28.10.2022 – The parent company Meta has reported gruesome figures. The Facebook share lost about a quarter of its value in a very short time. Experienced traders know that such violent reactions sometimes offer the best opportunities for counter-movements. The question is whether the fundamentals will allow for a turnaround.
Massive price gap at Facebook: The stock has torn a gigantic gap. According to the rules of chart analysis, this will be closed again at some point. But when? In any case, the title has fallen out of the downward channel, as you can see in the daily chart.
Source: Bernstein Bank GmbH
What happened: Facebook parent Meta Platforms reported a grotty quarterly balance sheet on Wednesday after the U.S. stock market closed. According to the report, earnings per share of $1.64 missed even the pessimistic consensus estimate of $1.89, although that forecast was already down 49 percent year-over-year. Further, the decline in revenue accelerated, while the cost of developing virtual metaverse worlds increased. Investors were and are shocked.
Inflation and recession
As a result, net income plunged 52 percent to about $4.4 billion, while revenue slipped a modest 4 percent year over year to $27.7 billion. In the second quarter, Meta had reported its first-ever revenue decline. Now Meta blamed the revenue decline on the dollar being too strong. The company fears a revenue decline of up to 10 percent in the current quarter. Meta also blamed advertiser frugality in the face of high inflation and the threat of recession – with online ad spending, Google’s business and photo app Snapchat suffering.
Get woke – go broke
We add: Apparently Facebook is feeling the same headwinds as Twitter – people are increasingly fed up with opinion censorship and are turning away. For example, a few weeks ago it came out that Facebook had buried the story about Hunter Biden’s “laptop from hell” in the middle of the 2020 election campaign after a warning from the Democrat-dominated FBI. According to opposition U.S. media, the data recovered there proves crooked dealings of the son-man in China, among other places; this could also be dangerous for Joe Biden. Who knows what we don’t know. So Facebook has made itself the government’s stirrup holder. In Germany, too, accounts critical of the government are being shut down again and again. Facebook is still growing moderately among users, but hardly in the U.S. or Europe, where the political culture war is raging.
Home-made misery
Zuckerberg has also been adamant about virtual worlds, which are currently the biggest cost factor. Last quarter, for example, the Reality Labs division, where the so-called Metaverse is built, posted an operating loss of just under $3.7 billion. Since the beginning of this year, a loss of $9.4 billion has built up here – on revenue of $1.4 billion. Zuckerberg announced that the Reality Labs deficit would “grow significantly” in the coming year. Now Facebook is looking to cut back on office space and employees, both moves always an early indicator of crisis.
The conclusion from all this: Perhaps the Metaverse will eventually become the philosopher’s stone. But at the moment, virtual reality, in which people communicate directly with computers, is just an orchid garden for hardcore techies. Investors in the normal world only see the immense costs and risks. We are curious to see whether Facebook will turn the tide and are keeping an eye on the matter for you!
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