PayPal Holdings Inc. and Meta Platforms Inc. are both going through business transitions, prompting many investors to run for the hills.
Shares of PayPal PYPL, +1.43% and Facebook-parent Meta FB, -0.28% each just logged their biggest weekly declines on record after the onetime tech darlings delivered disappointing forecasts. Those weekly declines followed record single-day percentage drops for both stocks after earnings.
PayPal’s stock plunged 22.9% to edge out its previous weekly record drop of 21.3% established during the week that ended March 20, 2020, according to Dow Jones Market Data. Meta’s stock lost 21.4% on the week, beating out its prior record weekly decline of 17.6% sustained in the week ended July 27, 2012.
The stocks were the only two sizable movers in the S&P 500 SPX, +0.52% to register their worst weekly percentage drops this past week, per Dow Jones Market Data. Clorox Co. CLX, -14.47% shares fell 15%, their worst week since 2000.
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The reaction to Meta’s earnings “shows you that many investors have ZERO PATIENCE for turnaround stories with near-term uncertainty in this tape,” wrote Jordan Klein, a Mizuho desk-based analyst associated with the company’s sales team and not its research unit.
While he thinks the company will be fine in the long run, he worries that 2022 could be a “dead year.”
Executives from Meta outlined a number of business risks during the company’s Wednesday afternoon earnings call. The company is feeling pressure from Apple Inc.’s AAPL, -0.17% privacy changes, which make it easier for users to opt out of having their online activity tracked by third parties. Meta’s management estimates that these changes could have a $10 billion negative revenue impact this calendar year.
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Additionally, the company sees TikTok as a growing threat. Meta is trying to take a page from TikTok’s book and feature more short-form video content through its Reels platform, but the company doesn’t generate as much revenue when users watch Reels content as it does when they look at posts in their feeds or through Stories.
“As more activity shifts towards this medium, we are replacing some time in News Feeds and other higher monetizing services,” Chief Executive Mark Zuckerberg said on Meta’s earnings call.
Bernstein analyst Mark Shmulik noted that when companies have good news, they tend to spread it out, but when they have bad news, “it’s better to lay it all out at once and move on.”
And BMO Capital Markets analyst commented that by establishing TikTok as a major rival, Meta’s management “put a lot onto the public record tonight that pushes back against the antitrust narrative.” Of course, this sort of talk may have also served to make the investment community more nervous.
PayPal, too, is in the midst of a newly announced business transition that led to a surprising outlook late Tuesday. The company disclosed that it would be taking a new approach to user growth going forward, by focusing on “higher-value” accounts rather than less engaged ones that it has to incentivize to transact.
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Executives argued that the shift would bring financial benefits as PayPal won’t have to spend money providing incentives to lapsed users who don’t help boost revenue, and at least one analyst saw the logic in that new strategy.
Another saw various positives in the latest report, including improving engagement trends, which he thought was auspicious given that the company will now focus on getting better-engaged users to try its services even more often.
Still, others expressed shock that PayPal would give up on its medium-term outlook of 750 million active users by 2025, a target that the company offered a year ago and maintained on its prior earnings call three months back. And PayPal’s mention that inflation and supply constraints were pressuring spending seemed, to some, at odds with more bullish views of the spending landscape provided by Mastercard Inc. MA, -2.02% and Visa Inc. V, -1.36% days earlier.
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The big stock moves from Meta and PayPal created some jitters on Wall Street, especially once Meta competitors Snap Inc. SNAP, +58.82% and Pinterest Inc. PINS, +11.18% reported their own results. Snap followed a 24% stock plunge in Thursday’s session, which came on the heels of Meta’s results, with a 58.8% surge Friday, after the company suggested it was holding up better in the changing landscape.
That sort of rocky trading harks back to the dot-com era, Mizuho’s Klein wrote.