Proactive Investors - Analysts at UBS have raised their price target for Facebook (NASDAQ:META), Instagram and WhatsApp parent company Meta Platforms Inc (NASDAQ:FB) after the tech giant posted second quarter results that exceeded expectations.
The analysts raised their price target from $335 to $400 and maintained their ‘Buy’ rating, noting that “many drivers” supported this rating.
They upped their 2024 adjusted earnings per share (EPS) estimate from $16.75 to $19 and their bull case EPS from $19.07 to $20.21.
They now forecast advertising revenue growth of 16% excluding FX in the third quarter, up from 12% previously, 20% in 4Q, up from 14% previously, and 18% in 2024, up from 13% previously.
They wrote that this was supported by continued improvement in reels adoption and monetization, other new ad formats, solid engagement growth, and a healthier macro environment.
They also now expect expense growth of 13% in 2024 off normalized 2023 expenses, reflecting a return to hiring within a lean culture.
“The company somewhat de-risked the '24 outlook, talking up expense and capital expenditure (capex) growth directionally, removing one potential overhang ahead of next quarter,” they wrote in a note to clients.
“We see the September Meta Connect [event] as a likely positive catalyst with new generative artifical intelligence (GenAI) product announcements helping validate our optimism around new consumer product here as the next leg to the bull case.”
The bull and bear arguments for Meta
In the note, the analysts laid out the bull and bear cases for the stock.
They wrote that bulls would argue that Meta’s topline outlook was nicely ahead of expectations and management commentary around the improving macroenvironment, traction on reels, new advertising product, and new consumer product Threads leave room for growth to sustain at 20% levels when exiting 2023.
“The company already talked up '24 operational expenditure (opex) and capex, removing one potential reason to stay on the sidelines [and] we got slightly more disclosure around GenAI product in the pipeline and more visibility into the September conference as an incremental positive catalyst,” they wrote.
They added that Meta’s multiples still looked too low at less than 17 times the UBS base case and 16 times their bull case EPS estimate, which is well below peers and the broader indices being the Nasdaq and the S&P 500.
“We see bulls expecting 15%/21% revenue growth in '23/'24E, 40% operating margins, implying $20.21 of '24E EPS, which on a 22 times multiple equates to $450 per share, or 41% upside from current price,” they wrote.
On the other hand, they wrote that bears would say that Meta’s year of efficiency is over, with higher capex expected in 2024 compared to 2023 driven by investments across its data centres and servers, likely the start of a new capex cycle around GenAI and the Metaverse.
“[There will be a] higher cost base in '24 as a result of resumption in hiring, more expensive heads, and running a larger infrastructure footprint, with potential for the formal guidance next quarter to move costs higher [and] an uptick in investment around the Metaverse with deep skepticism around return on invested capital here,” they wrote.
On Threads, the analysts said bears would argue that the product was not fully fleshed out and there remains uncertainty around how scaling it will impact Meta’s broader ecosystem.
“We see bears expecting 12%/12% revenue growth in '23/'24E, 34% operating margins, implying $15.40 of '24E EPS, which on 16 times multiple equates to $250 per share or 22% downside from the current price,” the analysts wrote.
Meta shares had added 5.6% at US$315.36 on Thursday afternoon.