Meta's big plunge examined, Facebook parent company loses $230 billion market value in a single day

[Image Courtesy: Facebook/Mark Zuckerberg]

Facebook's parent company Meta has suffered a meteoric plunge of 26.4 percent, yanking other tech stocks down along with it. The decline erased $230 billion from the company's valuation in a single day, making it the biggest one-day loss for a US company.

Moneycontrol's Karunya Rao sat down with Vikas Gupta, CEO and Chief Investment Strategist for OmniScience Capital, and Madhuchanda Dey, Head of Research at Moneycontrol Pro, to figure out why it happened and what investor's can expect going forward.

Also Read: Meta, formerly Facebook, faces historic drop as stock tanks

Why did the valuation fall? 

Dey: The market guidance from Meta was much lower than what Wall Street was going with. Then we have the matter of Apple's new privacy policies, which significantly dented ad revenue, Meta lost $10 billion in the ads business alone.

Gupta: If you look at the broader picture, Meta has been showing signs of struggle for the last three to four years. The company also finds itself targeted by regulatory authorities often and this is all on top of Apple's privacy update and competition from other brands such as TikTok.

Dey: The current valuation of the stock is closer to what it was in Summer 2020.

Also Read: How Facebook slipped — in key points

Could this be a good time to invest in Meta stock? 

Gupta: This is a good opportunity for people who want to bet on the next big thing. If we look at the next big disruptive tech and the metaverse, then Facebook is a huge part of it. It's good for people to maybe add a bit more to their portfolio but for new investors I would advise against it. There is also a risk of trade, as growth for Meta will be slow for the rest of the year.

Also Read: A plunge in Facebook’s parent company weighs on tech stocks

Will other IT stocks decline as well? 

Dey: We already have earnings reports from the likes of Google and Snap, they remain unaffected. I think we won't start to see major impact on stocks until the US government begins to tighten the screws in March. Depending on Inflation, there might be some risk of trade.

Gupta: You should ideally look at this in two parts. One, are companies that are making large cashflows in a day, higher than market cap's of several companies combined. Then we have companies that reside just below the NASDAQ line, unicorns that are slowly getting bigger but operate on almost no profit and make large loses. They have their profit forecasts set further down in their lifespan.

When the new US regulations kick in, we will start to see a lot of the companies in the second category start to struggle. I think many of them will plunge by 50 percent or more.