It was the biggest loss ever for a single company in the history of the stock market: Facebook owner Meta’s shares fell by 27 percent on Thursday, causing the market value to drop by $ 240 billion (209 billion euros). Facebook founder Marc Zuckerberg alone lost $29 billion. On the other hand, good figures from the online retailer Amazon catapulted its price by 13 percent and its market value by 184 billion dollars. These extreme price fluctuations show how nervous the mood on the stock market is at the moment. The most important questions and answers.
Why has Meta’s share price plummeted so much?
There are three reasons. The first and most obvious: The current figures have disappointed investors, and the outlook is sobering. The group has earned less than expected and people are turning their backs on the largest platform. Facebook, the blue app, is shrinking for the first time in the company’s history. The loss is minimal with one million users – which corresponds to 0.05 percent – but it has symbolic value: Facebook has passed its peak, the market is saturated. Zuckerberg’s dream of connecting the whole world will probably not come true.
Second, the rise of Tiktok, which has overtaken meta-platform Instagram among younger people, is worrying. Advertisers are investing an increasing part of their budget in Tiktok, which is a threatening development for Meta. And thirdly, the past year has shown how dependent the group is on Apple and Google because it does not have its own mobile operating system. Since Apple’s iOS version 14.5, developers have had to ask permission before tracking users across apps and websites. Unsurprisingly, most people politely decline, and it costs meta billions. The less data is collected, the less accurate the advertising becomes and the less money companies spend on it. Meta’s chief financial officer, Dave Wehner, estimates the drop in revenue at $10 billion and expects Apple’s tracking protection to continue to weigh on the advertising business in 2022.
How does Meta plan to reverse the trend?
Zuckerberg made a risky bet on the future. He is betting that in 10 to 15 years people will be putting on masses of virtual reality glasses and communicating, playing and working in a parallel world in which virtual and real experiences merge – the Metaverse. The group spent more than ten billion dollars last year on its Reality Labs division, with which Meta wants to lay the foundation for this vision. Even Zuckerberg admits that there are still many unanswered questions: “Although our goal is clear, our path to get there does not yet seem entirely clear.”
Most companies have to convince their investors for such fundamental strategy changes. Zuckerberg, on the other hand, can decide on his own. He owns so-called B shares, which come with tenfold voting rights. Even though he only owns 14 percent of Meta, he can easily overrule all A shareholders.
Why has the Amazon price increased so much?
Mainly because of the cloud. The data center business, which for most people tends to take place in secret, brought stability to the internet company Amazon in the most recent quarter. Amazon’s investment in the American electric car manufacturer Rivian also paid off. There is another reason why the group finally made a daily gain in the share price that is one of the five highest in the history of the US stock market: the group is raising the annual fee for the Amazon Prime service in the US from 119 to 139 dollars – this was a particular boost for investors.
Amazon also increased sales in its trading business, which most people associate with the company first and foremost. In part, this is due to the pandemic. Many people did not want to take the risk of shopping in brick-and-mortar stores. On the other hand, many who were rather skeptical some time ago are now also opting for an online order. Amazon had to struggle with problems in online trading. Like other industries, the company lacked workers, and the increased energy prices also impacted delivery costs.
With this increase in costs, but also an improved range of services, Amazon also justified the increase in the service fee for the Prime service: those who subscribe not only get goods faster, but also have access to streaming services for music and videos. For the group, the subscriptions mean customer loyalty and a constant stream of income. Amazon is trying hard to make the service attractive and is now also producing films and series. Later this year, for example, a series is scheduled to bring JRR Tolkien’s “Lord of the Rings” trilogy to TV screens.
In the Christmas quarter, Amazon had a total turnover of 137.4 billion dollars, compared to 125.6 billion dollars in the previous year. Profits doubled, from $7.2 billion in the fourth quarter of 2020 to $14.3 billion at the end of 2021.
What are other tech stocks doing?
Snap, which operates the social photo platform Snapchat, showed how crazy the courses are currently fluctuating on Thursday. It initially collapsed by 24 percent in the wake of the Facebook disaster, but hours later Snap came out with its own positive figures. The platform made a profit of $22.5 million for the first time in the fourth quarter of 2021, compared to a loss of $113 million the year before.
This prompted investors to buy the stock like crazy; the course rose by more than 50 percent in after-hours trading. On the other hand, the digital music service Spotify came up with bad numbers, whose share price lost 17 percent. The US technology index Nasdaq slipped a total of 3.6 percent.
Why is the mood on the stock market so nervous?
At the beginning of January, the stock exchanges around the world were still setting new records, but since then things have been going down. In addition to the risks from the corona virus, there was the conflict between Russia and the West over Ukraine, but above all the interest rate hike by the US Federal Reserve: It announced that it would soon raise interest rates to get high inflation under control . At the same time, the Fed is curbing bond purchases. The flood of money from the central banks was the main reason for the stock boom in recent years. Now the stock market is threatening to run out of fuel, so investors are selling shares.
Why are tech stocks hit so hard?
The US technology exchange Nasdaq is now 14 percent below its high. In the broader market, as reflected by the S&P 500 index, the seven percent loss is significantly smaller. The German share index is also seven percent below its record. This isn’t a dramatic drop. The current jittery mood is largely a crisis in tech stocks. The main reason for this can be summed up with an old stock market adage: what rises high must fall low. Tech stocks have been booming in recent years, being the main driver of the stock market rebound. A price bubble has formed in many of them, and the air is now escaping it.
There is another special reason why rising interest rates hit technology stocks particularly hard: They are growing strongly, their expected profits in the future are significantly higher than for traditional industrial companies. “But the further the profits lie in the future, the more the fair value of a share falls when interest rates rise,” says Markus Reinwand, equity analyst at Landesbank Hessen-Thüringen. Future profits are discounted by investors for higher interest rates and are therefore worth less today. For comparison: With high inflation, 500 euros that someone should get in five years is also worth less today than with low inflation.
Are all tech stocks equally at risk?
The investor and author Christian W. Röhl sees a strong two-class society in the technology sector: on the one hand the fat ships, which have accumulated great market power and large profits in recent years, on the other hand many hopeful values with some already high sales, but still little profit. For Röhl, the four giants are Microsoft, Apple, Amazon and Alphabet (Google). “These are true cash machines, some of the most profitable companies in the history of capitalism,” he says. He sees some of their share prices as ambitious, but not irrationally valued because they could continue to use their market power for strong growth in the future.
The greatest danger they face is regulation, the US government could at some point be tempted to break up the corporations because of their market power. Röhl sees Alphabet and Amazon more at risk than Microsoft and Apple. The tech giants could forestall that by filleting and downsizing themselves. For Röhl, that’s also the main reason why Facebook is now having such problems with investors: “Nobody treats regulators with such narrow-mindedness and nonchalance as Zuckerberg, he has zero sensitivity to issues such as fake news and identity theft,” he says. That’s why he doesn’t count Meta among the tech giants of the future.
On the other hand, there are many smaller tech companies that have been heavily hyped in the past. Their share prices have often multiplied, even though they often hardly made any profits, but rather were a promise for the future. Your share prices have been falling for almost a year, and the slide in prices has accelerated in recent weeks. Many companies have lost 50 percent or more of their market value. Examples are Rivian (electric truck), Robinhood (broker), Oatley (oat milk), Peloton (exercise bike). “There was a bubble with such values, and even after the price collapse, they are still highly valued,” says Röhl. The risk of further losses is initially high. In general, the expert sees the stock market in a difficult phase, after having risen sharply and without major fluctuations in recent years and especially in 2021.