Why Meta Platforms plunged on Tuesday

On a bad day for tech stocks, Meta did even worse on the back of a pair of negative headlines.

| More on:
A man stands on a ladder in a stripey one-piece swimsuit, ready to plunge into the freezing water through a hole in the ice.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened?

Shares of Meta Platforms (NASDAQ: META) fell 5.2% on Tuesday, even greater than the broader Nasdaq Composite, which was down near 3%.

It appears as though every day brings another negative headline for Meta. Yesterday, there were two. First, The Conference Board's consumer confidence reading came in worse than expected, which doesn't bode well for Meta's ad revenue. Second, a Wall Street Journal article today highlighted a bill making its way through the California State Senate, which would potentially open Meta and other social media platforms to lawsuits over teen addiction.

So what?

On Tuesday, The Conference Board, a nonprofit business research group organization, showed consumer confidence dropping to the lowest reading since 2013, with a reading of 98.7, down from 103.2 in May and below expectations of 100. That worse-than-expected reading hit virtually all stocks that are sensitive to consumer spending. Although Meta doesn't sell a lot of discretionary items, with the exception of its virtual reality headsets, it does get 99% of its revenue from advertising. So, lower consumer spending could lead advertisers to pull back on ad spending, which would affect Meta.

In addition, the Wall Street Journal highlighted a new bill making its way through the California state legislature, which could theoretically open Meta up to hundreds of millions in fines -- although rivals TikTok and Snap would also be subject to the new law as well. The bill proposes that state, local, and city attorneys could sue social media companies, if these attorneys can prove the companies knowingly introduced features that would addict teens to their platforms. The bill is currently up for a vote in the state's Senate Judiciary Committee, and if passed, would then go through to a full vote in the state Senate.

It's unclear if the bill would pass, but social media companies are also working with California state lawmakers on features to prevent teen addiction, which they hope will be agreed on and implemented instead.

Now what?

Meta investors have faced a perfect storm of negativity ever since the whistleblower hearings on Capitol Hill last October. Since then, CEO Mark Zuckerberg introduced the company's metaverse ambitions, which investors are unsure about. Meanwhile, iOS Identifier for Advertisers changes have made a dent in Meta's ad growth, since those new privacy features have made Meta's ads less targeted. Now, with the Federal Reserve tightening financial conditions, fears over a recession are in the air. Meanwhile, this California bill has the potential to open the company to more potential financial penalties.

These are all the reasons Meta, the world's dominant social media platform, trades at a bargain basement 11.3 times earnings. I happen to think that's too cheap if taking a longer-term view. However, there are certainly lots of headwinds facing Meta investors today.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Billy Duberstein has positions in Meta Platforms, Inc. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Meta Platforms, Inc. The Motley Fool has a disclosure policy. The Motley Fool Australia has recommended Meta Platforms, Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
International Stock News

Nvidia share price slips despite 94% revenue growth

Q3 earnings beat expectations, but what about guidance?

Read more »

high, climbing, record high
International Stock News

Could the S&P 500 Index hit 6,500 by the end of 2025?

Could the index climb higher?

Read more »

a small child holds his chin with his head on the side in a serious thinking pose against a background of graphic question marks and a yellow lightbulb.
International Stock News

Is it too late to buy Nvidia shares?

Is Nvidia stock a buy ahead of its third-quarter earnings report tomorrow?

Read more »

a group of people stand examining a large glowing cystral ball held in the hands of one of the group members while the others regard it with various expressions of wonder, curiousity and scepticism.
International Stock News

Here's what to expect from Nvidia on November 20

Can Nvidia score another win?

Read more »

Two people lazing in deck chairs on a beautiful sandy beach through their hands up in the air.
International Stock News

2 no-brainer Warren Buffett stocks to buy right now

While replicating Buffett's success isn't possible, there are a handful of his investments that are no-brainer buys.

Read more »

A man with a beard and wearing dark sunglasses and a beanie head covering raises a fist in happy celebration as he sits at is computer in a home environment.
International Stock News

3 reasons to buy Nvidia stock before November 20

This week marks a big moment for tech investors as perhaps the most anticipated earnings of the year will be…

Read more »

A woman smiles over her shoulder as she sits in the driver's seat of a car with keys in hand.
International Stock News

Why Tesla stock just popped

Tesla stock raced ahead Monday after Bloomberg reported the incoming Trump administration's intentions around self-driving vehicles.

Read more »

A woman holds her hand out under a graphic hologram image of a human brain with brightly lit segments and section points.
International Stock News

Prediction: Nvidia stock is going to soar after November 20

Nvidia is scheduled to report third-quarter earnings on Wednesday.

Read more »