Shares in Facebook owner Meta fell 20% in U.S. premarket trade on Thursday after the social media giant issued a dismal forecast, blaming Apple's privacy changes and increased competition.

The shock drop, which comes before Amazon earnings later in the day, spilled over to Europe where technology led sectoral fallers with a decline of 2% and soured the mood across global financial markets in another busy day of central bank meetings.

Big U.S. tech has come under mounting pressure in 2022 as investors expect policy tightening at the U.S. Federal Reserve to erode the industry's rich valuations following years of ultra-low interest rates. Nasdaq fell more than 8% in January, its worst monthly drop since end-2019.

Ads

"The downgrade in the earnings outlook by Meta and other companies took markets by surprise," said Kenneth Broux, a strategist at Societe Generale in London.

"The tech selloff spilled over to broader equity markets this morning and with the Fed preparing to raise interest rates, we could see more volatility going forward."

European technology heavyweights ASML, Infineon and SAP were among the shares weighing the most on the region's STOXX 600 equity benchmark, falling more than 1.5% in what traders viewed a kneejerk reaction given the limited direct readacross from Facebook. Infineon was also penalized by a conservative outlook.

Meta reported a decline in daily active users from the previous quarter for the first time as a race with rivals like TikTok, the video sharing platform owned by China's ByteDance, for users heats up.

The disappointment over Meta raised memories of the tech bubble burst in 2000 and highlights that after the sector's record-breaking run, investors have become highly selective.

According to research firm Vanda, purchases from retail investors in late 2020 and early 2021 were focused on expensive tech, EVs and so-called "meme" stocks. In the past week purchases of large-cap tech have skyrocketed while speculative assets have seen very little demand.

The so-called FAANG group of Facebook, Amazon, Apple, Netflix and Google's Alphabet, has seen around $400 billion in market capitalization wiped off in the opening weeks of 2022 as cheaper segments of the markets become more attractive while central banks taper stimulus.

Other social media stocks were also hit hard in pre-market trading on Thursday, including Twitter, Pinterest and Spotify, which has been beset by a row over COVID vaccination misinformation, also released disappointing results.

Stocks futures for the tech-dominated Nasdaq fell as much as 2.4% on Thursday.

RESULTS CREATE TECH DIVIDE: WHO HAS THE DATA?

The disastrous quarterly results from Meta saw Big Tech cut in two on Wednesday, divided between companies that have great data and those that don't.

A day earlier, Alphabet Inc posted a startlingly strong quarter, thanks to bumper sales of advertising that uses its Google's search data to target ads.

"It's two-tiered," said Gene Munster of investment firm Loup Ventures, who called Apple's devices and Google's search service foundations of the internet. "Facebook continues to see that impact of what it means to be built on top of Apple," he said, noting that Apple's privacy changes have had a bigger impact on Facebook than he expected.

The after-hours slump in Meta shares vaporized $200 billion worth of its market value, and peers Twitter Inc, Snap Inc and Pinterest Inc saw $15 billion in lost value.

"People may have enjoyed a false sense of security following Alphabet's/Google's very healthy and strong Q4 results," said Scott Kessler of Third Bridge. Apple's change to its operations system in the middle of last year, said, would hit much of the mobile advertising world in 2022.

Apple allowed users to block some tracking of their internet use, which has made it harder for brands to target and measure their ads on Facebook and Instagram, which is also owned by Meta. Meta CFO David Wehner said on a conference call with analysts that the impact from Apple's privacy changes could be "in the order of $10 billion" for 2022.

While Meta said macroeconomic issues like supply-chain disruptions and inflation contributed to the earnings miss, factors which could have far-reaching effects, analysts and investors focused their punishment on social media.

"It really depends on the company within tech right now," said analyst Ryan Reith of IDC, referring to high competition across services, hardware and advertising. "When you have such strong growth in a handful of tech sectors many will win and many will lose, and there will be continued volatility within."

Meta CFO Wehner suggested that Apple's relationship with Google was also an issue for Facebook. "Given that Apple continues to take billions of dollars a year from Google Search ads, the incentive clearly exists for this policy discrepancy to continue."

Meta is investing heavily in the metaverse, which merges the real world and virtual world for work and play, and the tech giant pointed to competition as a challenge for it in the last quarter.

Meta's results came after two weeks of positive outlooks from Alphabet, Apple, Microsoft, and Advanced Micro Devices Inc, which instilled investor confidence in sector growth prospects.

"I don’t think it turns around the current relief rally we are seeing in the tech space," said analyst Robert Pavlik of Dakota Wealth Management, after Meta's results. But there could be an impact on some advertising-supported companies, he said.