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03.02.2022 05:34 PM
Meta declines dragging IT sector down

Shares of Meta (#FB) fell by 20% in the US premarket on Thursday after the social media giant released its views accusing Apple of making privacy changes and increasing competition.

Meta declines dragging IT sector down

The huge downturn, which occurred even earlier than Amazon's reports on the same day, spread to Europe, where tech stocks posted one of the steepest declines and spoiled the mood in global financial markets on another busy day of central bank meetings.

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The market capitalization of the so-called FAANG group, consisting of Facebook, Amazon, Apple, Netflix and Google Alphabet, is down about $400 billion in the first weeks of 2022.

Shares of other social networks were also under pressure in Thursday's premarket trading, including Twitter, Pinterest and Spotify. Spotify was embroiled in a scandal over misinformation about the COVID vaccine, and released weak statements.

Aggregators report that Meta has lost about 20% today, wiping out about $200 billion in capitalization. If the losses in the premarket persist, a decline during the session on Thursday would be the company's biggest one-day loss since its Wall Street debut in 2012.

Meta recently reported a decline in the number of daily active users for 2021. The decline also comes from the previous quarter because competition with TikTok, a video sharing platform owned by China's ByteDance, has hurt the corporation.

The Meta report also notes that about 3% of monthly active users worldwide in the Q4 consisted solely of account breaches, while duplicate accounts may have estimated at about 11% of usage.

"Meta CEO Mark Zuckerberg may be keen to coax the world into an alternate reality, but disappointing fourth-quarter results were quick to burst his metaverse bubble," Laura Hoy, an equity analyst, said.

Tech companies have come under increasing pressure in 2022, as investors expect US Federal Reserve policy tightening to undermine the industry's high valuations after several years of ultra-low interest rates. The Nasdaq Index, which is dominated by tech companies, fell by more than 8% in January, its worst monthly decline since late 2019, and the decline continues.

"The downgrade in the earnings outlook by Meta and other companies took markets by surprise," Kenneth Broux, a strategist at Societe Generale in London, said.

European big techs such as ASML, Infineon and SAP are leading the regional STOXX 600 stock index decline, in what traders viewed as a kneejerk reaction to the Facebook tumble. Infineon was also penalized by a conservative outlook.

"The tech selloff spilled over to broader equity markets this morning and with the Fed preparing to raise interest rates, we could see more volatility going forward," he said.

Is the bubble bursting?

The frustrating earnings performance of Meta and the subsequent stock decline have triggered memories of the tech bubble bursting in 2000 and fears that history is repeating. Investors appear to be becoming more selective after the sector's record growth in recent months.

According to research firm Vanda, purchases from retail investors in late 2020 and early 2021 were focused on expensive technology, electric cars and so-called "meme" stocks.

However, this year the picture is different. Last week, purchases of large-cap tech companies surged, while demand for speculative assets was very low.

Nowadays, the cheaper segments of the markets are getting cheaper and therefore more attractive, while central banks are tapering off stimulus.

Does it make sense to panic? Of course, if bulls, especially the shorting ones, are losing their positions today.

This volatility with a general bearish trend is likely to persist during March. The risk of a repeat of the dot-com crash does exist in the short term.

It may become a great opportunity to buy Meta stock, because in the long run, metaverses are likely to be the main operating shell for everyday life around the world. The future capitalization potential of this sector is in the hundreds of billions of dollars. I can't wait to buy a live wall-to-wall broadcast of landscapes from Norway, so I can enjoy them from the comfort of my apartment in the midlands. Or do you prefer Venice?

Egor Danilov,
Pakar analisis InstaForex
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