February 4, 2022

Meta Platforms drops 26%, loses $230bn: Is it worth buying the dip? 

February 4, 2022

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Meta Platforms drops 26%, loses $230bn: Is it worth buying the dip?  

  

Meta Platforms, Facebook parent company, suffered a disastrous week in the markets, dropping 20% in value and losing billions.  

The shocking crash of Meta follows the disastrous trend in the financial market which has seen a decline in the tech sector and cryptocurrency market.  

Markets are cyclical, what goes up must come down – this is a core principle of the financial market. Today we look at Metaverse, what occurred, and share advice for traders.  

Share price crash  

Meta Platforms saw its stock market value crash by more than $230bn on February 3, a record loss for the social media giant. Its shares fell by 26.4% after disappointing quarterly figures; FB fell from $322 on February 2 to a low of $237 by February 4.  

In another blow, Facebook’s suffered a drop in daily active users (1.929bn from 1.930bnin the previous quarter) for the first time in its 18-year history. The company’s share price crash saw CEO Mark Zuckerberg’s net worth fall by $31bn.  

Losing younger viewers  

Meta warned investors of slowing revenue as competition from rivals, including TikTok and YouTube, are snapping up younger users.   

To combat rivals, Facebook has invested in video streaming to compete with TikTok, owned by Chinese tech company ByteDance, though it does not generate as much from its video offerings as its traditional Facebook and Instagram platforms.  

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It’s worth noting that Facebook experienced a rebranding with the launch of Meta Platforms late in 2021. Facebook saw incredible growth from 2020 – to 2021 as global lockdowns forced many to use social media to communicate. Since then, the social network has been embroiled in controversy over its platform pushing misinformation and political meddling.   

Fred Razak, Senior Trading specialist at CMTrading, said: “People are taking money off the table; Stocks are appreciating at levels that I’m uncertain as to whether it’s sustainable. This type of growth of the past two years is not sustainable. So the question is, what’s the true value of the market right now? Consider Facebook, Microsoft, or Tesla. All these huge companies cannot sustain their earnings at these levels. It’s just not happening. So there will be corrections to the markets.“  

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Is it worth buying the dip?  

Meta Platforms remains the biggest social media company in the world; Facebook is used by 2.91 billion people each month equating to 36% of the entire global population.   

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For 2021, it reported $39.3 billion in operating income, translating to $13.77 in earnings per share. Although its stock is trading at a low of $237 on February 4th, its price-to-earnings is 17.1. That’s 50% cheaper than the Nasdaq-100 index, which trades at a multiple of 33.7. Facebook has been around for more than a decade and its record-low drop presents buying opportunities.  

A dismal start to 2022  

Facebook follows a trend of declining tech stocks; the start of 2022 has been disastrous for the tech-heavy Nasdaq, which narrowly avoided its worst start to a year yet. The S&P 500 recorded its weakest January market performance since 2009.    

One of the reasons behind the market drop is valuations of growth and technology stocks have come under increasing scrutiny. Many giants won’t be able to maintain the staggering revenues we’ve seen in recent years, as was the case with Tesla earlier in 2022.  

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Another reason for the stock market drop is the US Federal Reserve’s attempts to curb inflation by hiking interest rates and withdrawing its pandemic stimulus measures.    

Bitcoin, Stocks rebound: How to deal with market uncertainty  

 

Buying the dip  

Razak said: “Facebook and Apple also gained a lot and tripled in the past two years. Amazon also saw tremendous appreciation of the price of its stock. So the fact that we retrace for the first time since 2020 is well overdue. The markets will correct themselves, and that’s normal.”  

“Traders don’t have to bounce back for the markets. Good traders don’t care which way the markets are going as long as there is volatility. This is probably the best trading environment that anybody could be involved in, perhaps in history. It’s unbelievable what’s happening in the markets.” 

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Disclaimer
Trading involves a significant risk of loss and is not suitable for all investors. It’s important to understand the risks and seek advice from an independent financial advisor if necessary.

The information provided here does not constitute investment advice.

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