Meta, PayPal Blindside Bullish Analysts Who Saw Only More Growth

(Bloomberg) -- Big technology earnings have prompted some extreme share price moves this season, with Wall Street's expectations seemingly misaligned with company realities.

Take Meta Platforms Inc.: before today's 27% share price drop, which came after its revenue forecast for the first quarter missed estimates, analysts had been broadly bullish on the social-media giant. Among 62 Wall Street firms covering the Facebook owner, 52 had buy ratings, and analysts saw 18% upside to their average price targets, according to data tracked by Bloomberg.

The sell side's view on PayPal Holdings Inc. before it reported results was similarly bullish. The vast majority of analysts tracked by Bloomberg rated the payments company a buy before an earnings report which tanked the shares 25%. And for Netflix Inc., analysts had expected the streaming behemoth to add 6.26 million new users in the current quarter, a big mismatch with the 2.5 million in the company's guidance.

High expectations and a history of earnings beats may be partly to blame for the share-price routs, according to Mark Stoeckle, chief executive officer and senior portfolio manager at Adams Funds.

“The sell side treated stocks like Netflix and Meta like royalty,” Stoeckle said in emailed comments. Given the rising competition and the maturity of the stocks, they are at an important inflection point, he added. “It doesn't mean the world has passed them by, but it does mean they have headwinds that they have not seen in a very long time.”

Read: JPMorgan's Meta Analyst Cuts His Rating for First Time Since IPO

Meta's slump puts it on track to erase more than $200 billion from its market capitalization, which -- if it closes at that level -- would be the biggest one-day wipeout in market history.

For Saxo Bank's head of equity strategy, Peter Garnry, the misalignment between expectations and reality suggests that companies have “an apparently low visibility on their businesses driven by a lack of understanding of the post pandemic dynamics.”

At the same time, the moves “seem a bit excessive relative to the change in expectations, underscoring how sensitive and fragile the U.S. technology sector is right now,” Garnry wrote in emailed comments.

While Meta's plunge has taken the stock below almost every analyst target in Bloomberg's data, 49 Wall Street firms still recommend buying the shares.