Facebook'S Massive Sell-Off: Key Factors Behind The Worst One ...

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HomeMarket NewsStocks NewsFacebook's massive sell-off: Key factors behind the worst one-day crash in market historyFacebook's massive sell-off: Key factors behind the worst one-day crash in market history

Facebook shares crashed 25 percent on Thursday, losing more than $200 billion, after Meta, its parent company, released its earnings. Here's what's behind Facebook's falling share price

By CNBCTV18.com February 4, 2022, 6:30:48 PM IST (Updated)Facebook shares crashed 25 percent on Thursday, losing more than $200 billion, the worst single-day fall by any company in the history of US stock market. CEO Mark Zuckerberg lost $29 billion with the company's massive one-day plunge. The drop in the share price came after Meta --the parent company of Facebook, WhatsApp, Instagram, and Meta Quest -- released its earnings. Separately, the stocks of other social media companies including Twitter and Snap also fell. Both the companies are listed on the New York Stock Exchange. What's behind Facebook's falling share price? Facebook loses daily active users For some time now, Facebook has been struggling to remain relevant among the young generation. Meta's earnings reveal Facebook saw first-ever sequential decline in its daily active users -- a key growth metric. According to the company, its global daily users dropped from 1.93 billion in the third quarter of 2021 to 1.929 billion. A lot of factors have contributed to users switching to other platforms. Meta's own platform Instagram has been taking users away from Facebook. The Chinese-owned TikTok app is also leading to users moving from Facebook. On Wednesday, Zuckerberg said, “People have a lot of choices for how they want to spend their time, and apps like TikTok are growing very quickly.” However, he added that he was hopeful that Reels (on Facebook) would help the company win back young users. The drop is especially concerning as the daily active users of Facebook have been declining in Africa and Latin America. For steady growth, Facebook needs to grow outside of its main market in the United States, where also its users are declining. In fact, the drop in Facebook usage has been a dominant research topic in recent years. Studies have pointed out several factors -- including information overload, privacy concerns, banality, addiction, peer pressure, emergence of new platforms, productivity, and annoyance -- that have reduced the popularity of the platform. Apart from this, events such as the Snowden leaks, the Cambridge Analytica scandal, and revelations about Mark Zuckerberg’s "secret meeting" with the former US President Donald Trump have also tainted Facebook's image. While this was the first drop in daily active users since the company was founded in 2004, Facebook remains Meta’s biggest app. Zuckerberg's metaverse bet The focus of the company has shifted to CEO Zuckerberg's Metaverse plans, according to observers. The social media giant is investing aggressively on its metaverse plans but is heavily dependent on its advertising revenue for its income which has been impacted due to inflation and supply-chain disruptions as advertisers' budgets suffer. Sheryl Sandberg, Meta's chief operating officer, in a conference call with analysts on Wednesday said that global supply chain issues, labor shortages and holiday spending by advertisers among other factors affected the company's advertising sales. Also Read | Facebook usage dips for first time. Will Instagram follow? According to a report by Euronews, Meta invested more than $10 billion in its "Reality Labs" segment including virtual reality headsets and augmented reality technology in 2021, which played a major role in its profit decline. The company, as per the report, expanded workforce by 23 percent. "There’s a lot of uncertainty about Meta’s investments in the metaverse and if or when they will have a positive impact on the company’s bottom line," Debra Aho Williamson, Analyst, Insider Intelligence was quoted as saying by Euronews. Additionally, the new iOS rules, which limit customer tracking, are also putting pressure on Facebook's revenue. Facebook CFO David Wehner earlier this week said the new iOS rules will make Meta lose more than $10 billion in sales. Growth slowing in India too Facebook also said that the prepaid data price hike by Indian telecom players hit the company's overall growth in India during the quarter. In November, leading telecom players Bharti Airtel, Reliance Jio and Vodafone Idea had announced a hike in prepaid tariff rates by up to 25 percent. "In Asia-Pacific and Rest of World, we believe Covid resurgences during prior periods pulled forward user growth. User growth in India was also limited by an increase in data package pricing," said Dave Wehner.Continue ReadingFirst Published: Feb 4, 2022 2:02 PM IST

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