Yahoo Finance Meta Needs a New Catalyst After Stock’s 77% Rally
(Bloomberg) -- After this year’s 75% rally in Meta Platforms Inc., analysts say the next catalyst may be some way off.
Most Read from Bloomberg
Fed’s Jerome Powell Tricked by Russian Pranksters Posing as Zelenskiy
Fugitive CEO Ordered to Pay $3.4 Billion in Record Fraud Case Involving Bitcoin
Strong Earnings Lift Stocks as Bank Concerns Loom: Markets Wrap
Fed Seeks Broad Changes to Bank Rules in Aftermath of SVB Failure
Big gains in the stock have been fueled by the company’s pledge to become a more efficient operation involving thousands of job cuts. Yet, cost-saving measures are likely mostly done for now, while Wednesday’s results are unlikely to show many signs of a sustainable rebound in digital advertising spending.
For the first quarter, revenue is expected to decline 0.9%, according to estimates compiled by Bloomberg. That will likely be followed by only a slow recovery, with single-digit growth being anticipated through year-end, paling alongside the company’s average growth of 42% over the decade since 2012.
Angelo Zino, senior equity analyst at CFRA Research, said he isn’t expecting a recovery in digital ads in 2023, while noting that most of Meta’s cost reductions “have largely been accounted for.” Still, reduced expectations “look attainable as long as advertising spend doesn’t fall off a cliff,” he said.
Meta’s advertising sales, which make up nearly all its revenue, have come under pressure after Apple Inc. tweaked its privacy policy to make it hard for social media platforms to target iPhone users. To further exacerbate the situation, concerns about high inflation, growing competition and a potential recession have squeezed ad budgets at many businesses.
The first indication of the ad industry’s health will be on display when Google owner Alphabet Inc. reports first-quarter results after markets close Tuesday. Snap Inc. is slated to deliver earnings on Thursday.
Even long-term Meta bulls like RBC Capital Markets’ Brad Erickson are cautious going into the results. The broker’s checks showed some unexpected deterioration in Meta’s return on ad spend after the firm made some changes to its platform in the second half of March, he said.
To be sure, even after this year’s rally, the stock hardly looks expensive. Trading at 16 times projected earnings, the Instagram parent is not only cheaper than tech megacaps like Apple Inc., Microsoft Corp., Alphabet and Amazon.com Inc., it’s also at a lower multiple than the S&P 500 and Nasdaq 100 indexes. And it’s a far-cry from its 10-year average of 26 times, according to data compiled by Bloomberg.
Bulls like Thomas Martin, senior portfolio manager at Globalt Investments, are optimistic that the digital ad market will rebound and help power more gains for the stock.
“The revenue growth rate does have a chance to re-accelerate from here,” said Martin, who owns the stock in all his strategies. “Where it goes from there is another question, but re-acceleration is a good sign.”
Tech Chart of the Day
With the biggest technology companies due to report earnings in coming days, options imply that the stocks will swing at least 4% in either direction after results — putting hundreds of billions of market capitalization at stake. Meta, which has seen its stock move an average of 7.9% after its past earnings updates, is expected to swing 10.2%, according to data compiled by Bloomberg. Microsoft and Alphabet are slated to kick off the big tech earnings season when they report after the market closes Tuesday.
Top Tech Stories
Apple Inc. notched another victory in its long-running court battle to block Epic Games Inc. from breaking down barriers in the App Store, but the iPhone maker’s moneymaking fortress remains under siege.
Fox News, in announcing Monday that it’s parted ways with Tucker Carlson, is losing a host who brought in millions of viewers but proved too much to handle even for corporate chiefs Rupert and Lachlan Murdoch.
Cisco Systems Inc. warned that artificial intelligence software such as OpenAI’s ChatGPT will make phishing attempts much harder to detect, requiring companies to adopt new defenses.
Two of the most highly compensated lawyers in the media industry — the legal chiefs for Netflix Inc. and Sirius XM Holdings Inc. — saw their pay rise last year as both companies battled to add subscribers.
The euphoria surrounding Alibaba Group Holding Ltd.’s spinoff plan appears to be all but over.
PDD Holdings Inc.’s Temu, one of the most downloaded apps in the US this year, is rolling out across major European markets as it seeks to rival Shein in the fast-fashion e-commerce space.
(Updates stock moves.)
Most Read from Bloomberg Businessweek
Good Luck Paying for Those $10,000 Obesity Drugs Everyone’s Talking About
At Charles Schwab, Being a Big Bank Has Become a Big Problem
Musk Bets the House of Tesla on Low Prices and Razor-Thin Margins
Biden Sparks a $2 Trillion Arms Race Over Chips, Green Subsidies
©2023 Bloomberg L.P.
