Shares have surged 140% from a seven-year low in November
Author of the article:
Bloomberg News
Subrat Patnaik
Published Apr 04, 2023 • Last updated 2 days ago • 3 minute read
Analysts have turned more bullish on Meta. Photo by Yves Herman/Reuters file A leaner Meta Platforms Inc. is impressing Wall Street, with analysts turning more bullish as cost cuts coupled with stabilizing advertising trends make the Facebook owner’s stock look more durable in a looming economic slowdown.
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Access articles from across Canada with one account Share your thoughts and join the conversation in the comments Enjoy additional articles per month Get email updates from your favourite authors The shares have surged 140 per cent from a seven-year low in November as Meta started cutting thousands of jobs in light of falling sales. The company announced further layoffs last month and pledged to be more efficient, adding kindling to the rally.
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More than two dozen brokerages have increased their price targets on the stock since the second round of job cuts was announced. Analysts also have pushed up Meta’s 2023 earnings per share estimate by 15 per cent over the past three months, according to data compiled by Bloomberg. Morgan Stanley’s Brian Nowak in March restored his buy-equivalent rating after sitting on the sidelines for less than five months.
While the ad business has slowed, it’s at least stabilized, bulls say. And in another positive sign for earnings, changes in Apple Inc.’s privacy policy that make it harder to target iPhone users with ads have now been in place long enough that they’re no longer affecting Meta’s year-over-year growth rate.
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Article content “The catalyst for Meta’s recent rally is likely traced to both extensive cost-cutting measures and adjusting to the negative effects of Apple’s privacy changes which significantly hurt ad revenue,” said Mike Akins, founding partner at ETF Action, the index provider of Amplify’s MVPS ETF. “To a large extent, Meta’s recent surge is simply recovering from being oversold.”
Because analyst earnings estimates are rising along with the stock price, Meta’s shares are still much cheaper than its big tech peers and the Nasdaq 100 Index. Trading at 17 times forward earnings, Meta is below its historical 10-year average of 26 times, according to Bloomberg data. In contrast, Amazon.com Inc. trades at 36 times, Microsoft Corp.’s price-earnings ratio is 28, Apple is at 26 and the tech-heavy gauge sells for 24 times.
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Article content Morgan Stanley’s Nowak called Meta the most durable megacap if consumer spending weakens, since the company’s cost reductions have been bolder than at peers such as Alphabet Inc.
Concern about inflation and a potential recession have squeezed ad budgets at businesses, crimping the primary revenue stream for companies like Meta, Google parent Alphabet and Snap Inc. But some analysts, such as Guggenheim’s Michael Morris, are also seeing more stability in overall advertising demand.
Still, some investors may be unwilling to pay up now for Meta after the blistering rally since November, especially because there may well be a recession in the offing. Even if Meta’s ad business holds up better than rivals’, if the downturn is steep enough, all media stocks will suffer.
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Article content Until the beginning of last year, Meta averaged revenue growth of 42 per cent over the decade since 2012, according to Bloomberg data. The company shocked investors by reporting its first ever sales decline last year. Now with trends stabilizing, its sales are set rise by 4.7 per cent this year, with growth more than doubling to about 11 per cent in 2024.
While that’s a much slower cadence than investors are used to, Meta under chief executive Mark Zuckerberg has managed to resume growing.
The metaverse is still the next big thing, Meta insists Meta cuts 10,000 jobs, 5,000 vacant positions Meta asks managers to get back to making things or leave “In many respects what Mark Zuckerberg has done in the last couple of months is: begin to look at running the company like a regular company as opposed to a tech company with top-line growth that can cover a lot of mistakes, because they really didn’t have that anymore,” aid Mark Stoeckle, chief executive officer of Adams Funds, which owns the stock.
Bloomberg.com