Facebook, as we all know, is one of the most used social networking sites on the globe and is the 8th largest company in the world in terms of market capitalization. In October last year, the parent company of Facebook, Instagram, and WhatsApp, changed its name to Meta. The CEO of the company said it represented the wider dreams and plans the company had for its future.
Meanwhile, the price of the Facebook stock has been unstable since the company’s transition from Facebook to Meta and its price dropped nearly 35% since the beginning of the year. So what happened? And is it the right to short sell Facebook stock?
What Happened so Far?
From the start of September 2021, the parent company of Facebook is facing an overall decrease in its value. Last week, after weak earnings results, we saw the second-largest wealth drop in the history of corporate value in the US, where Meta lost around 28.5% of its stock’s worth. Last Thursday, the company faced a nosedive of 26% of its stock. It was by far the worst single-day decline in percentage that a company had to suffer.
For the past few months, the parent company of Facebook has been investing a major part of its profits into the “metaverse” brand. To its disappointment, on Wednesday evening the company posted a frail revenue forecast, which was enough to make the investors startled. In addition to this, Meta has also been receiving harsh competition from Alphabet Inc. and Tiktok.
It was the first time the company had posted about revenues after changing its name. They failed to reach the expected growth, earnings, and revenues, which was enough to make investors anxious and the stock price reacted accordingly. The quarterly report also shows a decline in active Facebook users – a big concern for Zuckerberg and for Facebook investors. It means, the number of users is declining, which indicates a further downfall in stock prices, earnings, revenue, and market value.
After realizing the severe competition from Tiktok, Meta is also facing a battle for the first time since its inception against another major social media network. It is to counter the short videos of Tiktok, which are gaining popularity exponentially. The company also elicited that the competition is leading Facebook users into less profitable sections of the application.
Adding this to the privacy and the lack of support from the public regarding Facebook’s operation – the result is the huge plunge of Facebook stock price.
Is it time to sell (or short-sell) FB stock?
Right now, it seems that Tiktok privacy changes are feasting on the profits of Meta. Many financial analysts believe that this will continue all year. According to a top tech analyst on Yahoo, Meta shares are dead money, considering the level of growth of the company. He also stated that the trend is most likely to continue for at least the next three months.
There has not been any noticeable increase in Facebook users in the last quarter. The increase was only two million people. Moreover, Meta is moving swiftly towards the metaverse brand, a virtual world where everything will be imaginary, including the presence of the user. The company has been investing heavily in the project. This year’s capital spending is expected to spike to around $32 billion, as compared to last year’s $19.2 billion. However, the decline in active users shows that most people are done with social media and virtual worlds, as they have spent almost 2 years indulging in virtual interactions.
And, even though the meta’s loyal user base is colossal, around half of the earth’s population, the increase in active users is getting steady, raising an alarming situation for its stockholders.
The bottom line
Well, the bottom line, Meta Platforms stock is more a sell than a buy right now. The price is more likely to fall to the next support level at around $162 than to bounce back to the previous levels. This is especially when we take into consideration the fragile condition of the stock markets and the prediction of interest rate hikes in the upcoming year.
In fact, the only concern right now for those who want to short sell FB is that Meta believes it can close the gap. As you can see in the chart, there’s a huge gap between Feb 2nd and February 3rd. Usually, gaps tend to be filled, but in the case of Meta’s stock, it might take several years until that will happen…