Facebook’s share price has declined significantly in 2022, falling over 50% year-to-date. There are several key reasons behind the drop in Facebook’s stock price:
Lower Than Expected Earnings
Facebook reported lower than expected earnings and revenue growth in Q1 2022. Earnings per share came in at $2.72, below analyst estimates of $2.56. Revenue grew just 7% year-over-year, the slowest growth rate in Facebook’s history as a public company. Disappointing earnings reports often lead to declines in a company’s share price.
Weak Guidance and Outlook
In addition to the Q1 earnings miss, Facebook provided weak guidance for the rest of 2022. The company warned of continued slowing revenue growth due to factors like Apple’s privacy changes, macroeconomic challenges, and competition from TikTok. Weak guidance made investors concerned about Facebook’s growth prospects going forward.
Increased Competition
Facebook faces intensifying competition from other social media platforms like TikTok and Snapchat, which are attracting younger users away from Facebook’s apps. For example, TikTok now has over 1 billion monthly active users, making it a major threat to Facebook’s dominance. Increased competition puts pressure on Facebook’s ability to continue growing its user base and revenue.
Measurement and Targeting Headwinds
Apple’s iOS privacy changes have made it more difficult for Facebook to track users and target ads across apps and websites. These changes reduce the targeting capabilities of Facebook’s core ads business. Other platforms like Google are also phasing out third-party cookies, further hampering Facebook’s ad targeting abilities.
Reduced Ad Spending
High inflation, rising interest rates, and fears of an economic slowdown have caused some advertisers to cut back on ad spending. Since ads make up the vast majority of Facebook’s revenue, pullbacks by advertisers directly impact Facebook’s earnings and revenue growth. Macroeconomic uncertainty has put further pressure on Facebook’s stock price.
Antitrust Concerns
Facebook continues to face antitrust scrutiny from regulators in the U.S. and abroad related to its acquisitions and anti-competitive practices. For example, the FTC is currently challenging Facebook’s acquisitions of Instagram and WhatsApp. If regulators force Facebook to divest these services, it would significantly damage Facebook’s business model and growth prospects.
Reputational Damage and Controversies
Facebook has faced a number of high-profile controversies in recent years, including the Cambridge Analytica data scandal, hate speech issues, and whistleblower allegations. These controversies have damaged Facebook’s reputation with users and advertisers. Some advertisers have reduced spending on Facebook to avoid associating their brands with these controversies.
Growth Concerns and Maturity
With over 3.5 billion monthly users, Facebook is approaching the maximum size it can reach. Growth has already slowed significantly in North America and Europe. This may signal that Facebook is maturing as a business with less room for further expansion, concerning investors.
Metaverse Spending and Pivots
Facebook is spending billions of dollars per year pivoting to building the metaverse and virtual reality through large investments in hardware and the metaverse platform. These long term pivots reduce resources available for Facebook’s core social media apps in the near term. It may take years for metaverse investments to pay off, if they ever do.
Key Events Timeline
Here is a timeline of the key events that have contributed to Facebook’s falling share price in 2022:
| Date | Event | Impact on Share Price |
|---|---|---|
| February 2, 2022 | Facebook reports Q4 2021 earnings that miss estimates | Share price falls 2% |
| February 3, 2022 | Facebook shares weak 2022 revenue guidance during the Q4 2021 earnings call | Share price falls 22% |
| March 21, 2022 | FTC files lawsuit to block Facebook’s acquisition of Within Unlimited, a VR company | Share price falls 4% |
| April 27, 2022 | Facebook reports Q1 2022 revenue and earnings miss | Share price falls 18% |
| May 2, 2022 | Leaked memo reveals Facebook staffing freeze and budget cuts | Share price falls 4% |
| May 18, 2022 | Snap shares plunge 30%+ after weak earnings report, sparking social media stock selloff | Facebook share price falls 7% |
| July 27, 2022 | Meta Platforms Q2 2022 earnings miss estimates; first ever revenue decline | Share price falls 5% |
| September 30, 2022 | Facebook discloses that Apple iOS privacy changes will cost it $10 billion in 2022 ad revenue | Share price falls 3% |
Technical Analysis
In addition to the fundamental issues discussed above, Facebook’s share price decline aligns with negative technical indicators that often precede a prolonged downtrend:
- The 50-day moving average crossed below the 200-day moving average in March 2022, forming a “death cross” technical pattern that indicates a downtrend
- The relative strength index (RSI) for Facebook has remained below 50 for most of 2022, signaling oversold conditions
- Facebook’s share price broke below key support levels at $200 and $180 earlier in 2022
- Trading volumes have spiked on recent down days, reflecting strong selling momentum
With Facebook shares trading around $130, the stock would need to rise by over 50% to return to its 2021 highs. The long term technical picture remains negative.
Potential Catalysts for a Rebound
While Facebook faces many challenges, there are some potential catalysts that could help the stock rebound:
- Improved user and revenue growth, especially in emerging markets
- Success of metaverse/VR initiatives
- New revenue streams like ecommerce and payments
- Effective monetization of messaging (WhatsApp, Messenger)
- Regulatory concerns fading
- Major share repurchases
- Attractive valuation – trades at just 11x forward earnings
However, given the magnitude of the issues Facebook faces, it may take time for these catalysts to emerge and turn sentiment positive on the stock again.
Conclusion
Facebook is facing a perfect storm of challenges in 2022 – slowing growth, competitive threats, Apple privacy changes, macro weakness, and reputational issues have all weighed heavily on the stock. After a decade of strong growth, Facebook is now maturing into a slower growth, highly profitable tech giant. But uncertainty persists around whether it can successfully transition its business to the metaverse in the years ahead. While macro factors could also shift and help lift tech stocks, Facebook faces company-specific headwinds that will likely keep shares depressed in the near term until the outlook improves.