The tidings from Wall Street are by and large good, as the opening price of stocks is high, except for the fact that Meta Platforms Inc. (NASDAQ: META), the company which owns Facebook, the giant social networking site, is not faring well.
The shares of Meta nosedived 25% on Thursday. Its CEO, Mark Zuckerberg, has requested investors to be patient, because of its problems related to unproven Metaverse bets, and also because it is a testing time for companies that do digital advertising.
However, shareholders are panicky, since the current drop is the biggest in a single day since February. Meta’s problem has resulted in Nasdaq being down by 0.2%.
The larger companies, though they had started well, also fell, as shown by the index S&P 500. Nevertheless, the stock market did have some good news on the economic front since the economy has shown a 2.6% growth in the last quarter.
The US dollar trimmed its gains slightly as data revealed that the country’s GDP has shown some growth, so far unprecedented in the current year. Treasury yields of ten years were not steady. It went below 4% once.
McDonald’s performance was promising as it had a rise of 3% in premarket trading. The company reported good progress in its third-quarter sales, as a result of more customers using its app. Similarly, an increase in travel demand in the summer months has led to Southwest Airlines recording a rise of over 4%, because of its third-quarter increase in revenue.
Shareholders of Meta Platforms take a huge hit
Shareholders of Meta Platforms had taken a huge risk by investing in Metaverse real estate plots. The digital world of Metaverse that is being created by the company has led to the crash of its stock, with the market value decreasing by $677 billion in the present year. Meta is no longer one of the world’s top 20 companies.
Available statistics do not point to any possibility of the company escaping its tightening noose in the near future. As investors put money in the company’s virtual reality plots, the stock plummeted by 25%, while the expenses for building Metaverse are only swelling.
In the beginning of the current year, Meta Platforms was the sixth largest company in the US by way of market capitalization, having a market value of about $1 trillion. Within a period of just ten months, the value has slid down to $258 billion, and the company is now 26th in position. Companies like Procter & Gamble, Chevron Corp., and Eli Lilly & Co. are ahead of Meta now.
Though once a company among those most cherished by investors, Meta can no longer hold on to that position. Investment brokers are reluctant to go anywhere near it. After considering the company’s low quarterly revenue, investment banks like Cowen, KeyBanc Capital Markets, and Morgan Stanley have downgraded their stock.
According to Mandeep Singh, senior equity research analyst at Bloomberg Intelligence, Meta continues to be too aggressive about investing in long-term initiatives, despite the significant slowing down of its revenue growth.
He pointed out that the company’s operating expenses (Opex) and capital expenditures (Capex) picture for 2023 was surprising, in view of the lack of traction seen in its Metaverse efforts.
Meta’s premarket slump on Thursday was bad enough, though not as bad as its February slump when the shares came down 26% as a result of bad revenue, and its market value decreased by $251 million. It was the first time that a US company was undergoing such a total rout.
However, such a low value of the company’s stock is attracting a certain class of investors who are ready to buy now and wait for its value to rise. Whatever the eventual result be, so far signs of progress are woefully lacking.
The idea of investing in the virtual reality called Metaverse originated a year ago. This happened together with the company’s change of name to Meta Platforms, from its earlier name Facebook Inc.
According to the company’s announcement on Wednesday, its expenses for the current year are likely to be between $85 billion and $87 billion. This estimate is expected to increase to something between $96 billion to $101 billion in 2023. As Neil Campling of Mirabaud Securities pointed out, this was totally against investors’ expectations of the company cutting costs.
According to Bloomberg data, Meta’s quarterly expenses amount to the total expenses of all S&P 500 companies, barring just 16 of them.