META vs AAPL: What's Next?

Following earnings, Meta fell 20% while Apple's stock rose 7%, warranting a closer look at what separates the key tech stocks.
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Overpromise vs overdeliver

A quick overview shows that Meta's earnings underperformed, while Apple's were solidly in the black. Investors were already pessimistic ahead of Meta's earnings, but the miss by over 11% and nearly halving results were undoubtedly disquieting. Revenue fell marginally compared to the prior year, so a sudden drop in earnings was due to where the company was spending money.

By contrast, Apple's sales increased over 8% compared to the prior year, and earnings rose by almost 5%. In a generally pessimistic market, that came in as exceptionally good. Rumours ahead of the release that Apple would cut production helped support the notion that Apple was doing better than expected. On Meta's side, however, the CEO has been promising that the future of the Metaverse will be great. But profits from that haven't materialised. Costs to support the transition to virtual reality were more than anticipated, which made investors even more uncomfortable.

It's not all bad for Meta

Investors have good reason to be concerned about Meta's future, but there is another aspect of the comparison that shouldn't be overlooked. Apple had a negative cash flow of close to $3.9B, an almost seven-fold increase over the prior year. This can be particularly concerning in an
environment of increasing interest rates. Meanwhile, Meta's cash generation doubled to under $1.8B, despite losing $3.7B in its VR division, Reality Labs.

The companies are connected in other ways. One of the reasons for Facebook's drop in profitability was Apple's privacy policy changes. Each company is pursuing a different client base, however. Apple's clients are consumers, while Facebook's are primarily SMEs in North America, which drive the bulk of its advertising revenue. And the bottom line is that smaller businesses face a more challenging environment than upper-income consumers who generally go for Apple products.

AAPL vs META YTD performance

Meta set the tone early in 2022 as it slid three times more than Apple early in January. The bearish trend continued through the year, with the post-earnings 20% crash bringing the stock to a 73% loss year-to-date.

On the other hand, Apple fell 15% at most back in June and has been recovering since, printing a higher low in September. The social media giant was down 30% at the time and has remained under pressure. Q3 results have added a new dimension to the stock's performance, after
breaking below the bearish channel at the said low. The trend is accelerated, with no respite offered below the lower and upper channel trendlines.

If AAPL makes it past the -10.00% barrier near $165.00 in the short-term, it may add to upside bias and close the stock in neutral or slightly positive territories this year. Otherwise, it could slide towards -20%, bringing its share price closer to $145.00.

Key takeaways

Meta missed earnings by a wide margin partly due to rising costs from its transition to virtual reality, while Apple beat expectations in a pessimistic market. However, Meta's cash generation increased despite losing money in its VR division, while Apple had a negative cash flow. The
companies are connected because Apple's privacy policy changes affected Facebook's profitability. However, they have different client bases. Apple targets consumers, and Facebook targets SMEs, with the latter facing a more challenging environment.