Facebook, Netflix, and PayPal, Whose Stocks Plummeted This Year, Shift from Leading Growth Stocks to Value Stocks

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Facebook, Netflix, and PayPal, once considered representative growth stocks, are now treated as value stocks after experiencing a sharp decline in their stock prices this year, the Wall Street Journal (WSJ) reported on the 23rd (local time).

According to the report, FTSE Russell, a provider of stock indices, will reconstitute its indices after the New York Stock Exchange closes on Friday the 24th. As a result, Meta Platforms, the parent company of Facebook, Netflix, and PayPal are expected to be included in the Russell 1000 Value Index. Meta, Netflix, and PayPal will remain in the existing Russell 1000 Growth Index, but their weights are expected to decrease significantly.

The Russell 1000 Value Index consists of stocks with relatively low price-to-book ratios (PBR) and weaker growth prospects. It is unusual for technology companies such as Meta, Netflix, and PayPal, which were included in the growth index expecting rapid growth, to be classified as value stocks.

This move is interpreted as reflecting market changes. This year, Meta’s stock price has plunged 53%, Netflix 70%, and PayPal 61%, leading them to be evaluated more as value stocks, which are bought at lower prices with the expectation of stock price appreciation, rather than growth stocks. In Meta’s case, the 12-month forward price-to-earnings ratio has fallen to 12.44 times, which is even lower than the S&P 500 index’s 15.82 times.

Following this index reconstitution, JP Morgan estimated that Meta’s weight in the Russell 1000 Growth Index will decrease from 2.3% to 0.5%, while it will hold a 1.7% weight in the Russell 1000 Value Index. JP Morgan also forecasted that there would be an adjustment movement worth $122 billion (approximately 159 trillion KRW) in the New York Stock Exchange on the 24th, just before the index reconstitution.

The WSJ reported that with this FTSE Russell index reconstitution, Tesla will become the fifth largest U.S. company in the Russell 1000 Index, replacing Meta. Additionally, Moderna, Zoom Video, and Pinterest are also expected to be included in the Russell 1000 Value Index. In the case of energy stocks, they will be upgraded from the small- and mid-cap focused Russell 2000 to the Russell 1000.

However, some investors have expressed doubts about FTSE Russell’s index reconstitution, which is mainly based on PBR. This is because the importance of intangible assets is increasing, and their value may be overlooked or misrepresented. Aaron Dunn, portfolio manager at U.S. investment management firm Eaton Vance, questioned, “Is Meta really a value stock now?” and added, “I’m not sure if Meta is cheap enough to be called an undervalued value stock.”

This content was produced with the assistance of AI translation services.