Meta down 34.7% YTD – To long or to short?

14 Feb 2022

Meta Platforms, previously known as Facebook, is down 34.7% YTD with the stock price at US$ 219.55 (11^th Feb 22 Close). The stock saw a sharp decline of 26.4% on the 3^rd of February when it released its quarterly earnings, marking the biggest single day US stock plunge and wiping out US$230 billion in market value.

**Source: Bloomberg Meta Platform (FB US), Daily charts**

What contributed to the selloff? Should investors be concerned?

Despite year-over-year revenue increasing 37% and net income increasing 35%, investors’ attention was mainly focused on current quarter’s (Q1’22) earnings guidance. In the earnings release, Meta CFO published an outlook for 2022 full year growth to be between 3% to 11%, lower than what analysts expected. In the report, Meta’s CFO mentioned increased competition, Apple’s IOS change and inflationary cost for advertisers as negative factors. The company’s monthly active users have also seemed to hit a plateau at about 2.9 billion users.

Some investors have contributed the decline of Meta mainly due to the new function known as App Tracking Transparency (ATT) launch in Apple’s latest IOS 14.5 release. The new ATT function allows consumer the ability to deny Applications from collecting data on their daily activities. What this means is that Applications such as Meta’s Facebook would no longer be able to track consumer’s activities and therefore will not be able to provide targeted marketing for advertisers. A report published by Counterpoint Research indicated that in Q421, Apple occupied 22% of the global smartphone market share followed by Samsung with 18% and Xiaomi with 12%.

A report published by Counterpoint Research indicated that in Q421, Apple occupied 22% of the global smartphone market share followed by Samsung with 18% and Xiaomi with 12%.

Apple’s 22% market share of global smartphone is sizeable and the impact of its ATT would be a great deal on applications which rely on advertising for revenue. As such, Meta’s Facebook would continue to face considerable headwind from new functions like these which could be why they are focusing more now on Web3.0 and the Metaverse.

Technical Outlook

Macroeconomic events from rising inflation to hawkish US Fed’s continues to pull down technological stocks like Meta. On the technical front, investors can look out for key support levels at US$223 (weekly charts). A strong break below could see Meta trade within the range of US$126 and US$223. Those were levels last traded from 2018 to 2019. Investors can also pay more attention to the 20EMA crossing of 50EMA on the weekly chart which could potentially mark as a death cross. As the RSI 14 looks oversold, we could potentially see the stock trade higher towards its resistance around the US$246 level before coming back lower.

**Source: Bloomberg Meta Platform (FB US), Weekly charts**

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A look at two ETF CFDs we offer:

1) Has the ARKK been sunk?

ARK Innovation ETF (ARKK) ARKK is an actively managed ETF by ARK Invest that invests in a range of companies based on their innovative and industry-disrupting potential. ARKK’s largest holdings are in companies such as Tesla, Square, and Zoom. ARKK is down around -33% from peaking on 12^th Feb and is currently in the red for the year to date as the market experiences a risk-off outflow of funds. Superstar fund manager Cathie Wood has however been consistently doubling down on her bets, buying even more shares in growth stocks that are going through their own tumultuous periods such as DraftKings, Peloton, Teladoc, and Tesla. In her view, ARKK is playing the long game, and remains steadfastly convinced in the long-term prospects of these growth stocks beyond this current bout of volatility. Similarly on outflows, investors are still betting big on ARKK as ARK Invest has only lost about $1.2B in assets this year across all its six funds, compared to seeing an inflow of $15.1B during the same period. Recently, investors have been nervously eyeing ARKK’s basket of tech stocks as their future earnings potential remain vulnerable to erosion through high inflation – the dominant concern of the market in recent weeks. As commodities – the major contributor to the recent heightened inflation fears – drops sharply from record highs, are investor concerns over hyperinflation overblown?

2) Searching for exposure to Asian equities?

iShares MSCI Asia ex Japan ETF (AAXJ) The AAXJ is currently trading -10.6% adrift of all-time highs seen in February, giving up gains in tandem with an Asia-wide equity sell-off at the time. Given that slightly over 40% of the ETF’s holdings are based in China, the ongoing tumult seen in Chinese equities currently have carried over nearly perfectly in the AAXJ, as Chinese investors take a breather after the stellar gains made over the past year. Looking ahead, Asia – and particularly China, is steaming ahead with its economic recovery. China is widely expected to be one of the best-performing major economies this year, providing a major boost to the outlook for corporate earnings. As the rest of Asia and the world gradually opens up their own economies, AAXJ is likely to again benefit from strong Asian outperformance amidst a strengthening trade outlook.

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Trade in both the bull and the bear markets
The ability to enter a long and/or short position allow traders to take advantage of both rising and falling markets.
Smaller barrier to entry
Flexible and smaller contract sizes. This means that traders will be able to enter into a contract with a modest amount of capital.
No expiration date or risk of delivery
Unlike futures which commonly have a fixed expiration date, CFD allows traders to perpetually hold the position(s). CFD is cash settled, no need to worry about the delivery of the underlying asset.

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