Why Meta Platforms stock was down more than 20% today

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Shares of Meta Platforms (NASDAQ: META) were trading down 22% at 11:35 a.m. on Thursday after the company delivered third-quarter financial results. The social media giant beat the Street’s revenue estimates but missed on earnings. 

Based on analysts’ comments following the earnings report, the problem is not so much the weak numbers as management’s plan to continue aggressively investing in growth initiatives, such as the metaverse, instead of firming up the bottom line.

So what

After posting a 1% year-over-year increase in revenue last quarter, Meta saw revenue decline 4% this quarter. Wall Street is looking at the slowing economy and advertising market, which is what social media companies use to make money, and not seeing much growth over the next year. That’s why the stock is down 70% this year, in a nutshell.

The stock would probably be holding up much better if management were prioritizing profits over investments in artificial intelligence and the metaverse. But that’s not the way CEO Mark Zuckerberg runs the company, and a long-term investor shouldn’t want it any other way.

Instead of pulling back, the company said it would spend up to $33 billion in capital expenditures next year, which is roughly the same as previous guidance. Wall Street didn’t want to hear that, especially after earnings per share (EPS) fell 49% year over year in the quarter.

Now what

On the earnings call, Zuckerberg mentioned that engagement trends have been positive across the family of apps, including Instagram and WhatsApp. He also noted the company can still “meaningfully” grow operating income over the long term, while still making investments in AI and Reality Labs (e.g., the metaverse and virtual reality).  

The stock was already cheap on a price-to-earnings basis going into earnings, and now it’s 22% cheaper. What’s certain is that with over 3 billion monthly active people across the family of apps, Meta is not a worthless company. Revenue growth will pick up in a healthier economy, when advertisers will feel more comfortable opening up their wallets.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why Meta Platforms stock was down more than 20% today appeared first on The Motley Fool Australia.

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John Ballard has no position in any of the stocks mentioned. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Meta Platforms, Inc. The Motley Fool Australia has recommended Meta Platforms, Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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