As 2021 went on, I increasingly warned that multiple market bubbles might trigger a stock market crash. In particular, I cautioned that highly rated tech stocks were priced for perfection and could fall steeply. Sure enough, many tech stocks got hammered in late 2021 and early 2022 after failing to live up to investors’ expectations. Here are three popular stocks that got punished when their results failed to make the grade.
Tech stock #1: Meta/Facebook
The first of my tech stocks to get wrecked is Meta (NASDAQ:FB), the parent company of social-media giant Facebook. Meta also owns popular services Instagram, WhatsApp and Messenger. After the US market closed Wednesday night with Meta stock at $323, the company released its latest quarterly results. Oh boy, did Mr Market not like Meta’s message. At Thursday’s low, the stock had plunged to $235.74. This fall of $87.26 a share wiped more than a quarter (-27%) from Meta’s stock price, reducing its market value from $900bn to $659bn. This $241bn collapse might well be the worst one-day loss of company value in US history. On Thursday, Meta stock closed at $237.76, down 26.4%. But what caused the collapse? First, a quarterly fall in daily active Facebook users. Second, warnings of increased competition from fast-growing rivals such as video-based social network TikTok. Ouch.
Tech flop #2: Spotify
On Wednesday, audio-streaming service Spotify (NYSE: SPOT) also released disappointing quarterly numbers. Launched in 2008, Spotify has 406m users — including 180m Spotify Premium paid subscribers — across 184 markets. The world’s most popular streaming subscription service offers access to over 82 million tracks, including more than 3.6 million podcast titles. Alas, like Meta, Spotify warned that its subscriber growth would slow in the first quarter of 2022. Despite total revenue growing 24% year on year to almost $2.7bn in Q4/21, this tech stock also got smashed. Spotify shares closed at $191.92 on Wednesday and hit a 52-week low of $155.57 on Thursday. That’s a fall of almost a fifth (-18.9%), losing over $8bn of market value. On Thursday, SPOT closed at $159.76, down 16.8%. Again, this is another example of highly rated, high-profile tech stocks getting beaten down when growth slows or fails to match future expectations.
Tech wreck #3: Paypal
The third of my trashed tech stocks is Paypal (NASDAQ: PYPL), which also missed financial expectations on Tuesday. Again, after warning of weaker growth, Paypal’s stock took a pummelling. Three months ago, PayPal forecast 18% revenue growth in the 2022 financial year. That forecast has since been reduced to 15% to 17%. It now expects earnings per share of $2.97 to $3.15 in 2022, versus $3.52 in 2021. With the payments service apparently going ex-growth, its shares plunged on Wednesday. After closing at $175.80 on Tuesday, Paypal stock hit a low of $129.01 on Wednesday, before recovering to close at $132.57. That’s a crash of almost a quarter (-24.6%), wiping over $50bn from the group’s value. On Thursday, the stock opened lower still, bottoming out at $123.85 before closing at $124.30, down another 6.2%. Paypal also closed 4.5m accounts for abusing opening incentive payments, reducing its customer base to 426m.
Of course, each of these price slides could well be a blip after heroic performances from tech stocks since 2019. And all three companies have outstanding global brands. Who can say? Personally, I have already reduced my family portfolio’s exposure to highly rated US tech stocks. Instead, we’re buying cheap UK stocks on lowly ratings that pay high cash dividends!
Cliffdarcy has no position in any of the shares mentioned. 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. The Motley Fool UK has recommended PayPal Holdings and Spotify Technology. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.
