Meta Stock Downgraded Ahead of Earnings; Advertising Pressures Just One Concern for Analyst

Meta Stock

Meta Stock (NASDAQ:META)

An analyst at BofA Securities cited concerns for Meta stock (NASDAQ:META) +0.09%  ‘ future on Monday amid advertising uncertainty and issues with Reels and the Metaverse.

BofA Securities analyst Justin Post downgraded Meta stock (NASDAQ:META) to Neutral from Buy on Monday, and cut his 12-month price target on the stock to $150 from $196. Post wrote in a research note that there was “added uncertainty on 2023” that makes him more cautious on the stock.

For one, Post has concerns over long-term advertising spending pressures. He expects that for the third quarter advertising spend will be in line with consensus. However, “while fourth quarter and 2023 expectations have been lowered, we expect advertiser budget cuts in early 2023 to weigh on sentiment and drive added uncertainty on post-IDFA changes and Reels transition,” he wrote.

IDFA, or the identifier for advertisers, allows advertisers to track users data so they can create customized advertising. However, Apple now allows users to opt out of being tracked, which has hit advertising businesses. 

Post is not the only analyst who shares these concerns. Atlantic Equities analyst James Cordwell cut his rating on the stock to Neutral from Overweight earlier this month on similar advertising uncertainties. 

Post also said he has become “incrementally more cautious on the content shift on Facebook/Instagram to Reels given declining content consumption on Snap SNAP +7.31% . ” Last week, Snapchat parent Snap said that it expects fourth-quarter revenue to be flat with a year earlier.

“With total Facebook/Instagram year-over-year time spent was stable to slightly down … in the third quarter, Reels usage ramp is not proving to be incremental, and time spent is likely down on more valuable social content, in our view. This platform shift adds longer-term gross margin and competitive uncertainty,” Post said.

Post is also unsure of the company’s dive into the Metaverse, and wrote that the “Metaverse investment will remain a stock overhang, and Street is less likely to back out Metaverse spend from earnings per share for valuation  purposes given lack of apparent progress with users, potential new Apple competition, and a higher cost of capital mindset.”

Meta stock, the parent of Facebook, WhatsApp and Instagram, were falling slightly Monday to $129.45, while the S&P 500 was gaining 0.3%, and the NasdaqCOMP +0.90%  was down 0.6%. The stock has fallen 61% this year.

Meta is scheduled to report third-quarter earnings on Wednesday after the stock markets close.

Featured Image-  Unsplash @ solomin_d

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About the author: Valerie Ablang is a freelance writer with a background in scientific research and an interest in stock market analysis. She previously worked as an article writer for various industrial niches. Aside from being a writer, she is also a professional chemist, wife, and mother to her son. She loves to spend her free time watching movies and learning creative design.