Meta's share price decline shakes tech stocks

Shares in Facebook (Nasdaq:FB) owner Meta fell 26% on Thursday in what could be the worst single-day drop in market value for a U.S. company, after the social media giant released a dire forecast for which he blamed on Apple Inc (NASDAQ:AAPL) privacy policy changes and increased competition.

The huge drop, which eroded Meta's market cap by more than $200 billion, spilled over into the broader technology sector and dragged the Nasdaq Composite Index lower.

If the losses continue, it would be the company's worst one-day loss since debuting on Wall Street in 2012.

"Meta CEO Mark Zuckerberg may love to lure the world into an alternate reality, but disappointing fourth-quarter results quickly burst his metaverse bubble," said Laura Hoy, equity analyst at Hargreaves Lansdown (LON:HRGV).

Big US tech companies have come under increasing pressure in 2022 as investors expect tighter Federal Reserve policy to erode the industry's lofty valuations after years of extremely low interest rates. The Nasdaq, dominated by technology and growth stocks, fell more than 9% in January, posting its sharpest monthly decline since the coronavirus-triggered stock market crash in March 2020.

"Meta's and other companies' earnings downgrades caught markets by surprise," said Kenneth Broux, strategist at Societe Generale (OTC:SCGLY) in London.

"The sell-off in the tech industry spilled over into broader equity markets this morning and as the Fed prepares to hike rates we could see more volatility going forward," he said.

The stock's fall was a boon to investors who had been betting on the company's shares falling. According to S3, short sellers on Meta increased their potential profits from 2022 to more than $2 billion with Thursday's price drop.

As the valuations of big tech firms like Apple and Microsoft (NASDAQ:MSFT) have soared in recent years, they've also become more vulnerable to investor whiplash, often resulting in multi-billion dollar losses in a single trading day to lead.

Apple lost almost $180 billion on September 3, 2020, while Microsoft lost $177 billion on March 16 of the same year. However, Meta's massive sell-off will eclipse these numbers if losses continue.

Meta reported a quarter-on-quarter decline in daily active users for the first time as competition from rivals like TikTok, the video-sharing platform owned by Chinese company ByteDance, intensified.

Meta said about 3% of global monthly active users in the fourth quarter consisted entirely of offending accounts, while duplicate accounts accounted for about 11% of usage.

The disappointment with Meta's results and subsequent stock decline brought back memories of the tech bubble bursting in 2000.

Investors appear to have become very picky after the sector's record-breaking surge in recent months.

According to market research firm Vanda (NASDAQ:VNDA), buying by retail investors in late 2020 and early 2021 was focused on expensive tech, EV, and so-called "meme" stocks. Over the past week, buying of large-cap tech stocks has surged, while speculative assets have remained sluggish.

At the same time, several hedge funds including Wellington Management Group, Sanders Capital and Tiger Global Management were among the funds that declared their positions in Meta Platforms in late September and may have been hurt by the price drop.

The so-called FAANG group, consisting of Facebook, Amazon (NASDAQ:AMZN), Apple, Netflix (NASDAQ:NFLX) and Google's Alphabet (NASDAQ:GOOGL), lost around $400 billion in market capitalization in the first few weeks of 2022 , as cheaper segments of the market become more attractive while central banks scale back stimulus.

Other social media stocks were also hit hard Thursday, including Twitter (NYSE:TWTR), Pinterest (NYSE:PINS) and Spotify (NYSE:SPOT). Spotify has been hit by a dispute over COVID-19 vaccination misinformation and also published disappointing results.