Meta Stocks Rises as Rbc Warns About Reels

Meta Stock

Meta stock was at $136.21 as of 11:55 AM EDT.

RBC Capital Markets said Meta Platforms (NASDAQ:META) shares are “attractive on a risk-reward basis” despite concerns over its Reels video product.

Analyst Brad Erickson has an outperformed rating and a $190 price target on Meta Platforms (META) shares. He noted that Reels don’t monetize as well as other content on Facebook and Instagram. Any improvement in ad-targeting would outweigh Reels’s negatives.

“While Reels’ apparent building headwinds are concerning, we’ve remained positive on META as we leave the door open for near/medium-term ad targeting signal restoration, which would far outweigh the Reels headwinds and likely re-rate the stock with 23 buy-side EPS estimates now at/below $10/share,” Erickson wrote in a note to clients.

Meta Platforms (META) gained 1.5% in premarket trading.

Meta Platforms Inc Reduces Staff In Cost-Cutting Push

Meta Platforms (META) have also faced macro headwinds, increased metaverse investments with “insufficient explanation,” and environmental, social, and governance concerns. Reels are the main concern, though. Recent data shows a “marginally negative picture” for Reels and other short-form video platforms compared to the news feed and stories, Erickson said.

Instagram CEO Adam Mosseri recently revealed that Reels has “bigger shortcomings” than TikTok and YouTube Shorts. Third-party data shows “marginal declines” in user time spent, and disgruntled creators and brands on Facebook and Instagram grumble.

Meta stock outlook

Erickson estimates that every 100 basis point of user shift mix results in a 46 basis point headwind to revenue, but any improvement could wash away this “low-single-digit risk,” perhaps generating $1 billion in incremental revenue for every 100 to 150 basis point improvement in cost-per-action.

The analyst noted how recent ad agency checks wouldn’t show any positive changes, but improvements in signal targeting would “more than dwarf” the headwinds from Reels and “completely flip the share loss narrative” Meta (META) has faced, likely driving a “meaningful” re-rating of the stock. Meta Platforms (NASDAQ:META) is testing new ways for users to switch between Facebook and Instagram.

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