Meta Platforms Enters Bear Market

Meta Platforms Inc. (FB) is trading lower by a staggering 21% in Thursday’s pre-market after missing Q4 2021 earnings-per-share (EPS) estimates and guiding Q1 2022 revenue below consensus. The social media giant posted a profit of $3.67 per-share, $0.16 lower than expectations, while revenue rose 19.8% year-over-year to $33.67 billion, meeting consensus. Downside guidance is now targeting $27.0 to $29.0 billion in revenue, much lower than the previously-expected $30.27 billion.

Privacy Changes Impacting Profits

The company blamed “ad impression and pricing related factors” for the profit shortfall and Q1 warning. It was the worst case scenario for shareholders, who have grown increasingly nervous that Apple Inc. (AAPL) iOS privacy changes would impact ad targeting well beyond one or two quarters. Limp user metrics added to Meta’s woes in the post-market, with daily average users (DAUs) rising just 5% year-over-year in December while user engagement fell.

BMO Markets and Raymond James issued downgrades after the news, significantly lowering price targets. On the flip side, boutique firm J. Stern and Co. is viewing the decline as a buying opportunity, with analyst Christopher Rossbach pounding the tables, noting “The massive investment that Meta is committing to the metaverse shows its ability and willingness to become a leader in this new sphere. We expect that these investments will generate significant returns in the future.”

Wall Street and Technical Outlook

Wall Street consensus has dropped to an ‘Overweight’ rating based upon 29 ‘Buy’, 4 ‘Overweight’, 7 ‘Hold’, 0 ‘Underweight’, and 1 ‘Sell’ recommendations but more downgrades are likely in coming sessions. Price targets currently range from a low of $250 to a Street-high $460 while the stock is set to open Thursday’s session close to the low target. This poor placement highlights the failure of analysts to weigh the impact of well-documented headwinds.

Meta Platforms broke out above 2018 resistance near 220 in May 2020, entering a powerful advance that initially stalled above 300 in August. It cleared that barrier in April 2021, lifting to an all-time high at 384.33 in early September. Aggressive sellers have taken control since that time, grinding out four selling waves that have now relinquished all of 2021’s upside. This failure marks a major change in trend, indicating the stock has now entered a secular bear market.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.