Facebook shares are likely to stay in the penalty box for some time in the wake of a lackluster fourth quarter and even worse 2022 outlook as Apple privacy changes and a surging TikTok take their collective toll on profits.
"Shares are probably dead money at this level of growth for at least the next three months," said top tech analyst Mark Mahaney of EvercoreISI on Yahoo Finance Live.
Meta shares were rocked to the tune of 25% on Thursday's session, and rightfully so most analysts said.
Facebook added just 2 million monthly active users in the quarter, barely moving the needle from the prior quarter. In the third quarter, the platform added 15 million monthly active users.
Daily active users fell by 1 million. The company missed analyst profit estimates by a whopping 14 cents.
Other red flags from the fourth quarter included:
Operating profit margins in the Family of Apps segment declined 600 basis points from the prior year.
Ad impressions dropped 6% year-over-year in North America.
Price per ad rose 6% year-over-year, slowing from 22% growth in the third quarter.
Despite the brutal market reaction Thursday, most analysts came out in defense of Facebook's stock. Price targets were slashed by the majority of major Wall Street shops, but Outperform ratings were left intact.
Mahaney is in that group of Facbeook bulls, reiterating an Outperform rating but cutting the price target to $350 from $430.
"Facebook is now trading within 1-2 price-to-earnings turns of its trough 2018 multiple (approx. 17 times), which we believe means there is limited downside from here. We believe the Q1 revenue growth deceleration guide (7-8 percentage points at the high end on a 12 percentage point tougher comp) suggests a stabilization in revenue trends. We believe the first three factors highlighted above are addressable — we have confidence that Facebook and the ad ecosystem will develop a suitable substitute for IDFA over time, that Facebook will succeed in its transition to Reels, just as it did with Stories, and that its macro challenges are temporary," Mahaney wrote in detailed note to clients he shared with Yahoo Finance.
The widely followed analyst believes Facebook could return to 20% revenue growth and 30% earnings growth by the end of 2022.