Why Facebook and Spotify are getting hammered in after-hours trading

If you own stocks, bad news, you probably just lost money.

Social networking giant Meta, better known as Facebook, is off more than 20% in after-hours trading. And Spotify, music streaming impressario and podcasting middleweight, is off more than 15% after the close of trading today. Both sharp declines come in the wake of underwhelming results from PayPal, which also saw its shares fall, and pretty good results from Alphabet.

Alphabet’s strong Q4 performance is starting to look more like an outlier than median-indicator.

Let’s talk Meta, and then Shopify, and parse out just what is going on.

Meta’s expensive quarter and slack guidance

In the fourth quarter, Facebook generated revenues of $33.67 billion, leading to operating income of $12.59 billion, and net income of $10.29 billion. The company also posted earnings per share of $3.67.

How did those figures compare to analyst expectations? Per Yahoo Finance averages, analysts had expected the company to post $33.41 billion in revenue, and earnings per share of $3.84 billion. So Facebook managed solid top line even if it missed on per-share profit.

The profit miss was not merely a few cents per share, however; it’s a bigger problem for the firm. To make the point, let’s do some year-over-year comparisons. In Q4 2020 Meta had operating income of $12.76 billion, or about 46% of its revenues in the same period. The latter figure fell to just 37% in its most recent quarter. That’s a dramatic decline in operating profitability to stomach.

Inside the rising costs that shed profitability at Meta are its VR or so-called metaverse investments.

Reality Labs, what Facebook says includes its “augmented and virtual reality related consumer hardware, software and content,” brought in $877 million in revenue during its most recent quarter, up from $717 million in the 2020 Q4 period. However! Reality Labs’ operating loss was $3.3 billion in Q4 2021, sharply higher than its $2.1 billion in Q4 2020.

In short, the metaverse push at Meta is so far not the goldmine that its core business has proved over the years. And that lack of easy profit is harming the company’s overall results. Metaverse is far from the shits-gold-a-verse that the company clearly expects it to become in time.

Things get worse for Meta if we look ahead. The company’s CFO said that it expects “first quarter 2022 total revenue to be in the range of $27-29 billion,” which works out to growth of 3% to 11%. Which is not good. Analysts had expected Meta to generate $30.14 billion in Q1 2022 top line, so the company’s guidance is freaking miserable.

Down went the stock.

Spotify’s lumps

Leaving aside the Joe Rogan situation, Spotify is still having a pretty tough week. After falling 5.75% during regular trading, the company has lost a double-digit percentage of its value in after-hours trading.

Why? The company actually managed to best profit expectations, losing about 50% less per share than the market expected. And its revenues of €2.69 billion were a few bips ahead of expectations for the Q4 2021 period.

And yet it’s getting smashed. Why? As with Meta, it’s the future that is the problem.

Spotify expects to scale from 406 million monthly active users at the end of 2021 to 418 million in Q1 2022. And it expects to grow its paid user base from 180 million to 183 million during the same three-month period.

How off are those figures? SeekingAlpha says that investors had been expecting 185.3 million paid users in Q1 2022, and 422 million monthly actives. So Spotify managed to do well in its last quarter, but investors are far from thrilled about its upcoming performance.

We’re seeing more tech companies come afoul of the investing public in recent weeks than I can recall for some time. More meta-analysis is needed, but it does appear that the change in the wind for tech companies is not just something happening to SaaS companies or recent IPOs. A lot of folks are taking stick.