On 3 February 2022, Meta’s stock plunged by more than 26% (£63) to close at £175.50. This wiped out about £212 billion of its market value! Should you buy the dip, continue to hold, sell or keep off? Here’s what you need to know.
[top_pitch]
Why did Meta drop so much?
Evidently, Meta (Facebook’s parent company) is an ad-heavy platform, meaning it sources a significant portion of its profits from ads, especially through Facebook. So, if anything were to challenge this model, it would negatively impact revenues. Well, something did!
Apple updated its privacy policy, requiring apps to get users’ permission before tracking activity for advertising purposes. Since many opted out, insufficient user data on the platform negatively impacted targeted ads. This made it harder for businesses to measure the effectiveness of their ads on Facebook and Instagram. In fact, many have started leaving the platform to seek alternatives, lowering Meta’s revenue from ads.
Additionally, Facebook is facing stiff competition from TikTok, a short-form video app. Statistics even show that while the number of Facebook users is modestly dropping, the number using TikTok is on the rise. This may have also contributed to the Meta share price drop.
[middle_pitch]
Is there a future for Meta?
Meta chief executive Mark Zuckerberg portrays the metaverse as the future of the internet, and that’s why Meta has staked its future on it.
Of course, there have been challenges during the early stages of the metaverse project, with investments eating into profits. Still, Zuckerberg explains, “If last year was about putting a stake in the ground for where we’re heading, this year is going to be about executing.”
Some analysts also claim that the metaverse project might not drive much revenue in the short term, but there may be hope in the long term.
The company has also realised that most Facebook and Instagram users are spending more time on Reels (a short-form video product). Currently, Reels doesn’t generate as much revenue as Stories and News Feed products because of minimal ads. Zuckerberg said the company would be focusing on Reels in the short term, which could be an excellent first step to achieving long-term gains.
Should you buy the dip, sell, continue holding or keep off?
Of course, all trading carries risk. It’s your responsibility to do your due diligence before making any significant decisions. And if you’re unsure, it’s always best to seek professional advice.
Keeping that in mind, Saxo Markets shared statistics on how its clients acted towards Meta shares in the days leading up to the plunge.
|
Date |
Buys |
Sells |
|
31 Jan 2022 |
28% |
7% |
|
1 Feb 2022 |
-26% |
-13% |
|
2 Feb 2022 |
107% |
108% |
|
3 Feb 2022 |
1828% |
587% |
The data shows that despite a sell-off of 587%, a significant number of Saxo clients bought the dip (1,828%). So, should you buy the dip, sell, continue holding or keep off?
What’s clear at the moment is that Meta’s revenue might not shoot up in the short term, owing to high research and development costs and a downward trending Facebook platform. However, the metaverse could offer excellent revenue opportunities over the long term. Keep tabs on what the company is doing to secure its future, which will help you make an informed decision.
