Facebook and Instagram parent company Meta Platforms Inc META plummeted 24% on Thursday to its lowest price since 2016.
Investors weren’t impressed by Meta’s third-quarter earnings miss and weak fourth-quarter guidance — but Meta has been a home run trade for short sellers so far in 2022.
Disastrous Earnings: On Wednesday, Meta reported third-quarter revenue of $27.7 billion, down 4% from a year ago. The company’s profits tumbled 52% in the quarter to $4.4 billion.
The third quarter marked the second straight quarter of negative revenue growth for Meta, and the company’s weak fourth-quarter guidance suggests investors can expect more of the same in the coming months. Meta guided for fourth-quarter revenue of between $30 billion and $32.5 billion, while analysts were expecting $32.2 billion.
One of the biggest problems for Meta has been the company’s heavy investments into its Reality Labs metaverse unit, which has generated a $9.4-billion loss in 2022. Meta is also dealing with stiff competition from TikTok, a difficult online advertising market and challenges stemming from changes Apple, Inc. AAPL made to its privacy policies.
Following the third-quarter report, several Wall Street firms downgraded Meta, including Morgan Stanley, Cowen and KeyBanc.
Meta shares are now down a staggering 71% year-to-date, but Meta’s pain means big profits for short sellers.
Short Sellers Rejoice: ORTEX Analytics reported Thursday that Meta short sellers have generated more than $6 billion in profits year-to-date, including more than $750 million in profits on Thursday alone.
Thursday’s big sell-off puts Meta neck-and-neck with electric vehicle maker Tesla Inc TSLA, which is the most profitable stock for short sellers in the entire market in 2022. Tesla short sellers have generated roughly $6.1 billion in profits in 2022, according to ORTEX.
Benzinga’s Take: At this point, at least, Meta is no longer the growth stock is was just a few quarters ago. Yet unlike several of the other megacap tech stocks that have taken big hits this earnings season, Meta remains very profitable, and the stock is now trading at just 9.2 forward earnings.
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