Meta Grows its Subscriber Base: Good News for Tech?
Mixed Results
Meta Platforms (FB) share price popped after it beat on earnings and also announced it added more users than analysts expected in the first quarter. This follows the previous quarter when poor results triggered a 26% plunge in its share price, the largest loss ever recorded for the S&P 500.
CEO Mark Zuckerberg threw some cold water on the report, stating the company intends “to slow the pace of some investments,” which could put a limit on short-term growth. Last quarter’s revenue increased at its slowest pace since the company went public about a decade ago, with profit down 21% compared to the prior year.
WhatsApp with Tech Stocks?
Technology stocks got a lift on the news of Meta’s user-base growth, as investors look for signs that the sector can weather inflationary headwinds. Other tech companies have recently stumbled amid economic and geopolitical concerns. Google parent company Alphabet (GOOGL) saw its share price decline following weaker-than-expected revenue growth, while both Netflix (NFLX) and Spotify (SPOT) tumbled after announcing the net loss of subscribers.
A company’s bottom line is driven by the ability to scale as well as their revenue model. In the case of streaming platforms, the market may be saturated leaving companies like Netflix vulnerable, as they rely solely on subscription fees unless an ad-based tier is introduced.
Proceed with Caution
While investors may see optimism in Meta’s results, some market observers preach the need for caution. In Q1 the US economy contracted at a 1.4% annual rate. This coupled with the Russia-Ukraine war, inflation, and rising interest rates present a series of challenges that may limit growth potential. The ongoing volatility in the stock market is reminiscent of the financial crisis of 2008, reflecting widespread uncertainty.
With tech stock shares trading at lofty levels — last fall Netflix traded at 70 times earnings — investors may find themselves questioning if companies’ valuations truly reflect their post-pandemic potential.
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