to being more interested in the long-term fundamentals of providing valuable goods & services than in the short-term shuffling of stock certificates between buyers & sellers.
What is fascinating about this stock market correction is the degree to which FB (The multinational corporation formally known as Facebook ) is impacting not only the NASDAQ index but also the S&P 500 index. If this trend continues it won’t be hard for independent investors to beat the S&P 500 index in 2022.
