Quarterly Earnings Report – Meta Platforms Inc01.11.2021by Michalis Efthymiou
Facebook, now rebranded as Meta Platforms Inc, is one of the most traded stocks on the market which is not surprising considering the company is seen as one of the big five power companies globally, and by far the most visited social platform. However, the stock over the past 7 weeks has strongly declined by 17.30%. This is truly worrying for some investors as the stock has declined while the stock market has been performing generally well.
Investors are questioning whether the Quarterly Earnings will be able to support the price in the longer term. The price movement after the release has not yet indicated a correction back towards the previous price high but it’s important the market continues to monitor how the price develops.
Earnings Reports – Facebook
Despite the price decline, the company’s fundamental indicators remain positive based on the latest quarter’s financial figures which were slightly higher than predicted. According to its Q3 report, Facebook expanded the number of daily active users to 1.93 billion, up 6% from last year. The number of monthly users also increased by 6% to 2.91 billion. Additionally, the company continues to actively increase its staff: the number of employees increased by 20% compared to the previous year, amounting to 68,177 people.
Even though the Earnings per Share for the third quarter was slightly higher than expected, if we look at the past 12 months, we can see the third quarter saw the lowest earnings per share. The previous Earnings per Share was $3.61 which is 11% higher than the latest figure released this week. The company also highlighted concern regarding the number of future ads which may decline.
In addition to the above, traders are also able to take into consideration the Price to Earnings Ratio. The P/E ratio indicates how much traders are paying for the profit of the company. A high price to earnings ratio means that traders are paying a higher price relative to the company’s earnings. There are different theories on whether higher or lower-Price to Earnings ratios is better. A high P/E ratio indicates the high level of demand regardless of the lower earnings per share and a lower P/E ratio indicates the high capability of the company to earning higher levels of profit. The Price to Earnings of Facebook is currently $7.50 lower than the yearly high.
Negative impact and ethics
The decline has been strongly linked with sentiment amongst the market towards social media platforms. This has been triggered strongly by whistle-blowers who have indicated that Facebook has indications that their platform has a negative psychological effect on younger citizens.
The pressure on social media companies, including Facebook as the flagship of the global market, has increased significantly in the United States. Just two weeks ago, a one-time employee of the company revealed the unseen algorithms of the network, which gave rise to many questions from investors. In addition to this incident, hearings are ongoing in the US Congress regarding a much more significant allegation of the impact on the psychology of children under 13 years of age. Prosecutors say the tech giant’s photo-sharing service Instagram has a negative impact on the mental health of children and young adults, causing harm.
Due to the investigation, Facebook has had to delay its work on the implementation of the new Instagram Kids service. Millions have been spent on the product which now is under pressure from Congress and also poor sentiment in the market.
General Market Conditions during Earnings Report
The general conditions within the equities market can highlight two possible realities for Facebook Stocks. When looking at the price condition of the NASDAQ we can see the index has witnessed a 6.5% increase this month while the SNP500 has increased by 6.15% and the Dow Jones by 5.40%. A very different scenario to the 7% decline which Facebook stocks have experienced.
So, what does this tell us about Facebook?
Well as mentioned above this could be one of two factors. One possibility is that the stock is simply under-priced due to being weighed down by the fundamentals and sentiment of investors. For example, due to the lower sentiment caused by negative media regarding the congress hearing and whistleblowing. The second possibility is that the stock is strongly bearish and simply underachieving compared to competitors in the market.
Rebranding – Meta
There are many questions raised by traders and citizens as to the rebranding of Facebook. Zuckerberg has advised it’s a massive step forward for virtual reality devices and the social platform. The price has since slightly increased, however, critics have advised that the move is a timely attempt to distance Facebook from its latest wave of scandals, after a whistle-blower leaked documents to regulators and reporters, stressing the company’s struggle to self-regulate. This brings about a further question, will Facebook be strained with a wave of regulations?
The price movement of the asset has seen a strong decline throughout the month of October. Only over the past 2 trading days have we witnessed a slight increase. However, we can see from the article that there is both positives and negative to take into consideration during the decision-making process. Traders who have questions regarding a specific asset or condition in the market can visit our webinars and ask direct questions to our approved Market Analysis.
Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances or needs.