Meta has a huge generational problem. Their flagship products are Facebook and Instagram. Facebook is not used by gen Z at all. The writing is on the wall that FB will be a ghost town once millennials turn into ghosts. Instagram is maybe 10 years behind. So Meta is chasing TikTok without realizing that gen Z isn’t using that either and also without realizing what TikTok actually is. Also Meta is bizarrely chasing virtual reality stuff and failing so far to provide any kind of value prop.
The narrative over the last few years is that tech stock will grow to the sky. We were in an ebullient bubble phase. Psychology is a factor in market pricing. The narrative is shifting. Interest rates are going up, the economy is tightening, people may lose their jobs and investors are realising that companies in high valuations leave precious hostages to fortunes. People are beginning to realise that TSLA doesn't have a monopoly on the production of electric vehicles. Above-average profits bring in competitors, which of course reduces those supernormal profits due to market forces.
People go from "this baby's going to the moon" to "I don't want to be the last guy holding the bag."
They'll be plenty of experienced investors on HN who know exactly how all this goes down. But they'll also be a surprising percentage of HN readers who won't. Despite being highly intelligent, they'll fall for narratives (perhaps even more so than their lesser intelligent counterparts), and rationalise why absurd valuations are justified.
Falls tend not to be kind, either. It can take years to build up a head of steam, only for it to collapse in a few months. Crypto, anyone?
Rising prices tend to feed on themselves. The higher and longer a stock goes up, the more it seems like a "sure thing". But there's no such thing as a sure thing. The higher it goes, the more detached it becomes from reality. Reality wins in the end, though.
Tesla
1) $TSLA was overvalued based on unrealistic assumptions about competitors and Tesla's ability to stay on top.
2) $TSLA was sort of a meme-stock that has just run out of comedy runway.
3) $TSLA is now a meme-stock and ordinary investors don't generally want to hold meme-stocks.
4) Investors are genuinely concerned about the behavior of the Twitter CEO, who as we all know is the Tesla CEO. Is it really surprising that making bad decisions in one arena will affect outcomes in another?
I have no idea which if any of these are true, but they all seem somewhat plausible. Really, each of these plus more are probably contributory factors for different investors.
Meta
1) Social media as a profitable enterprise has not especially proven durable over the long term. Plenty of entrenched incumbents in all sorts of industries fail after decades or centuries even. Meta is running out of good ideas. (Again, just my guess.)
As interest rates rise, it becomes appealing to cash out of speculative investments and re-invest where returns are reliable and predictable.
If a HN contributor actually could explain market movements, i.e. really grokked the causal network underlying equity prices, then they would make millions exploiting the ignorance of everyone else, and probably not sharing their secrets with the rest of the world.
Tesla is massively overpriced for a stock that's not growing.
The stock market used to be saying that Tesla would continue growing at current rates for about 5 years.
The stock market is now saying that Tesla will grow at current rates for less than 2 years.
Obviously it can't continue growing at current rates indefinitely. So when will it stop? If you think it'll keep growing for more than 2 years, it's a buy. If you think it'll stop growing sooner, it's a sell.
Tesla has started lowering prices on its cars. People think that's a sign that their growth is slowing.
[1] https://www.investopedia.com/terms/t/timevalueofmoney.asp
It's no longer being priced as a miracle-maker, FSD, semis, scale, superchargers, powerwall. The government isn't buying it[2], Tesla isn't outfitting PG&E/ERCOT flaming infrastructure with batteries to prevent people from freezing to death. They're not really F+HON+XOM+Xylinx+X-Parc, and loud activists want them to just be F.
Now the real question: does "making a car" really still look like an appealing growth tactic for Tim Apple to deliver shareholder return?[3]
Knowing all this makes me want to gouge my eyes out, unfortunately.
They'll obviously pull through with their lowish debts, I think Musk is more aware of the gems in their mine than he lets on.
[0] https://news.ycombinator.com/item?id=33211504
[1] https://traffic.megaphone.fm/WSJ9258707464.mp3?updated=16416...
[2] https://oshkoshdefense.com/usps-selects-oshkosh-defense-for-...
[3] https://www.cnbc.com/2021/04/05/tim-cook-interview-apples-ca...
Tesla: general economic environment, stiffer competition and too many things piling up that will come “next year”, which will dry up one of their historical advantages (i.e. get paid now, deliver never). Probably some sell pressures from Musk cashing out for twitter and from a certain demographics of investors hit particularly this past year. On top of all that, Musk has been in the media too much and his true self started showing, alienating mostly potential customers and not making much inroads with the more conservative folks.
Meta: that just seems the nature of the space. Products are in and out within a few years, retaining mostly a certain demographic which grew up with them. They were able to stay relevant via good acquisitions, but were not able to do so for a couple of cycles now due to competition not interested in selling (Snapchat, TikTok). To accelerate the decline: general economic environment, privacy restrictions, and an expensive pivot to VR where the market seems way too small to support such valuations.
https://en.wikipedia.org/wiki/Beta_(finance)
Those stocks may have their own problems but they are all taking a hit from rising interest rates and other factors that have people running away from stocks as a whole.
When the FED is changing the interest rates up, that means the discount rates of market players go down. A safer alternative investment has become available. So economic production in the further future is worth less today than it was last year.
For which companies does that really matter? For companies where a large part of their value came from economic productivity that they were expected to have further in the future, and have relatively little of their value coming from present economic production. Tesla and Meta are two such companies, but it is a tendency in tech to believe companies will grow.
https://money.cnn.com/quote/forecast/forecast.html?symb=TSLA
I‘m not an expert, but probably down because Mr Musk has been selling quite a lot of stock this year and also again this month, apparently because of Twitter.
https://www.cnbc.com/2022/12/15/elon-musk-sells-another-huge...
That has now changed _dramatically_. Very few people now think of Musk as being a magical genius.
In the last 2 years, Meta touched twice its end-of-2019 price; Tesla peaked at over 13 times its end-of-2019 price, and is still 5 times higher now! That seems like a far more striking and unlikely phenomenon than the recent slide.
Keep in mind most investors are agents. They want to be able to tell their customers "look you're paying for a service I'm providing you". When rates are zero, customers are gonna think "hmm that Bob guy is giving me nothing, plus I'm paying him". So what does Bob do? Take some risk. A tiny amount of risk is actually enough that the customer is not net paying Bob, because fees aren't that high in relation to market moves. What does Bob do? Sticks his investors' money in stuff that has a good story: growth stocks. All the Bobs do this, and TSLA and META go up.
Now the story behind such firms is often the same under the hood: they're making some revenues now, but next year it will be more and the year after it will be a lot more, and maybe profits will rocket and it will be great if you got in early.
Which is fine when interest rates are zero, you're basically just backing a maybe-success that others are also backing. Those companies are often also earning money from other growth firms, so it feeds itself.
But when rates go to say 5%? Then in 5 years time, you could have just sat on your butt, not cared at all about what some CEO is writing on Twitter, and just collect a compounded dozens of percent. And it starts to bother you that the story could unwind the other way: those firms will lose money because their customers are in the same game, and the Bob guy certainly does not want to lose money, so he's going to be wise and sells a bit.
With Tesla, more people want to sell than buy for a multitude of reasons: cashing out on the 2020-2021 rally (20x), seeing it as over valued in 2022 or just seeing Elon not paying enough attention to Tesla.
With Meta, people are selling cause we’re in a recession and Ad spending goes down hard in recessions. Additionally, you have Mark burning money on the Metaverse which no one thinks is a good idea (he’s not selling anyone his vision on the metaverse but since he controls the company with more than 50% of the voting shares, he can do what ever he wants).
Long story short, investors have lost confidence in these stocks.
1 - smaller number of registrations in China than expected. Is it because covid is ravaging and there are less people buying cars? BYD not seeing this effect, so indicates softer demand for Tesla in China
2 - increased output finally matching the demand? either because China has more internal competition or because the Fed increasing rates makes cars less affordable in the US
3 - hodlers of TSLA (overlap with hodlers of crypto) and option traders are getting margin calls with the decreasing stock price (their collateral for the margin) and are forced to sell at the current price
4 - Elon Musk sold TSLA stock to have money to shore up is Twitter acquisition ("found" that Twitter had 3B yearly negative cash flow)
5 - higher interest rates in US cause Price/Earnings compression, no need to risk on the stock market when treasuries offer a nice, guaranteed payout
6 - US economy is in recession and with a high interest rate; market participants will short stocks, specially the ones with higher P/E; its a self-powering process until it ends
7 - Musk political views on twitter (or lack of independence) tarnished the halo of the Tesla brand and may reduce the overall addressable market of the brand, specially in the US. Tesla was always a Mass Stream Media magnet but now common folks and journalists are exposed to more "radical" views from Musk, eroding trust.
8 - Tesla price reductions and free charging miles in push to reach end-of-quarter numbers, because customers could be delaying purchases until next year to benefit from Inflation Reduction Act tax credits. This will lower profit margin on these sales and, therefore, total profit for the quarter (although Tesla is producing more cars, with scale effects on the margin and the supply chain prices are starting to decrease)
9 - too much noise regarding Musk attention to Twitter. Is he still taking enough time to drive the Tesla business ?
I had to sell the most my TSLA stock to prevent margin calls (greed selling puts at All Time Highs and thought the rising Tesla business would outdo the Fed tightening - was totally wrong).
Would not have sold any if not for this. Looking forward to shove some extra money again back into TSLA, as it becomes available.
Musk is a Tesla founder only retroactively.