Facebook stock plummets 22% after reporting weak guidance

Facebook Chairman and CEO Mark Zuckerberg testifies at a House Financial Services Committee hearing in Washington, October 23, 2019.

Erin Scott | Reuters

Shares of Facebook parent Meta were down more than 22% during premarket trading Thursday after the company forecasted weaker-than-expected revenue growth in the next quarter and showed that its new Reality Labs metaverse segment, its big bet for the future, lost $ 10 billion last year.

The company, which released earnings under its new name for the first time with a new reporting structure, missed earnings estimates for the fourth quarter at $ 3.67 vs. $ 3.84 analysts were expecting, according to Refinitiv. But it beat on revenue for the quarter, at $ 33.67 billion vs. $ 33.4 billion estimated.

Still, its revenue forecast of $ 27 billion to $ 29 billion for the first quarter fell below analyst expectations of $ 30.15 billion, according to Refinitiv.

Other social media stocks were down Thursday following Facebook’s plunge. Shares of Snap were down more than 16% in premarket trading, Pinterest shares are down 9% and Twitter shares are off more than 7%.

Meta broke out its Reality Labs segment for the first time, comprising its future-focused business that aims to develop the metaverse. The segment made $ 877 million in revenue in the fourth quarter with an operating loss of $ 3.3 billion. The segment lost $ 10 billion last year, and those losses are growing as it bets on the metaverse.

Facebook is also leaning more heavily into products that generate less revenue in the short-term but which executives believe have large growth potential, like Reels on Instagram.

The company’s core social media business, reported under its Family of Apps, made $ 32.79 billion in revenue in the quarter with operating income of $ 15.89 billion.

The company said Apple’s iPhone privacy changes, which impact its ad-targeting and measuring, would result in a $ 10 billion revenue hit this year. It also said macroeconomic challenges like inflation and supply chain disruptions, are weighing on advertiser budgets.

JPMorgan analysts downgraded the stock from overweight to neutral on Thursday and lowered their price target from $ 385 to $ 284. The analysts said Meta “is seeing a significant slowdown in advertising growth while embarking on an expensive, uncertain, multi-year transition to the Metaverse.”

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