By Senad Karaahmetovic
Bank of America analysts downgraded Meta Platforms (NASDAQ:META) stock to Neutral from Buy with a price target of $150 per share (down from $196).
While recent checks from BofA on ad spending showed stability as far as Q3 is concerned, the analysts argue that the ad spending pressure is likely to increase from here, hence the META stock downgrade from Buy.
“We expect advertiser budget cuts in early 2023 to weigh on sentiment and drive added uncertainty on post-IDFA changes and Reels transition,” they said in a client note.
The analysts forecast a much bigger-than-anticipated slowdown for 2023. They expect Meta’s revenue to grow 4% y/y to $120 billion, slower than Street’s 9% or $127 billion.
They are also “incrementally more cautious on the content shift on Facebook/Instagram to Reels” after Snap’s (NYSE:SNAP) weak earnings and commentary.
“With total FB/IG y/y time spent was stable to slightly down per SensorTower in 3Q, 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. Also, while Reels ad revenue ramp will likely aid growth in 2023, the ramp could be offset by lower ad loads in newsfeed (assuming 2H’22 ad loads are up),” they added.
The analysts could see META stock outperforming if cost-cuts can drive 2023 FCF/EPS upside.