Shares of social media and metaverse company Meta Platforms Inc FB traded higher Wednesday after market close. The move came after the company reported first-quarter financial results. Here are the key takeaways from the earnings report from analysts.
The Meta Platforms Analysts: Morgan Stanley analyst Brian Nowak had an Overweight rating on Meta Platforms and lowered the price target from $330 to $325.
JMP Securities analyst Andrew Boone had a Market Outperform rating and a price target of $265.
Raymond James analyst Aaron Kessler had an Outperform rating and lowered the price target from $340 to $290.
Rosenblatt Securities analyst Barton Crockett had a Neutral rating and a price target of $212.
BMO Capital Markets analyst Daniel Salmon had a Market Perform rating and lowered the price target from $225 to $222.
Needham analyst Laura Martin had a Hold rating and no price target.
Earnings Takeaways: Revenue reported by Meta Platforms for the first quarter was in line with EBITDA upside, a plus for Raymond James' Kessler.
“FB reported adj. EBITDA of $13.2b vs. our/Street estimate of $12.7b/$12.9b representing a margin of 47.2%,” Kessler said.
Rosenblatt's Crockett pointed to the sharp fall Meta Platforms suffered already year-to-date in 2022. The in-line results and the market “assuming worse” led to a strong after-hours move in Meta Platforms shares.
BMO's Salmon said many questions remained for Meta Platforms on the headwinds it faced in privacy regulation. The analyst was upbeat on cost controls and daily active user growth.
“Helping FB is tightening costs owing to revenue headwinds, and DAUS returned to sequential growth,” Salmon said.
Needham's Martin was less thrilled by Meta Platforms’ spending and saw risks going forward.
“We worry that FB’s enormous spending to create the metaverse by 2030 implies that it believes it has existential risks,” Martin said.
Reels Growth: One of the main areas of focus for analysts from the first-quarter earnings report was Reels, a short-form video segment for the company to take on social media platform rivals such as TikTok.
“Reels engagement is indeed strong as Reels now makes up over 20% of time spent on Instagram. This share of time is higher than our estimated 11% of time spent,” Morgan Stanley's Nowak said.
The analyst remained bullish on Meta Platforms’ ability to monetize Reels over time.
JMP's Boone is also confident that Meta will be able to monetize Reels.
“We remain OW with the next catalyst being revenue re-acceleration and sustained evidence of FB’s ability to monetize Reels in 2H,” Boone said.
A move to monetize Reels could take longer than expected, Crockett said.
“Facebook’s execs argue that the shift to Reels and video is well underway, and comparable to past transitions — from Web to mobile in 2012, and from Feed to Stories in 2018. But in those periods Meta’s sales never slowed to the level they are hitting now,” Crockett said.
The analyst also pointed out TikTok was a larger rival than Meta had previously faced.
Taking on TikTok and YouTube, a unit of Alphabet Inc GOOGGOOGL was called impossible tasks by Martin.
“Reels does cannibalize time from FB’s other services. FB plans to differentiate Reels from TikTok by laying it on top of users’ social graph,” Martin said.
What’s Next: Nowak said second-quarter revenue guidance from the company was better than feared, despite multiple headwinds.
“$28bn-$30bn 2Q revenue guidance range was above our previous $28.4bn estimate,” Nowak said.
Boone pointed to Meta trading at its five-year lows on several multiples, creating a potential upside opportunity.
FB Price Action: Meta Platforms shares are up 17% to $205.54 on Thursday at publication.
Photo: Dima Solomin on Unsplash
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