Finance

Blue Whale’s Stephen Yiu on dumping Meta stock and why ‘it will get worse’

One of the UK’s best-known retail fund managers is breathing a sigh of relief after dumping shares in Meta and PayPal ahead of the brutal selloff that wiped billions off the stocks.

More than $250bn was knocked off the combined value of Facebook’s parent company and the payments provider after they released disappointing financials earlier this week.

Stephen Yiu, whose £1bn Blue Whale Growth fund invests just over half of its assets in technology companies, told Financial News he sold his stakes in the two companies just weeks before the 2 February announcements sent their share prices into free fall.

Meta and PayPal had been among top holdings in the fund at various points over the past four years. But the fund manager had been selling down positions over the past 12 months, having adopted a more cautious outlook.

“We were fortunate to have exited just before the results,” said Yiu, whose fund is backed by billionaire investor Peter Hargreaves.

Meta spooked investors after it announced that revenue growth for the first three months of 2022 could be as low as 3%.

READ Tech stocks could slump for a decade as Rob Arnott warns valuations are ‘very extended’

The social media giant cited “increased competition for people’s time” among the headwinds it faced, as well as the growing popularity of video sharing platforms such as TikTok.

Adding to its woes, Meta reported its first-ever drop in daily active users, dropping to 1.929 billion during the final three months of last year from 1.930 billion in the previous quarter.

Its chief financial officer David Wehner also warned that Meta could lose around $10bn in advertising revenue this year because of privacy changes to Apple’s operating system, which allows users to opt out of sharing their data — a valuable source of information that social media platforms rely on to attract advertisers.

The revelations caused Meta’s share price to tumble by some 23% in after-hours trading, erasing $200bn from its stock-market value.

“TikTok is not new, but it has gained a lot of traction – it’s ridiculous,” said Yiu, citing increased competition from rival platforms as one of the factors that is “killing the company” and prompting his decision to sell his stake last month.

The fund manager had been gradually offloading his holding in Meta last year on the back of concerns related to Apple’s iOS system.

“The problem for Facebook is they get a lot of data from the Apple iPhone,” said Yiu. “Once privacy settings change, Facebook will face a lot of headwinds. It’s not something that will disappear – it could get worse before it gets better.”

Yiu said he is also wary about the potential for the Metaverse — the company’s immersive virtual reality project.

READ Blue Whale’s Stephen Yiu says he dumped Amazon holding as ‘inflation narrative’ weighs on outlook

“We don’t know if they will be the ultimate winner,” said Yiu.

“The problem is they don’t control the operating system, which is controlled by Google and Apple. Unless they create a separate operating system, it might be difficult.”

Meanwhile, PayPal’s shares plunged almost 25% on 2 February after the company warned of weaker growth during its quarterly earnings. The announcement wiped more than $51bn from its stock market value.

Yiu said although PayPal had performed well initially following its spin-off from eBay in 2015, increased competition from other online payment services and wallets put a question mark over its growth prospects.

“They got a big boost from people signing up to their services during the pandemic, but it is going back to where it was trading before Covid,” said Yiu.

He also questioned its acquisition strategy after the company was forced to deny in October it was pursuing a merger with Pinterest.

“It’s questionable about how well they will do from here,” said Yiu.

Offloading PayPal and Meta stock comes after Yiu told FN last month that he had sold his fund’s entire stake in Amazon, having held the company in his fund since its inception.

Yiu said the decision was prompted by concerns over rising competition affecting Amazon’s retail business and the longer-term outlook for its successful cloud-based platform, Amazon Web Services.

To contact the author of this story with feedback or news, email David Ricketts

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