Credible Wall Street analysts and bloggers on Meta (FB) stock
Key Points
Meta Platforms shares sold off more than 21% this week. META shares are now down nearly 72% from their 52-week highs and they’ve drastically underperformed the broader market this year (META shares are down by 70.70% on a year-to-date basis while the S&P 500 is down by 18.7%.
META continues to invest heavily into its virtual reality platform; however, investors question whether or not these investments will ever pan out.
Meta Platforms missed analyst consensus estimates on both the top and bottom lines during Q3.
64% of recent articles published by credible authors were “Bullish”. 12 out of 15 credible Wall Street analysts believe shares are headed higher. The average price target being applied to Apple shares by credible analysts is $215.57 which implies upside potential of approximately 117% relative to META’s current share price of $99.20.
Performance
Event & Impact
Noteworthy News:
Nobias insights
Meta Platforms posted third quarter earnings this week, missing Wall Street consensus estimates, resulting in a 21.08% sell-off during the last 5 trading sessions. META shares are now down by 71.9% from their 52-week highs. This sell-off has largely come after a pivot by management - and notably, Meta’s founder and CEO, Mark Zuckerberg, who has a controlling interest in the company due to its dual class structure - which is now focused on allocating tens of billions of dollars per year towards virtual reality investments.
Prior to the company’s transition from Facebook to Meta Platforms, it had a market cap north of $1 trillion. Today, META’s market capitalization sits at just $263 billion. And now, after reporting net income growth of -52%, credible authors and analysts alike are trying to decipher whether or not META shares are a deep value…or a value trap.
META Nov 2022
Growth at a Good Price, a Nobias 4-star rated author, highlighted Meta’s Q3 performance and touched upon his bearish outlook for the company in an article that they published at Seeking Alpha this week. Regarding Meta’s shift towards the Metaverse, the author stated, “The Metaverse is hard to explain, but it’s basically a network of social communities with a VR gaming component. It’s centered around VR headsets and AR devices.”
They explained that high capital expenditures related to metaverse investments hurt the company’s profitability during the quarter, highlighting the company’s fundamental multiples:
Revenue: $27.7 billion, down 4%.
Net income: $4.39 billion, down 52%.
Operating income: $5.66 billion, down 46%.
Free cash flow: $178 million, down 98%.
Stock-based compensation: $3.1 billion.
Buybacks: $6.55 billion.
The author went on to say, “The company beat on revenue but delivered a wide miss on the bottom line. Sales came in at $27.7 billion, down 4% year-over-year, while earnings per share (“EPS”) came in at $1.65, down 49% year-over-year.”
Growth at a Good Price put a spotlight on a couple Meta Platform’s main challenges that it faced during Q3, writing, “The company took a hit from Apple’s (AAPL) privacy changes last year, which CFO David Wehner said would cost it $10 billion this year.” They continued, “To add insult to injury, Apple Inc. announced just a day before Meta's release came out that it would start taking a 30% cut of "boosted post" revenue, so we now have the foundation for yet another Apple-related revenue headwind in the near future.”
Ultimately, they stated, “Wehner’s prediction came true, as Meta delivered the weakest revenue growth in its entire history in the first three quarters of 2022.” And therefore, Growth at a Good Price concluded, “It's clear that in today's tech landscape, platform control counts, and Meta does not control the platforms that its apps run on.” This may be why Meta Platforms is investing so heavily into its metaverse operations.
Meta Platforms doesn’t have an ecosystem in the mobile device industry; however, as Growth at a Good Price points out, the company could create one with the metaverse. They said, “If the Metaverse takes off, then Meta will have its own hardware platform that it controls just like Apple and Google (GOOG, GOOGL) do.”
Even after the poor profit-related statistics that Meta produced during Q3, Growth at a Good Price said, “Meta’s stock is now cheaper than it has ever been.” They continued, “At today’s prices, it trades at just 11.3 times trailing earnings, 14 times forward earnings, and 6.3 times operating cash flow.”
Moving forward, the author believes, “The challenge for management is to get costs under control while bringing the new metaverse investments closer and closer to profitability.” “If the cost-cutting works out,” they said, “then it will help propel Meta stock higher, and if the Metaverse actually pays off, it will be a game-changer.”
But, the author believes that this is a speculative prospect which will take years to play out and therefore, they concluded their piece with this bearish announcement: “The bottom line about Meta Platforms is that it’s really two stocks in one: A stable but slow-growing ad-tech business, and a more speculative VR business. The former is under immense pressure due to Apple's policies, and the latter is an unprofitable long shot bet. As it stands today, with Reality Labs still 3-5 years away from profitability, Meta Platforms is extremely vulnerable to Apple's data privacy rules and app store fees. For this reason, I will be trimming my exposure by about 75% when the markets open tomorrow.”
The Value Portfolio, a Nobias 5-star rated author, also published a post-earnings article which cast doubt on Meta Platforms recent restructuring process. The Value Portfolio said, “Meta Platforms (NASDAQ:META) dove again after hours on abysmal earnings as the company, in our view, refuses to act as a business versus a tech hobby fund. The company completely rebranded just over a year ago, triggering a massive market decline as the company continues to invest $10s of billions in a business model with no proven profits.”They continued, “In the most recent quarter, Reality Labs cost the company roughly 40% of its overall operating income. Even in the prior stronger quarter that number was almost 30%. That's a substantial increase from 2020 when that number for the company was <15%.”
The author stated, “we don't believe [this plan] is valid is [sic] when the company is losing >$10 billion a year (and accelerating) in a market where even if the company succeeds in constructing its vision, there's potentially no end-user who's interested.”
However, The Value Portfolio made it clear that they like Meta Platform’s legacy social media assets. They stated, “WhatsApp, Instagram, and Facebook are all still incredibly strong players in their respective markets.” Looking at the quarterly user trends on the social media assets, The Value Portfolio wrote, “The company had some of its strongest user growth while maintaining the fixed 79% DAP / MAP [daily active users to monthly active user] ratio highlighting how users remain relatively active.” “Surprisingly,” they said, “despite the well-known nature of the company's assets, it continues to connect more people each day.”
With regard to the size and scale of META’s social media family, during META’s recent Q3 report the company said that 2.93 billion people used its family of apps on a daily basis. On a monthly basis, 3.71 billion people log into its family of apps.
Looking towards the future, The Value Portfolio said, “In our view, the future success of Meta platforms depends on whether Mark Zuckerberg, with his majority ownership share, can admit that he was wrong.” Looking at capital expenditures, the author stated, “The company also needs to diversify, with this operating loss including multiple different "other bets" rather than all-in on the idea of VR.”
The author concludes that the major risk moving forward with META shares is management’s ability to execute. They said, “Financially, the company has shown a unique ability to negatively impact profits and spend outside of its means, an ability that in our view makes the company a much riskier investment to have. Until the company can fix that, we expect it to continue to underperform.”
While it’s true that the two credible author reports that we’ve seen published since Meta’s earnings report expressed concern over the company’s current operational direction, the credible analyst community remains bullish on META shares after their recent sell-off.
Theflyofthewall.com highlights analyst updates and this week we saw a slew of Nobias 5-star rated analysts come out with “Buy” ratings on META shares. In each report, the credible analyst lowered their price target for META shares because of the company’s slowing growth; however, their price targets are still much lower than META’s current $99.20 share price, implying strong upside potential.
According to Theflyonethewall.com:
Bernstein analyst Mark Shmulik lowered the firm's price target on Meta Platforms to $135 from $195 to reflect lower management confidence, while keeping an Outperform rating on the shares following quarterly results
Credit Suisse analyst Stephen Ju lowered the firm's price target on Meta Platforms to $145 from $174 and keeps an Outperform rating on the shares following quarterly results.
BofA analyst Justin Post lowered the firm's price target on Meta Platforms to $136 from $150 and keeps a Neutral rating on the shares after the company outlined 2023 plans for $96B-$101B in expenses and $34B-$39B in capex, which were above respective Street estimates of $93B and $29B.
Truist analyst Youssef Squali lowered the firm's price target on Meta Platforms to $160 from $240 but keeps a Buy rating on the shares.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Squali’s note continued, “The company's Q3 results and Q4 guidance suggest that it is actually performing better than feared amid a challenging ad market, the analyst tells investors in a research note.” The Fly on the Wall note stated, “Squali adds however that the 2023 expense guide to to further build out Meta's AI capacity and tech infrastructure is a "bold strategy that carries execution risk", though he remains positive on the stock as a "compelling" long-term opportunity.”
Meta Platforms (NASDAQ:META) price target lowered to $165 from $200 by Goldman Sachs analyst Eric Sheridan. This maintains META as Buy.
Jefferies analyst Brent Thill lowered the firm's price target on Meta Platforms to $200 from $225 and keeps a Buy rating on the shares.
Each of these individuals are Nobias 5-star rated analysts.
Overall bias of Nobias Credible Analysts and Bloggers:
Overall, the average price target that is currently being applied to Meta Platforms shares by the Nobias credible analyst community is $215.47. Relative to the stock’s $90.79 share price, that represents upside potential of more than 120%.
Disclosure: Nicholas Ward is long META. Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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