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Meta stock rises on Morgan Stanley upgrade

Yahoo Finance Live anchors Julie Hyman and Brad Smith discuss Morgan Stanley’s Overweight rating on Meta stock.

Video transcript

JULIE HYMAN: We're a few minutes till the opening bell, so we've got some movers for you. One of them is right up there on your screen. It is Meta. The shares are up about 3%. That's after Morgan Stanley raised its rating on the social media giant, noting Meta's ongoing efforts to slash costs in its year of efficiency. And if that sounds familiar, well, it's because we were just talking about a similar theme at Amazon, because this is really the theme for large cap tech right now, Brad.

And this note is interesting, because obviously, we knew that this was going on. But it's a Morgan Stanley reassessment of this. The price target, by the way, going to $250. So it's a $60 increase for Brian Nowak over there at Morgan Stanley.

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BRAD SMITH: Yeah. For Meta and all of the spending that they have been extremely aggressive about within the metaverse, and how all of their different ambitions have started to dovetail even more so into what the hardware of the future of their platform might look like, too. I think if there is any positive to come at least early in this year, it is the efficiency that they're looking to drive right now. And that has gotten a positive review from the Street thus far.

And even more of a positive note being signaled here, especially off of some of the lows that we had seen of late last year. I think perhaps the bottom could be easily said in for Meta here, given the move that we've seen over the past six months. And now even looking out towards the future and what the efficiency structure may look like, but then also how they're going to prioritize for their investors, just making sure that profitability is the chief priority even as they navigate what is an uncertain-- to say the least-- 2023 here on the economic standpoint.

JULIE HYMAN: Indeed. And a couple of other interesting notes to pull out from Nowak's note. One of them is that it's not just a 2023 story for Meta. He thinks this is really a profound cultural shift at the company. And he had been long-- he had a buy rating in the company for a while, downgraded it to equal rate in October, and now this upgrade is coming. He says the year of efficiency is "more than just a 365-day change. It is rather a structural and cultural pivot to operate leaner and with a greater focus on investor returns, even through investments."

So that's quite interesting here, that he does think it's a bigger change. The other really interesting thing is here-- he thinks Reels is going to kill it.

[BRAD MAKES NOISE OF DISAGREEMENT]

He says Reels is going to generate $18 billion in revenue in 2024, which would be a more than doubling of its revenue this year. And then he's looking to this year for overall Meta revenue to fall by 1%, but then grow 5% next year. So that's-- no? You're not buying it? You don't think Reels revenue is going to make it?

BRAD SMITH: I don't know. I'm just making my Chrissy Teigen face at this point, because Reels-- for it to be as successful as they would hope that it woudl be, it would just ultimately need to be on the back of so many advertisers that continue to pile in and up their spending. And sure, for Meta and for Alphabet's Google, they have been the duopoly in digital advertising for years now.

However, that's starting to be more challenged, where you've got TikTok that is crushing it on the in-app purchases side there, and of course, Instagram-- a subsidiary of Meta platforms-- has been able to really grow out its own shopability. I'd say they got me. So--

JULIE HYMAN: What have you been buying on?

BRAD SMITH: I bought a sweater from East Side Golf. It was a great sweater, too. Solid quality. Great stuff, guys. But at the end of the day, at a time where so many advertisers and marketers are looking across where they're spending, where their dollars are going, and where it's most effective, Meta could continue to at least retain a lot of its market share, but it's in the face of even more competition right now.

JULIE HYMAN: For sure.