How Meta Platforms (FB) Made History In An Unexpected Way

In September 2021, Meta Platforms Inc. FB joined the 1 Trillion Dollar market capitalization club of U.S.-listed companies. Together with Apple Inc. AAPL, Microsoft MSFT, Alphabet GOOG, and Amazon AMZN, it was on the Olymp of the largest companies by market cap.

At this time, the price per share was at an all-time high at $378.81. The subsequent consolidation let the price consolidate down to $330 in unison with the overall market. But while the SPDR S&P 500 ETF Trust SPY initiated another performance boost to another all-time high in November and then again in January 2022, Meta Platforms Inc. turned out to be a clear underperformer.

On October 28, 2021, Facebook CEO Mark Zuckerberg introduced Meta and emphasized the company's new focus to bring the metaverse to life. However, the announcement by itself was not that well received by investors. Prices oscillated around $330 between October 2021 and February 2022, and the market was awaiting the earnings releases on February 2, 2022, after market close. All market participants were wondering how the realignment of Facebook would influence the balance sheets and company outlook.

And then, the shock, when Meta announced earnings on Thursday, February 2, 2022. The earnings were so disappointing that the price per share fell more than $30 within the first five minutes after the announcement and even more the next 15 minutes after that. Meta closed at $323 on February 2 and opened at $244.65 on Friday, February 3, 2022, to close at only $237.76. That equals a day-to-day loss of 26.4%.

Big gap up or gap downs after earnings announcements are common and happen frequently, but not for stocks with the highest market capitalization.

Meta Platforms made history in the stock market with that earnings announcement by losing over $230 billion of market capitalization in just one day.

Market capitalization is calculated by multiplying the price per share with the number of outstanding shares. The stock price dropped more than $86 in one day, and the shares outstanding are ~2.76B.

This market reaction shows how strongly growth stocks depend on the continuous growth of a company. For the first time, Meta Platforms, formerly Facebook, reported a slowly shrinking user base and even a low P/E ratio of currently 17.20 does not attract buyers to come in yet.

However, the stock will likely bounce short-term since we hit primary support levels at $230. But besides a temporary bounce, the perspectives of Meta Platforms are not that glamorous right now. The company now has to prove that the strategic re-orientation was the right decision and that the upfront investments towards the metaverse can secure new user growth and income.

Alexander Voigt is the Chief Executive Officer and founder of daytradingz.com. He does not hold any positions in the mentioned stocks.