Meta Platforms Inc (NASDAQ:META)
The stock of Facebook’s parent company, Meta Platforms, has soared so far in 2018, leading the market higher along with it. The math may be starting to turn against its meteoric rise, which is a terrible thing.
Is the Rebranding of Facebook to Meta Going to Change Anything?
Facebook revealed its major rebranding to Meta on October 28, 2021, along with a vision to create the metaverse, a new form of digital social interaction. The announcement came on the same day as the company’s annual shareholder meeting. The stock market has reacted in a variety of ways to this announcement, with some investors becoming more optimistic about the future of the company while others maintaining their level of skepticism.
The rebranding to Meta is not just a name change; rather, it is a strategic move that aims to position Facebook as a leader in the next generation of digital interaction. The goal of this move is to position Facebook as a leader in the next generation of digital interaction. The creation of a fully immersive digital world that allows users to interact with each other in real-time and is not constrained by physical space or time is at the core of the metaverse vision.
This strategic move has the potential to open up new revenue streams for the company, including advertising, e-commerce, and virtual real estate. These new revenue streams could be opened up as a result of the move. It also has the potential to increase user engagement and retention by creating a more compelling and immersive social experience, which in turn could lead to increased user engagement.
The share price of Meta (NASDAQ:META) has increased by 99% since the beginning of 2023, resulting in a gain of nearly 100% as of Tuesday’s close of trading. The shareholders of the company and investors in the market as a whole will be pleased to hear that piece of information.
According to a previous report by Barron, Meta is a member of a small group of stocks that are primarily large technology companies and which are responsible for the majority of the gains in the S&P 500 in 2023. According to data provided by Dow Jones Market Data as of Tuesday, the index and Meta have each seen an increase in their respective market capitalization of $2.295 trillion and $300.895 billion so far this year.
What exactly is the motivation behind Big Tech’s rally?
Others have pointed out how tech stocks are immune to the banking worries that have rocked the market this year, while others have argued that it is because investors picked up last year’s losers at a discount. Both of these theories have been put forward by market watchers. That doesn’t even take into account the fact that earnings were very strong, albeit in some cases against very low expectations.
Nicholas Colas, the co-founder of DataTrek, believes that Meta may be reaching the end of its useful life, regardless of the reasons for its run: Taking into account what the past teaches us about how stocks act after their valuations have been readjusted, it is highly probable that the rate of growth of share prices will eventually slow down at some point.
In a new note, Colas writes that “if a stock usually moves +/- 1 percent/day but experiences a brief burst of +3 percent/day volatility, we can rightly expect it to eventually return to 1 percent/day volatility once the reset is done.”
Since the beginning of 2018, up until Tuesday, Meta has generated an average return of 2.3% every 50 trading days, with a standard deviation of 19.6 percentage points. However, as Colas points out, during that time it increased by 38.4%, which is more than one standard deviation above the mean.
The rise in Meta’s price “tells us markets have been quick and decisive in resetting their valuations,” writes Colas. “It also tells us to be cautious in expecting similarly sized moves in the near future,” said the analyst. “It tells us to expect similar-sized moves.”
It has been brought to his attention that Nvidia and Microsoft, two other companies that won in 2023, demonstrate the same pattern.
When faced with the prospect of a recession, increased interest rate hikes from the Federal Reserve, and ongoing financial instability in regional banks, investors may be hesitant to diversify their holdings away from a relatively small number of winning stocks. And given how hot things have been getting, a little bit of a cool down could help ease concerns that Big Tech has gotten too far ahead of itself.
In spite of this, investors in the S&P 500 have to wonder whether any of the index’s other components can live up to the expectations placed on them because the stock market is so dependent on Meta’s gains. In the afternoon on Wednesday, the Meta was trading 0.2% lower, while the S&P gained 0.3%.
“Moves like Meta’s recent sprint,” which “are so statistically unusual that we should not expect them to continue,” writes Colas. “The typical forward returns are significantly less.”
Featured Image: Unsplash