TikTok's competition. A stagnant user base in key markets. An expensive bet to invest in virtual reality that could take years to pay off. These are just some of the reasons investors are dumping Meta ( Facebook ) stock after a disastrous earnings report, which could wipe more than $200 billion off the company's market value.
What's going on: Meta said after the markets closed on Wednesday that its earnings fell for the last three months of 2021 as the social media company invested heavily in technology it needs to ramp up its offerings in the "metaverse," which sees as the future of your business.
Its shares were down more than 22% in premarket trading, dragging down other tech companies. Snap and Pinterest, which reported gains on Thursday, fell 16% and 8%, respectively.
There is a long list of reasons why Meta's gains gave Wall Street a reality check.
CEO Mark Zuckerberg said competition from rival TikTok, whose short-form video product is more popular than Meta's, is weighing on the company's ability to monetize its Reels product.
"We're up against a competitor on TikTok that's much bigger, so it's going to take a while to compose and catch up," Zuckerberg said on a conference call with analysts.
Facebook's monthly active users also stagnated compared to the previous quarter at 2.91 billion, while daily active users in the United States and Canada fell. And Meta reported slowing growth in its core advertising business, which still accounts for around 99.5% of its total revenue.
However, the biggest impact may have come from Zuckerberg's assessment of the company's prospects as Meta pumps billions of dollars into augmented and virtual reality.
"This fully realized vision is still a long way off," he said. "And while the direction is clear, our path ahead is not yet perfectly defined."
UBS analysts Lloyd Walmsley, Chris Kuntarich and Mary McKennon responded: "Certainly."
"We were struck by the magnitude of the priorities the company is managing at the same time (seven?), most of which do not appear to drive any near-term improvement in revenue prospects," they wrote in a note to investors. customers.
That contrasts with rival tech giants Apple (AAPL), Amazon (AMZN) and Google (GOOGL), which in recent years have generated significant revenue from newer parts of their businesses.
Analysts also expressed deeper concerns about Facebook's future. They pointed to a "world moving widely away from Meta's strengths, as content consumption shifts toward creator content and private messaging and away from public sharing, effectively eroding the company's moats."
On the radar: Facebook isn't the only tech company whose shares are taking a hit in part due to questions about its user base.
PayPal shares plunged 25% on Wednesday after the payments company, a darling of the pandemic, abandoned its goal of building a user base of 750 million. And Spotify (SPOT) just reported a tepid forecast for subscriber growth this quarter, sending its shares down 10% in premarket trading.
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