Meta's price drop shakes tech's confidence
Meta's record-shattering Thursday stock drop — the company formerly known as Facebook lost a quarter of its market value, or more than $200 billion, in a flash — capped a crazy tech earnings season that left two seemingly contradictory takeaways: Tech firms now sit at the economy's core, yet they also can still be risky bets.
Why it matters: The first two years of the pandemic served to further accelerate the tech giants' climb after a decade of unprecedented growth. But we all know what they say about "what goes up."
Driving the news: Facebook shares dropped 26% on Thursday, a day after the company reported its first-ever drop in daily active users and offered a downbeat forecast for the coming year, thanks to mobile-advertising privacy changes Apple has introduced.
The remaining four tech behemoths all had a better time of it.
- Amazon broke out numbers for its advertising business for the first time Thursday, as it reported healthy results on top of a long pandemic-driven growth spurt and announced that it was raising the annual cost of Amazon Prime by $20.
- Apple reported its biggest quarter ever, with an 11% sales jump and revenue up in every part of the world. The company also said its supply-chain problems were waning.
- Google parent Alphabet posted better-than-expected earnings, with annual revenue topping $200 billion for the first time.
- Microsoft exceeded expectations and issued a rosy forecast as well, buoyed by strength in the PC market.
Be smart: Investors long viewed tech as a sector with high growth potential and high risk, too — one prone to bubbles and stomach-churning drops.
- But as tech started grabbing bigger slices of the broader economy, the growth of its leaders began to be taken as a given. Tech's big five came to represent ever larger proportions of major stock indices. The companies started looking more like blue chips than upstarts.
But nothing grows forever, and as these giants have saturated their markets, they've also stirred regulatory scrutiny that limits their ability to make big acquisitions. With nowhere else to go, they've begun to step on one another's turf.
- Facebook, for example, has lashed out at App Store restrictions by both Google and Apple and has also warned that Apple's privacy-related app tracking limitations could cost it $10 billion in revenue this year.
The big picture: The quest for grown has always impelled tech firms to look for the next big product or platform — and made them paranoid that they'll lose their primacy in the shift.
Facebook's humbling comes at a pivotal moment for the company, which has changed its name to Meta and its focus to an AR- and VR-driven future.
- At the same time, it's facing a hostile climate in Washington in the wake of years of controversy over misinformation, privacy problems and complaints of censorship.
- It also faces inevitable generational shifts, as younger users flock to newer rivals like TikTok. In the past it was able to buy rivals, such as Instagram, but that path is likely blocked amid greater regulatory scrutiny.
- One way its stock drop will hurt: The company will have a harder time hanging on to talent, since so many employees will see their stock options' value disappear.
Yes, but: Plummeting share prices don't always deter tech CEOs.
- Amazon's Jeff Bezos famously stuck to his guns through years of painful drubbings by Wall Street, and look where he, and the company, are now.
- Don't bet on Meta changing course. The company remains a monarchy in which Mark Zuckerberg wields absolute voting control, and Zuckerberg has pledged an all-in approach to its metaverse-based future.
- In the meantime, with Facebook's nearly 2 billion users and similarly gigantic numbers for its Instagram and WhatsApp services, Meta isn't about to shrivel up and vanish.