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Meta’s stock dropped 20% in premarket trading in the United States last week after the social media giant issued a bleak forecast, blaming Apple’s privacy changes and increased competition.
The dramatic dip, which came ahead of Amazon’s earnings report later that day, spilled over to Europe, where technology companies saw some of the worst drops, dampening sentiment across global financial markets on yet another busy day of central bank meetings.
Meta was expected to lose a fifth of its market valuation, amounting to almost 200 billion USD. If the premarket losses hold, a drop of this magnitude in last weeks session would be the company’s worst single-day off losses since its IPO in 2012.
“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,” said Laura Hoy, an equity analyst at Hargreaves Lansdown.
Investors expect policy tightening at the US Federal Reserve will erode the industry’s lofty valuations after years of ultra-low interest rates, putting pressure on big US IT companies in 2022. The Nasdaq, which is dominated by technology, dropped more than 8% in January, its worst monthly drop since the end of 2019.
“The downgrade in the earnings outlook by Meta and other companies took markets by surprise,” said Kenneth Broux, a strategist at Societe Generale in London.
“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.
In what traders saw as a kneejerk reaction to Facebook’s plunge, European technology heavyweights ASML, Infineon, and SAP were among the stocks weighing the most on the region’s STOXX 600 equity benchmark. A conservative mentality harmed Infineon as well.
As competition with rivals like TikTok, the video-sharing platform controlled by China’s ByteDance, heats up, Meta reported a drop in daily active users from the previous quarter for the first time.
According to Meta, roughly 3% of global monthly active users in the fourth quarter were merely abusing accounts, while duplicate accounts may have accounted for about 11% of usage.
The disappointment with Meta’s earnings and the ensuing stock drop brought back memories of the 2000 tech bubble crash.
Following the sector’s recent record-breaking run, investors appear to be getting more choosy.
According to research, retail investors focused their purchases in late 2020 and early 2021 on expensive technology, electric vehicles, and so-called “meme” stocks. Large-cap tech stock purchases have soared in recent weeks, while speculative assets have seen little demand.
In the first weeks of 2022, the so-called FAANG group of Facebook, Amazon, Apple, Netflix, and Google’s Alphabet lost about 400 billion USD in market valuation as cheaper portions of the markets become more appealing as central banks reduce stimulus.
Twitter, Pinterest, and Spotify were among the other social media firms that took a beating in premarket trading last week. Spotify has been embroiled in a controversy concerning COVID vaccine misinformation, as well as releasing unsatisfactory results.
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