by Philip Pilkington
Friday, 4
February 2022
Chart
08:00

Is Facebook’s share price crash only the beginning?

Other huge technology companies are also vulnerable
by Philip Pilkington
Meta’s stock price over the last six months

Shares in Meta, Facebook’s parent company, fell more than 26% in trading on Thursday. This is the largest single day loss in market cap in history — clocking in at more than $200bn. The tech-heavy NASDAQ index took a hit too, as one of its most important securities lost ground, falling around 3.7%

The immediate cause of the Facebook selloff was a weak fourth quarter earnings report released on Wednesday. Analysts expected $3.85 in earnings-per-share, but Meta only managed to muster $3.67 — which was down from $3.88 a share last year. But the problems with Meta are far deeper than a simple missed earnings report.

Meta has long been a part of the FAANGS cohort of stocks. FAANGS refers to the top five American technology companies trading today: Facebook (Meta), Amazon, Apple, Netflix, and Alphabet (Google). While there is no doubt that these are some of the most prominent tech companies on the American stock exchange, it has been clear to many analysts for some time that their business models are otherwise very different.

If you ignore the market hype and study the companies in depth these differences are blinding. Alphabet, Amazon, and Apple all have very solid business models. Alphabet completely dominates in online search — and hence in online advertising; Amazon dominates in online shopping; and Apple dominates in high-end smartphones and computer equipment. These companies have what equity analysts call ‘wide moats’ — that is, their market positions are so dominant that they seem unthreatened by competition.

Facebook and Netflix are very different. They do not have wide moats. Facebook has long bragged that it is the world’s largest social media company. While true, it is hardly cutting edge in the space. Facebook users tend to be older — and older users tend to be less attractive to advertisers.

The social media space itself seems infinitely more competitive and subject to swings of fad and fashion. Facebook is yesterday’s social media platform — today, the kids are on TikTok. Tomorrow they will likely be on something else. So far advertisers have not been agile enough to ride these trends and have stuck with Facebook, but they are cottoning on.

Netflix is similar. For a few years it held a dominant position due to being the only game in town. But that is no longer the case. From Amazon Prime Video to Apple to Disney, there are a host of substitutes now around. Hulu is not currently available outside the United States but is quite popular there. Perhaps that’s why Netflix’s stock has taken a mighty beating these past few weeks too.

The big question moving forward will be whether these recent declines in the stock prices of some of the FAANGS represents a culling of the herd or a the beginning of something bigger. If it is the former, it is simply the market waking up to the fact that not all FAANGS are created equal. If the latter, it may be the markets tackling the weaker of the bunch first, only to later turn their attention on the stronger players.

The FAANGS are very, very highly valued stocks. This means that the markets expect extremely strong earnings growth moving forward. If this earnings growth is not achievable, their stock prices will have to fall precipitously. This could be the start of a very difficult period for America’s biggest companies.

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R Wright
R Wright
4 months ago

In ten years people will mention Facebook in the same way they mention Myspace, Friends Reunited, Bebo, LiveJournal and Tumblr.

Justin Clark
Justin Clark
4 months ago
Reply to  R Wright

Yep. It makes them a dangerous company therefore – a lot of financial power and the need to snuff out competition through acquisition…
Reminds me, I shifted from Amazon to Abebooks – proudly ordering books from there, until I discovered who snapped up Abebooks – doh!

Alastair Herd
Alastair Herd
4 months ago
Reply to  Justin Clark
Justin Clark
Justin Clark
4 months ago
Reply to  Alastair Herd

thanks Alastair. I also came across https://www.hive.co.uk/WhatsHiveallabout which seemed to be a good ‘un too.

Ian nclfuzzy
Ian nclfuzzy
4 months ago
Reply to  Justin Clark

I only buy direct from the publisher where that’s an option or from Hive, which is excellent and has most book in epub format too.

Cat Fan
Cat Fan
4 months ago
Reply to  Alastair Herd

You can buy from Blackwell’s outside of the UK (I buy from the US and the shipping charges are included in the price).

Wilfred Davis
Wilfred Davis
4 months ago
Reply to  Justin Clark

Have you tried Bookfinder.com? Amazon and Abebooks are on there, of course, but a very broad range of other suppliers. Great for obscure and second-hand books.

Ethniciodo Rodenydo
Ethniciodo Rodenydo
4 months ago
Reply to  Justin Clark

I still use Amazon to search for items. Then I (mostly) buy them elsewhere

Justin Clark
Justin Clark
4 months ago

I thought I was the only one who did that – hehe. Amazon’s basket is very useful indeed.

Ethniciodo Rodenydo
Ethniciodo Rodenydo
4 months ago
Reply to  Justin Clark

Poetic justice in a way

Last edited 4 months ago by Ethniciodo Rodenydo
Noel Chiappa
Noel Chiappa
4 months ago
Reply to  Justin Clark

Yeah, I bailed on Amazon and ABE after they shut down Parler.
I now mostly use Biblio; it’s not quite as good as ABE (doesn’t offer easy access to tracking info, and doesn’t have quite as many stores), but it’s acceptable.
Noel

Andrea X
Andrea X
4 months ago

While I don’t really care if social media all die tomorrow, I cannot say the same about streaming platforms. The problem is that the market is becoming too fragmented and you cannot subscribe to umpteen platforms. Either a meta-platform is created, allowing you to access all sort of content, or some of the players will inevitably collapse, be absorbed or merge to create new entities. What one has to be careful about is that a plurality of voices is always available (something that is not really true with social media, for example).

Last edited 4 months ago by Andrea X
Ian Stewart
Ian Stewart
4 months ago
Reply to  Andrea X

Yeah it’s a drag seeing programmes and films being reviewed and knowing you can’t watch them if you don’t have that service. The fragmentation of the streaming media seems to have removed from society that dimension of common experience, which I think used to be quite important.
Like everyone talked at school the next day about Cleese’s Fawlty Towers Hitler walk – we all tried to impersonate it and fell over imitating the spin turn. And then who shot JR? And probably my most dearly held example – Torville and Dean at the Sarajevo Winter Olympics, a few years before those spectators in the stadium had to endure their horrific civil war.

Lesley van Reenen
Lesley van Reenen
4 months ago

I use Facebook mainly to keep up with friends whom I seldom see – it has also provided a vehicle to reunite with friends whom I thought long lost. And I’ve made a few new friends – amazing how you can find kindred spirits out there in the ether.
There is also some fun to be had reading comments replying to The Guardian, NYT articles and the like – but really I would not miss this.
Then there are the fun sites and the information sites connecting people around the world e.g. my one kitty has a rare condition and there is even a page for this.
Small businesses also use this medium (and Instagram) for sales and promotion. My husband is a ceramicist and potter and this provides a vehicle to display and sell his work.
That said, I’m dying for Zuckerberg to get a bloody nose. Or as Russell Brand calls him – the veal calf and his (creepy) metaverse. Amazing that I used to think Brand a complete t..t and now I find him entertaining, intelligent, interesting and most importantly someone who digs into issues not covered by corporate media.
It is vital that we still have this sort of channel to access information, because we surely won’t be getting this data from MSM.

Ian Stewart
Ian Stewart
4 months ago

I’d avoided Facebook up until recently, with a minimal profile so I could see those retailers, like your husband, who use it to show their services and wares.
But I entered the world of Virtual Reality last month with an Oculus Quest machine, as this aspect of ‘gaming’ seems to be entering the real world with good products on archeological sites and virtual tours around the globe, and you have to maintain a Facebook account – but still minimally.
I used to think getting in contact and maintaining relationships, like you do, was a great use of social media – but went off it as it just creates such vast volumes of trivia, even between friends. People do like to endlessly talk *hit.
By the way I like to check out pottery and ceramics – any chance you could provide a link to your partner’s site?

Last edited 4 months ago by Ian Stewart
Lesley van Reenen
Lesley van Reenen
4 months ago
Reply to  Ian Stewart

He is working on a new website – near completion. In fact it has been sitting in my inbox for my ‘approval’ for some time. I have tapped the ball back over the net, while I goof off on Unherd.
https://web.facebook.com/garthmeyerpottery
The above is his Facebook link. He is also on Instagram. I briefly did the marketing until we fell out as to approach!

Ian Stewart
Ian Stewart
4 months ago

Ta – I’ll check it out! Love seeing people doing novel and imaginative stuff, especially when I can afford it 🙂

Ian Stewart
Ian Stewart
4 months ago

Ah SA – Does he send any of his stuff to U.K. retailers?
In passing there is a channel 4 tv programme we watch called the Great Pottery Throwdown which is quite entertaining.

Lesley van Reenen
Lesley van Reenen
4 months ago
Reply to  Ian Stewart

I think he is/was only in one UK gallery…. He has made no effort in this respect. Shipping alone is onerous especially if it is simply things on consignment. Will tell him to check out the pottery throwdown!

Justin Clark
Justin Clark
4 months ago

Brand is fascinating and I’ve done the same pivot as you… He’s in my top three for youtube alongside (evil?) Jordan Peterson & (hated?) Joe Rogan – ha! My top five adds George Gammon / Rebel Capitalist and Real Time with Bill Maher… All far more interesting and educational compared to Mainstream Media… BBC License dropped a while ago now and haven’t missed it at all.

Lesley van Reenen
Lesley van Reenen
4 months ago
Reply to  Justin Clark

I quite enjoy Dave Rubin as well if you want to do a quick dive into how badly the US is messing up – he is slick and well presented and can also ad lib – former comedian (and former liberal).
Also I like Dr John Campbell – conservative and mainstream and then astounds in his ability to call things as he sees them – quite non-mainstream at times. Watched the scales fall from his eyes fairly often.
Bret Weinstein is also very good.
Jordan Peterson is a great mind – loved his all time best when he caught Cathy Newman out during her bashing and not listening interview – the So You’re Saying podcast that spawned a cult following. https://www.youtube.com/watch?v=aMcjxSThD54
Joe I enjoy, but have not spent time watching Maher, though he is on my list when I can get to it.

Ian Stewart
Ian Stewart
4 months ago
Reply to  Justin Clark

I watch Maher as he challenges stupid left policies and the woke, but only because as a Democrat he wants the left to win. He’s incredibly ignorant about the U.K. political landscape – as almost all Americans are – in thinking Brexit was about empire nostalgia and racism.
I also watch John Oliver even though he drives me nuts – his approach is quite novel and amusing.

Justin Clark
Justin Clark
4 months ago

Facebook, imho, is becoming a damaged brand. Large numbers have moved from WhatsApp -> Signal or Telegram… have deleted their Facebook accounts… because of blatant privacy violations. Privacy is becoming very important to a growing number. There will be a tipping point as networks of friends make that shift to open-source privacy-based technology; funded by donations.
https://twitter.com/Mr_aalekh/status/1348299402054549504?s=20&t=iL6dspNNX9eI_Aits0OaEw
https://twitter.com/ClanOfKine/status/1393316089728311296?s=20&t=iL6dspNNX9eI_Aits0OaEw

Ian Stewart
Ian Stewart
4 months ago

I can never get my head around the fact that a failure to grow for just one period can result in companies stock collapsing. I realise it’s a feature of modern jam-tomorrow tech companies like Meta, but it still confounds my senses.

Katharine Eyre
Katharine Eyre
4 months ago

I have Amazon & Apple in my portfolio and I intend to hang on to them, as they have solid business models (as the author points out) which aren’t tied to fads or short-term trends.
The tech-turbulence on the stock market is in my opinion the result of certain trend bubbles bursting (as happens over and over as trends come and go and investors get excited and then sober up – see also: Peloton) combined with a more generalised stock take (no pun intended) and Darwinian weeding out of which companies have got what it takes for the long haul and which aren’t fit enough to survive.
Another favourite of mine is Etsy – this stock is getting a bit of a beasting right now but I think it is made for the long term (also a good business model and the competition is pretty limited), so I’m taking the pain!

Justin Clark
Justin Clark
4 months ago
Reply to  Katharine Eyre

Etsy is a fab business – yes! Only use Moonpig for cards abroad now – prefer handmade, local businesses through Etsy platform. Nice personalised notes from small business owners who are grateful for the continued custom. 10/10 yep!

Kevin Casey
Kevin Casey
4 months ago

The author of the article doesn’t seem to know about apples privacy controls and do-not-track features that rolled out last year. https://www.apple.com/au/privacy/control/
This severely limited how personal/targeted the ads from google and fb could be. Most people (including fb) attribute this to be the main reason fb profit dipped 5%, the stock dropping 25% seems like an overreaction as it’s not likely to become a trend but instead a baseline reset. Also the Netflix stock dropped severely because they only increased the subscribers by 9%, they are the biggest video subscription service by about 2x … it makes sense growth would slow down eventually ‍♂️

David Bell
David Bell
4 months ago

They (Netflix in particular) are also losing ground as the world emerges from Covid. As people get out and about they have less need for them.