Facebook Parent Loses More Than $230 Billion in Market Value, Biggest U.S. Stock Market Drop in History

Meta Platforms shares drops after company cites headwinds from Apple iOS privacy changes, TikTok competition

Facebook - Mark Zuckerberg

UPDATED: Shares of Meta Platforms, the social giant formerly known as Facebook, cratered 26.4% Thursday as investors reacted to its forecast of a Q1 ad slowdown and the emergence of TikTok as a fast-growing rival.

With the stock drop, Meta’s market cap lost about $237 billion in value overnight — the biggest one-day drop in U.S. stock market history. The previous single-day record market-cap loss was Apple’s $180 billion drop in September 2020, followed by Microsoft’s $178 billion plummet in March 2020. For CEO Mark Zuckerberg, the plunge wiped out nearly $30 billion in value of his holdings.

Meta’s historic stock plunge contributed to a broader market decline, with the tech-heavy Nasdaq closing down 3.7% on the day. Among the biggest losers were Snap (-23.6%) and Spotify (-16.8%), although the latter’s decline came after its own lackluster Q4 earnings report.

Among the revenue “headwinds” Meta execs cited for its massive ad biz in the first quarter of 2022 were a bigger impact from Apple’s iOS privacy changes and new EU regulations, as well as “macroeconomic challenges” leading to reduced marketing budgets. The company estimates a roughly $10 billion economic impact in 2022 stemming from Apple’s iOS changes, which limit Meta’s ability to target and measure ads, CFO Dave Wehner said on the Q4 earnings call.

One of the other issues: TikTok. Zuckerberg described the short-form video app as a meaningful competitor, mentioning TikTok five times on the call.

According to Meta, it faces “increased competition for people’s time and a shift of engagement within our apps towards video surfaces like Reels, which monetize at lower rates than Feed and Stories.” The company first launched Reels, its copycat of TikTok, on Instagram in mid-2020.

Multiple analysts cut price targets on Meta in the wake of the Q4 earnings report. BMO Capital Markets internet and media analyst Dan Salmon downgraded the stock to “market perform” and chopped his 12-month price target from $425 to $290/share, citing “lower estimates and lower valuation due to greater competitive pressure and lower conviction in timing and impact of targeting/measurement improvements.”

Zuckerberg positioned Meta as playing catch-up to TikTok, owned by Chinese tech giant ByteDance. “We face a competitor in TikTok that is a lot bigger, so it will take a while to compound and catch up there,” he said. TikTok last fall said it had more than 1 billion monthly users worldwide for the short-form entertainment app.

“People have a lot of choices for how they want to spend their time and apps like TikTok are growing very quickly. And this is why our focus on Reels is so important over the long-term, as is our work to make sure that our apps are the best services out there for young adults,” Zuckerberg said in his initial remarks. Later, he commented. “The thing that is somewhat unique here is that TikTok is so big as a competitor already and also continues to grow at quite a fast rate off of a very large base.”

To be sure, Zuckerberg’s pointing to TikTok as a growing rival is partly aimed at governments and regulators — an attempt to demonstrate that it does not have a monopoly in the social-media sector.

Meanwhile, Facebook’s recent rebranding as Meta is intended to launch the social powerhouse into the “metaverse,” with the company investing in new AR and VR tech, products and experiences. But it’s a near-term drag on earnings: Losses for Meta’s Reality Labs segment were $10.2 billion for the full year on revenue of $2.27 billion. Wehner didn’t provide specifics but said on the call that “we do expect Reality Labs operating loss to increase meaningfully in ’22.”

The near-term concerns for the company are developing effective workarounds to Apple’s iOS privacy changes and boosting monetization of Reels videos.

According to Zuckerberg, as with previous Facebook transitions like the shift from desktop feed to mobile feed, with the growth of Reels, “in the beginning our ads system and business are not as tuned for the new format, so as the engagement of the new thing starts to replace some of the engagement in the old thing. It creates a near-term headwind for revenue.” But he said over the long term, Meta is “pretty optimistic” it can close the gap.

Meanwhile, user growth for Facebook’s core social apps is plateauing. Daily active users (DAUs) of Facebook hit an average of 1.929 billion on December 2021, up 5% year-over-year but a decline of 10 million from Q3, the company reported. It was the first-ever decline in daily users for Facebook. Across Meta’s family of apps, including Facebook, Instagram and WhatsApp, DAUs averaged 2.82 billion for December, up 8% year over year but essentially flat with 2.81 billion sequentially.

Some analysts say the dramatic selloff of Meta shares presents a buying opportunity. “We don’t think the market’s reaction is warranted and believe wide-moat Meta’s shares now present an attractive investment opportunity,” Ali Mogharabi, senior equity analyst at Morningstar, wrote in a research note.