Here's What History Says Will Happen Next

Meta Platforms (NASDAQ: META) has faced several challenges over the past 12 months. Investors aren’t convinced that the company’s significant capex spending will pay off, and although its financial results have been strong, they often weren’t quite impressive enough to assuage those fears. Further, during the company’s first quarter, it posted a sequential decline in daily active users across its website and apps. Meta’s stock is down 4% this year, and the company has dipped 21% since the all-time high it hit late last year, as of writing.

However, this isn’t the first time Meta’s shares have dropped significantly on perceived weakness. And the way the company has responded in the past can give us a clue about what might come next.

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Image source: The Motley Fool.

A clear trend emerges

Let’s take three cases with 20% or more declines. Between July 1 and Dec. 31, 2018, the stock fell by 32%. Meta Platforms (then called Facebook) faced several headwinds, including privacy concerns, a tarnished image, and unimpressive user growth. In fact, regulatory authorities investigated Meta’s privacy practices, especially its role in the Cambridge Analytica scandal.

Meta allowed a third party to collect personal data from millions of users without their explicit consent, which Cambridge Analytica then used for political advertising and voter targeting. Meta’s role in this debacle resulted in a $5 billion fine imposed by the U.S. Federal Trade Commission. These were clearly trying times for the tech leader, which is why its stock performance was terrible. Then, between mid-February 2020 and late March 2020, Meta’s shares dropped by 30%. Those were the early days of the pandemic when broader equities crashed. Meta Platforms did not escape the bloodbath.

Finally, between September 2021 and October 2022, the stock declined by 75%. Meta faced a more challenging advertising landscape due to Apple‘s iOS privacy changes, among other headwinds. How did Meta Platforms perform after those significant stock price declines? In each case, buying the company’s shares near the bottom — or even after a decline of about 20% — would have led to returns superior to those of the S&P 500 over the following few years. Take the company’s 2018 drop. Meta has crushed the market since.

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