If you’ve been following the news, you know that Facebook’s parent company, Meta, took a plunge of nearly 40%. The stock crashed after reporting disappointing figures.
Today we’ll take a look at Facebook’s stocks, determine whether or not it’s worth buying, and identify the best strategy when purchasing a stock.
Facebook’s stocks crashed by more than 26%. If you add up that loss to the company’s overall losses in the past year, you’ll see that Meta’s stocks are now trading nearly at the bottom of its range. Overall, the stock has dropped by nearly 42%.
The dropped wiped away all the value that the company has gained when it came off of the recession back in 2020. The global pandemic has kept people inside their homes and glued to their computers and phones, which caused the stock to skyrocket.
The drop wiped out the company’s recent gains. The plunge was even considered as the biggest one-day drop in the company’s history.
What Caused The Crash?
Meta’s reported earnings for the fourth quarter stood at $33.67 billion, which is a bit lower than the expected $33.4 billion. Their EPS was at $3.67, which missed their expected $3.84 target.
The figures warranted a small dip in their stock price. However, what caused the crash was the company’s lower guidance and increased expenses. Analysts were expecting the company to hit $30 billion in the next quarter.
However, Meta issued guidance of $27 billion to $29 billion in the first quarter of 2022. The company also went on to explain that they expect the year 2022 to be a struggle for Meta because of Apple’s new privacy changes to its iPhones, not to mention the macroeconomic challenges that they may face along the way.
The changes in Apple’s privacy rules will make it difficult for them to target and measure adverts on their platform. Having said that, the changes will cause them to lose around $10 billion this year.
Regulators in Europe are drafting new legislation that involves regulating the transfer of the user data of EU citizens across the Atlantic. If passed, the new legislation will have an adverse impact on Meta’s business, financial condition, as well as the results of its operation.
Meta said that it’s mulling over shutting down their social media platforms, Facebook and Instagram if it’ll be unable to transfer user data back to the U.S. However, European lawmaker Axel Voss stressed that the social media giant can’t blackmail the EU and force it to give up its data protection standards. He added that leaving the EU will be Meta’s loss if it comes to that.
Adding to their woes are the inflation and supply chain disruptions that will force companies to spend less on advertising campaigns, which is Facebook’s primary source of income.
Given that Meta is one of the largest companies that dominate the digital advertising market, any drop in advertising budgets will affect their profits and revenues.
All these don’t bode well for Meta because it’s planning to invest in Metaverse, which isn’t generating any profit yet. The company spent a massive $10 billion on Metaverse and the Bank of America estimates that it’ll spend up to $50 billion before it starts generating profits.
The reality segment only reached $1 billion in sales and reported an operating loss of $3 billion. For the entire year, its loss had reached more than $10 billion, a sizable increase from $4 billion in 2019 and $6 billion in 2020. The company may be reporting massive losses now as they build their infrastructure and it’ll be many years before Metaverse start to enjoy some profits.
Is It Worth Buying Or Not?
You’re probably wondering if the stock is worth buying or not. First of all, you need to know the facts before you can make an informed decision.
You must first understand that Facebook can only grow so much as an app and website. Its number of daily users dropped for the first time in the past quarter. The decline isn’t surprising because it’s competing with other platforms, such as Instagram, that also try to grab people’s attention whenever their online using their phones or laptops.
Aside from that, Facebook’s competition with TikTok is intensifying, which is why the company is investing more in its video feature reels.
But if you come to think of it, Facebook is already on top. It’s an extremely successful company that’s investing heavily in metaverse. The company is going all-in and once they’ve put up all the infrastructures needed and when they’re already prepared, they will be in the best position to lure in as many of their users into their new segment.
They may sell video games, change how people do online shopping, and even disrupt the entertainment industry. The possibilities are endless for the company. But it will take time. Now, everyone knows that Wall Street is impatient, which will cause the stock to be volatile.
Stagnation is expected in certain parts of the business and they will continue to make large investments that will scare investors into selling out their positions. But the company may also give reports that will excite analysts and investors and lure them to buy again.
Yes, the company is throwing a lot of money into their reality segment. But the move to explore and establish itself in a brand new market to secure the first-mover advantage is a good enough reason for their massive expenses.
The company has great potential if you consider its long-term benefits. You may keep a relatively small position. Whether to add or sell is up to you. It’ll take years before we start to see what metaverse can offer. During that time, a lot of things can go wrong and that’s why having a small position, like about 5% of your investment portfolio is enough.
In case it goes under, it won’t have that much effect on you. But if it takes off then you’ll have a decent investment in your portfolio.
That’s it for now. I would love to hear your thoughts so feel free to drop your comments below. You can also check out my previous blogs such as ” Why We Think Shares Are The Best“. If you found this blog helpful or relevant, please click the share button. Don’t forget to hit subscribe.
Thank you for reading this blog. Please remember, that I’m not an expert and this is just my own opinion. You should do your own research before you make a decision. I appreciate all your support. ‘Till our next blog, take care.
Recommended books for further reading:
- Stock Market Investing For Beginners: The Investment Guide – How to benefit from the crisis, invest in stocks and generate long-term passive income incl. ETF and Stock Picking Checklist
- The Financial Times Guide to Investing:The Definitive Companion to Investment and the Financial Markets: The Definitive Companion to Investment and the Financial Markets
- Investing Demystified: How to create the best investment portfolio whatever your risk level
- The Intelligent Investor – Benjamin Graham
- The Five Rules Successful Stock Investing: Morningstar’s Guide to Building Wealth and Winning in the Market
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