3 Lessons From META Stock: Investors’ Expectation and Founders’ Ambition

Once META stock price suddenly dropped on 3 February 2022, what lesson actually can tell us from investors’ and founders’ perspectives? In fact, it was the greatest plummet of an American company in a single day. The price drop was from USD 323 to 237, a company’s 26% market cap loss. It resulted in the decrease of its founders’ wealth; Mark Zuckerberg, roughly USD 30 billion. It is important to note that META, Inc is the new name of Facebook, Inc., one of the giant technology companies worldwide. This article will highlight some of the important lessons from the plummet of META stock and how investors or other company founders can take note.

Brief History of Facebook

Before 2006, there were several social media networking platforms attracting internet users to communicate virtually among global people. The story changed once Facebook, a close-based community within top global universities, opened itself to be accessible by everyone who has email accounts. Over 18 years, it has been killing its competitors and gaining around 2.2 billion users. Facebook performed several acquisitions of other companies that treated the company to shake its popularity among social media users. Instagram, WhatsApp, Friendster patents, LiveRail, etc. are some companies acquired by Facebook. Things changed at the end of 2021. Facebook lost 26% of the market cap resulting in the decrease of USD 230 billion of the company value. What does cause it? Does the decrease in value of META stock relate to investors’ expectations and the change in strategy by its founders?

What are the factors that cause META stock decrease?

1) META performance is not in line with investors’ expectation

As the custom of a publicly listed company, investors will set out their expectations toward the company’s performance. If the financial statements reported the revenues above the expectation, investors are willing to set the stock price at a premium. Otherwise, vice versa applies. On 2nd February 2022, META reported a decrease in the company’s incomes in the last three months, respectively. At the same time, Microsoft and Apple reported numbers above what investors expected. This situation indicates that at the time META stock is not as interesting as its competitors. Hence, its stock’s price went down. It violates what the investors are expecting toward META.

2) Privacy policy issued by APPLE grinds the revenue streams of META

Due to such a policy, Facebook, under META, Inc. that relies mainly on income from ads, notices a potential drop for their income up to USD 10 billion. This is because, with the new Apple privacy policy, apple’s users deserve to refuse the data use of Facebook and Instagram in their devices. It potentially lessens the attractiveness of businesses to advertise their products within these two platforms.

3) TikTok shakes Facebook’s superpower

Facebook lost on average 500.000 daily users in the last three months at the end of 2021. Previously, Facebook has been experiencing 1.930 billion logins daily, but it decreased to 1.929 billion logins. Even though it was not a significant change, it indicates a bad signal for Facebook. Many researchers consider Facebook nowadays is not so relevant for teenagers. Data shows 13% of users decline by teenagers in the USA starting from 2019. The declining number is predicted to reach 45% in the next 2 years. TheVerge.com further reported that teenagers in recent years spent threefolds of their time in TikTok rather than on Instagram or Facebook.

4) Over investment done by META in its Metaverse development

META announced in 2021 that it would expend around USD 10 billion to develop its new product “Metaverse”. The company will also spend billions of dollars to grow Meta Reality Labs to enhance the Metaverse infrastructures. However, investors do not have the same ambition as META founders. They think that Metaverse is still a faraway achievement, likely need a decade from now, to be an integral part of our real life. In this sense, probably investors are more patient than META founders in generating immense potential returns on investment.

Some Lessons Which Are Applicable for Stock Investment

1) The stock price is often driven by investors’ expectations toward the performance of a company

Financial statements issued by the company bridge what investors will decide to do. As we can see above, after 2nd February 2022, based on its report, META, Inc., stated that their performance was not as good as investors expected. The consequence was the drop in stock price.

2) Founders’ Ambition is not always good from investors’ perspective

The company needs to align their ambition with its investors’ expectations. Once there is an imbalance between them, it can significantly affect the stock price as we see from META’s stock decline.

3) Investors need to nurture their portfolios, related industry and economic trends routinely

If an investor enters the META stock several days before its drop on 3rd February 2022, he/she will suffer potential loss after the decline of stock price. From this phenomenon, investors need to give surveillance over their portfolios. This can be done by always observing industry and economic trends. For instance, once there is a potential conflict between countries producing oil and gas, owning stock of oil and gas companies is a problematic decision. Time-to-time surveillance will be extremely essential in such a situation.

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