From the outside, it appears that investors have more to fear than to be encouraged by Meta stock (NASDAQ:META). However, according to recent Wall Street research, Meta stock (NASDAQ:META) is a compelling buy at its current price. Let’s look at what could propel Meta higher soon.
Meta Stock: Don’t let the metaverse distract you.
Investors may have been taken aback by Meta’s second-quarter results. In the second quarter, the company’s R&D expenses increased by 43% year on year, while sales and marketing expenses increased by 10%. Dan Wehner, Meta’s CFO, attributed the dramatic cost increase to heavy investments in Reality Labs, Meta’s gaming and virtual reality business. Reality Labs is the company that will realize its metaverse ambitions.
While its primary source of revenue slows and its expenses rise, Meta stock (NASDAQ:META) does not appear to be a good investment. However, some Wall Street analysts are releasing information that suggests Meta is still a compelling business in the long run.
What does Wall Street have to say?
The discussion about Meta’s short-form video products, dubbed Stories and Reels, was one of the most interesting (yet overlooked) aspects of the company’s Q2 earnings call. While competitor TikTok appears to dominate the short-form video market, particularly among the highly sought-after Generation Z demographic, many analysts questioned Meta’s leadership on the monetization of these content products.
According to the earnings transcript, engagement with Reels is increasing exponentially; as of Q2, Reels accounted for more than 20% of the time users spent on Facebook and Instagram. This is a good sign because it shows that Meta is adapting to changes in the advertising industry and coming up with new and creative ways to monetize its users. Mark Zuckerberg, CEO of Meta, stated: “[O]ur work on ad monetization efficiency for Reels is progressing quicker than we planned. We’ve now passed the $1 billion mark in annual revenue run rate for Reels ads, and Reels has a higher revenue run rate than Stories did at the same time after launch.”
Oppenheimer analyst Jason Helfstein recently stated that Apple is releasing an updated version of its ad software. Essentially, the company will restore several network features that it had previously removed.
It is secondary whether Josey’s estimates are accurate or not. If Reels engagement is not only increasing but increasing quickly, it is a very positive sign for Meta. Furthermore, given the upcoming iOS updates, Helfstein’s comments appear to support this thesis.
Keep an eye out for third-quarter earnings later this month.
Josey currently has a price target on Meta stock (NASDAQ:META) of $222, indicating a more than 60% upside from its current price. Although not as bullish, Helfstein still has a price target of $190, for an upside of over 40%.
While Meta had made it clear that it would invest billions into the metaverse, there are several reasons to believe that the company will be able to generate superior growth from advertising to fund these new initiatives.
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Author Okoro Chinedu 
