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Meta's Falling, but This Stock Really Got Kicked in the Teeth Thursday

Motley Fool - Thu Oct 26, 2023

Wall Street has been on the back foot lately, but initial fears that Thursday morning could bring another steep drop didn't immediately manifest themselves. Major market benchmarks were mixed in the opening minutes of the trading session, with strong economic data making some participants question whether a recession is still inevitable.

Some of the negative sentiment coming into Thursday morning was due to the latest earnings release from Meta Platforms (NASDAQ: META) late Wednesday afternoon. Yet the damage to the social media stock's share price was minimal compared to what investors in Align Technology (NASDAQ: ALGN) had to deal with, as the maker of Invisalign clear orthodontic devices suffered a huge setback. Here are all the details.

Meta keeps churning out profits

Shares of Meta Platforms fell 5% early Thursday. The move came despite ongoing efforts to prioritize profitability, which have shown up quite clearly in the company's third-quarter financial results.

Meta posted a 23% rise in revenue to $34.15 billion, while it cut costs by 7% to $20.4 billion. That resulted in a huge net income gain of 164% year over year, with Meta's profits of $11.58 billion working out to $4.39 per share. Key metrics stayed on the rise, with daily active people using Facebook and other Meta social media properties climbing 7% over the past 12 months to 3.14 billion. Despite a 6% drop in average prices per ad, Meta delivered 31% more ad impressions.

Yet as Meta's self-proclaimed "year of efficiency" comes to an end, some investors didn't seem to like projections for higher costs in 2024. Meta now believes that it will spend $94 billion to $99 billion next year, up from $87 billion to $89 billion in 2023. In particular, the social media giant pointed to larger losses for the Reality Labs virtual and augmented reality segment, which has raised eyebrows among investors for quite a while now.

On top of everything else, Meta is facing litigation in the U.S. alleging harm from its social media platforms. Even though the company has proven it can make money in large amounts, that won't necessarily keep Meta from having to go through the ups and downs of the broader economy -- particularly if economic pressures weigh on advertising spending.

Align plunges as orthodontic demand falls

Shares of Align Technology were down 21% early Thursday. The orthodontic device maker disappointed investors with its third-quarter financial results.

Align's growth slowed sharply in the third quarter. Net revenue of $960 million was up 8% year over year, but it was down 4% from where it was three months earlier. Similarly, although shipments of clear aligners were up by just under 14,000 to 602,335 in the third quarter, that was more than 20,000 fewer aligners shipped than in the spring months of 2023. Adjusted net income of $164 million was up a healthy 29% from year-ago levels, but investors still weren't pleased with adjusted earnings of $2.14 per share, which again was down from second-quarter figures.

Align CEO Joe Hogan pointed to a more difficult macroeconomic environment as justifying the slowdown, with dental practices reporting decreased patient visits and more appointment cancellations. Adults in particular are starting fewer courses of orthodontic treatment.

Align cut its full-year sales outlook by $140 million to a new range of $3.83 billion to $3.85 billion. That's not the direction anyone wants to see revenue moving, and it's unclear at this point whether the adverse trends will be temporary or last longer than hoped.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Align Technology and Meta Platforms. The Motley Fool has a disclosure policy.

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