Jefferies’ Forecast That Reels Would Become a Revenue Tailwind by FY24 Sent Meta Stocks Soaring

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Meta Platforms (NASDAQ:META)

Jefferies downgraded their price target for Meta Platforms (NASDAQ:META) from $225 to $200 on Tuesday, citing the company’s belief that Reels would become a revenue tailwind by the Fiscal Year 2024 while maintaining their Buy rating for the Meta stock.

The company said Reels is now a minor contribution with a $1 billion yearly run rate. The Jefferies Group estimates that by FY24, it will have shifted from a drag on revenue to an aid.

“Despite challenging 2H comps in the n-t, Meta stock setup improves in 1H23 as comps soften and Reels’ monetization becomes meaningful. The stock’s all-time low value (12x FY23 EPS) may be a result of investors’ concerns about the macro effect on ad spending, “As stated in a letter to investors by Jefferies.

Despite this, the company admitted that its internal poll indicates that IG Reels’ engagement considerably falls behind TikTok. While TT’s lead is worrisome, Jefferies argues that Meta stock may use the time gap to its advantage by focusing on the exciting niche of short-form video.

“In our bottom-up model, we see a $1B headwind to IG ad rev in FY23 due to the transition to Reels, which will hurt core business operations. Nevertheless, we are confident that Reels may be a headwind to revenue in FY24 on the back of already impressive engagement (20% of total IG time spent) and monetization ($1B annual rev run-rate). Our most recent audits also show that prices for Reels are now equal to those for Stories and that ad loads are beginning to increase, “It was continued.

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In light of Jefferies’ forecast that Reels would emerge as a revenue tailwind by FY24, Meta stock jumped.

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