Facebook Shares Plunge 22% on Lower Profits, Weaker Outlook

Facebook's parent company Meta Platforms' report disappointed investors and the stock fell 22.9% in non-trading time. Facebook says Apple iOS privacy changes will result in a $10 billion drop in revenue in 2022.

Shares of Meta Platforms (FB), formerly Facebook, which lost 10% in the past six months, fell 22.9% after the close of trading on Wednesday after the social media giant released a disappointing 2021 report and guidance for 2022.

Meta Platforms Report vs. Analyst Forecasts

  • Q4 earnings per share were down 5% quarter-on-quarter in 2020 to $3.67. This was below the average market analysts' forecasts of $3.84.

  • Total revenue rose 20% to a new record of $33.67 billion, surpassing Wall Street estimates of $33.4 billion.

In a full Q4, which is considered the seasonally strongest of the year for digital advertising due to the Christmas holidays, Meta Platforms has not added any new users (DAU, MAU) to its app family compared to Q3.

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Meta provides combined numbers for users of its Facebook, Messenger, Instagram, and WhatsApp apps.

  • The number of daily active users (DAU) in the 4th quarter was 1.93 billion, unchanged compared to the 3rd quarter, and was below the analysts' forecast of 1.95 billion.

  • The number of monthly active users (MAU) also remained unchanged at 2.91 billion, while analytical estimates were 2.95 billion.

  • On a positive note, average revenue per user (ARPU) rose to $11.57, better than the expected $11.38.

The Q4 2021 report was the first since Facebook's rebranding to Meta Platforms and the first to report earnings and losses for its Reality Labs division, which includes augmented and virtual reality-related consumer hardware, software, and content.

Meta said its app family posted $32.79 billion in fourth-quarter revenue and $15.89 billion in operating income. Reality Labs posted $877 million in revenue and a $3.3 billion operating loss.

Facebook Predictions

The forecasts for 2022 made by Meta management were disappointing.

The key negative factors that have already affected the company's results and will affect this year were:

  • Negative macro factors in the form of inflation and supply chain problems that affect advertisers' budgets.

  • Shifting user engagement to digital products like the Reels video feature, which is less profitable than Feed and Stories.

  • Facebook has said it could lose about $10 billion in 2022 due to iOS privacy policy changes.

  • Growth in spending on the yet unprofitable division of Reality Labs.

Investors have taken interest in Facebook's deepening into the "metaverse", seeing in this the potential for new growth for the company. Given the company's huge financial strength, professional teams, Meta Quest virtual reality headset, and technology, Facebook's prospects in this area seem promising.

However, the metaverse industry is brand new, and Facebook executives themselves have stated that it could take up to 15 years to fully realize their vision. When the project will start to make a profit, no one can predict yet, while it requires hundreds of millions of dollars of investment.

Here are Meta Reality Labs income and loss statistics for the last 3 years:

  • 2019 net loss: $4.5 billion on revenue of $501 million

  • Loss in 2020: $6.62 billion on revenue of $1.14 billion

  • Loss in 2021: $10.19 billion on revenue of $2.27 billion

And losses are likely to only increase this year. Meta's chief financial officer said Wednesday during a report that operating losses will "increase significantly" in 2022.

Read also: Google Stock Jumps 9% After an Impressive Q4 Earnings Report

The losses also weighed on Meta's overall profitability for 2021. The company would have received not $39.37 billion, but more than $56 billion in net income for the whole of last year, if not for Reality Labs.

Social media shares fell

Amid the disappointing Facebook report, shares of other companies with social media platforms also fell.

Shares of Pinterest (PINS), Snap (SNAP), and Twitter (TWTR) fell 9.44%, 17%, and 8%, respectively, after the close of trading on Wednesday. This worsens the downward trend of these shares, which has been observed for the past 6 months.

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