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Meta and Spotify Fall Sharply in After Hours Trading

Plus500 | Thursday 03 February 2022

Two tech giants had a rough day on Wall Street after disappointing Q4 earnings reports. Spotify and Meta, Facebook’s parent company, both showed sharp drops over the course of the trading day Wednesday.

Earlier this week, New York indices showed signs of recovering impressively from January’s volatility. On Monday, the tech-heavy Nasdaq (US-TECH 100) jumped by nearly 7%. However, Wednesday’s trading results after the closing bell were less heartening, and this key index’s futures fell by over 1.6%. This could have been linked to Meta’s and Spotify’s falls in late trading.


Spotify Shifts

Spotify shares fell by nearly a fifth after trading hours, following the company’s prediction that subscriber growth may slow in Q1 2022. Although the firm’s Q4 revenue outpaced expectations previously put forth by market analysts, and premium subscriptions to the music streaming service increased by 16%, Spotify’s prediction of 1.7% subscriber growth for the current quarter may have come as discouraging news to some.

Spotify’s (SPOT) been in the headlines recently as venerable and respected musicians Neil Young and Joni Mitchell pulled their repertoires from the firm’s streaming library over controversy regarding podcaster Joe Rogan’s unorthodox COVID-19 vaccination opinions. Rogan’s contract with Spotify is estimated to have cost the firm $100 million. However, traders may want to tune out the noise and focus more on Spotify’s changing business model when making their trading decisions in 2022.

According to many analysts, subscription growth may not be the main driver of Spotify’s success, or the lack thereof, going forward. The firm’s business model may become more and more dependent on advertising for further growth in its bottom line; already, ads made up an unprecedented 15% of Spotify’s revenue in the fourth quarter. The company has bet big on expanding its offerings beyond songs to podcasts, investing $1 billion on podcast contracts and penetrating new listener markets from Russia to the Arab world. Time will tell whether the streaming service’s shift from subscription-based revenue to focusing more on advertising will pay off for shareholders. Meanwhile, Meta’s change in direction may have been even more dramatic.

Metaverse Bet

Following yesterday’s earnings call, Meta’s share price fell by over one-fifth in after hours trading. If this trend doesn’t abate once the New York markets open this morning, losses could amount to over $100 billion. The firm’s net growth in share price in 2021 was a sturdy 25%; however, with the potential for an ongoing Federal Trade Commission antitrust lawsuit to break Meta’s business into smaller components, traders may be crossing their fingers that Mark Zuckerberg’s big metaverse bet pays off going forward this year.

A main factor for this reversal in fortunes could very well have been Meta’s (FB) Q4 earnings release. The tech giant’s earnings call Wednesday was its first since CEO and founder Mark Zuckerberg announced the firm’s pivot toward the metaverse in October. However, some analysts are now saying that this shift in strategy could have taken place at a more opportune moment–Meta’s latest revenue figures could substantiate such assertions.

The firm’s profit of $10.3 billion was lower than that seen in Q4 2020, and more than 5% below predictions. For the first time in nearly three years, Meta’s net income growth declined. One of the primary proximate causes for this fall was most likely the Zuckerberg-led pivot to emerging technology. Massive investments in virtual technology headsets and the immersive medium known as the metaverse brought losses to Meta over the fourth quarter of 2021. The company’s Reality Labs, the business unit most closely focused on virtual and augmented reality tech, showed a net loss of $3.3 billion.

Apple Takes a Bite Out of Advertising

Meta’s bottom line has also been strongly affected by changes in its advertising revenue. According to the firm’s executive suite, Meta hasn’t been left unscathed by record inflation rates in the United States, which have left advertisers less willing than before to spend on publicity. 

Furthermore, Apple’s (AAPL) new data privacy rules have had a deleterious effect on Meta’s ability to track users. These new regulations, instituted last year as part of the iOS 14 update release, require applications available on the Apple Store to ask users for permission to record their activity and share it with advertisers. Meta and other companies like Snap (SNAP) which rely on consumer tracking for digital ad revenue could face considerable obstacles to growth as a result of this change. Meta CFO David Wehner made it clear yesterday that Apple’s privacy policy is an area of concern for the firm.

Perhaps more concerning to investors could be the company’s outlook for the current quarter. Meta’s prediction for Q1 2022 revenue is between $27-29 billion, lower than market expectations of over $30 billion. If Meta’s revenue outlook comes to fruition, it would represent the firm’s lowest quarterly growth ever. This figure could be further limited going forward by lacklustre prospects for user growth. Over 2021’s fourth quarter, the company lost over a million daily users, especially in the North American market. After taking Meta’s uphill battle for Gen-Z users with other social media platforms into account as well, the horizon seems cloudy.

Whether Wednesday’s after hours trading results were indicative of new trends for these two tech firms will be revealed not only on Wall Street today, but over trading sessions in weeks and months to come.

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