A Stunned Wall Street Responds To Facebook's Record $200 Billion Wipeout

Facebook – or Meta now that it’s in the witness protection program – is making record after dismal record this morning after its catastrophic earnings and guidance last night: not only is the company’s 22% drop the biggest in its history…

… but according to Bloomberg, the one-day crash ranks as the worst in stock-market history: the Facebook crash has erased some $195 billion of its market cap. That would make it the biggest collapse in market value for any U.S. company.

The decline in context: the 20% decline in Meta would be more than the market value of 452 of the S&P 500’s members. And since Meta has a 2% weight in the S&P 500, the decline alone with contribute 0.44%-point negative impact on S&P 500.

The sheer size of Facebook’s collapse illustrates just how tech companies have ballooned to become behemoths with unprecedented market power, and the drama that can ensue when they stumble.

It’s not the first time Meta shares have dropped dramatically: the stock plunged an almost identical 19% in July 2018 on a slowdown in user growth, translating to a about $120 billion decline in market capitalization. At the time, it set the record for the largest-ever loss of value in one day for a U.S. traded company.

Of course with a market as illiquid and jittery as this one, there’s no certainty the losses will hold, especially given the recent volatility that’s whipped across technology shares. It makes sense to wait until the close as a furious army of buy-the-dippers has stormed stocks in during the final hours of the trading day.

Analysts — most of whom rated the stock a buy as recently as yesterday…

… were very downbeat in their assessments, pointing out that Meta faces stiff competition from rivals like Tiktok and revenue was far lower than expected. Michael Nathanson, an analyst at brokerage Moffett Nathanson, titled his note “Facebook: The Beginning of the End?”

“These cuts run deep,” he wrote. The results were “a headline grabber and not in a good way.” Others poured gasoline on the fire: Meta “finds itself in the middle of a perfect storm” wrote Youssef Squali, an analyst at Truist Securities.

Others, such as Shyam Patil, an analyst at Susquehanna Financial Group, were a bit more optimistic: “We’re hopeful the company kitchen-sinked the outlook.”

Here is a snapshot of how multiple Wall Street firms reacted to the Meta shock, with most slashing their price targets on the stock, though many said the remain bullish on the company in the long-term.

Morgan Stanley

1Q sales missed, with Facebook’s Reels product facing TikTok competition, and an advertising revenue headwind created by Apple’s so-called identifiers for advertisers
Still, Nowak expects that over the long-term, Meta will be able to monetize Reels
While near-term uncertainty is elevated, he is still bullish on Meta and its capacity to deliver

KeyBanc

Overweight, cuts PT to $280 from $420
Measurement headwinds are “clearly larger than envisioned” with estimates reset “materially”
Notes Meta has historically managed these transitions emerged stronger

Jefferies

Buy, cuts PT to $350 from $420
Notes that 1Q guidance is “beatable,” while the Street will be searching for evidence that Meta can navigate increasing competition from TikTok and ongoing privacy headwinds

Truist Securities

Buy, PT cut to $350 from $400
Notes several headwinds pressuring growth and margins in 2022, including Apple iOS changes, shift in engagement to Reels, and TikTok becoming a major competitor
Still, remains constructive on Meta and says patience will be rewarded

Cowen

Outperform, PT lowered to $330 from $415
4Q sales were almost in-line but margins were below expectations on operating expenses
Guidance is “light” given multiple headwinds

JPMorgan

Downgrades to neutral from overweight, PT from $385 to $284
The company is seeing “a significant slowdown in advertising growth while embarking on an expensive, uncertain, multi-year transition to the Metaverse”
Competition from TikTok, along with Apple’s changed privacy policy, “will both have a bigger impact than expected in 2022”

BMO Capital Markets

Downgrades to market perform from outperform, PT to $290 from $425
The downgrade comes on “greater competitive pressure and lower conviction in timing and impact of targeting/measurement improvements”
While FB continues to have a huge opportunity related to commerce, “it seems less likely to drive multiple expansion as new competitive elements likely overwhelm the narrative”

Loop Capital Markets

Cuts to hold from buy, PT to $230 from $380
“While financial results were not terrible, the outlook was”
Declining users are a material issue for the stock, and “the narrative will remain troubled for some time as a host of investor concerns will not likely be resolved anytime soon”

Raymond James

Downgrades to outperform from strong buy, PT to $340 from $410
The downgrade reflects a “slowing advertising revenue outlook”; the firm expects ad growth will bottom in the second quarter and re-accelerate modestly in the second half of the year
The firm remains positive given the stock’s valuation and long-term growth potential

Bloomberg Intelligence

“Engagement on its core Facebook has peaked, while ad-pricing momentum may not be as pronounced going forward as users opt out of tracking on its iOS apps”

Source: Bloomberg

And for now, no dip-buyers have appeared…