As Meta Platforms Inc. META and Alphabet Inc. GOOGL GOOG prepare to release their third-quarter results, an analyst at KeyBanc Capital Markets took down his estimates — both current year and forward — as well as price targets for shares.
What Happened: Justin Patterson maintained his Overweight ratings for the shares of both Meta and Alphabet. He reduced the price target for Meta from $196 to $175 and that of Alphabet from $125 to $120.
4 Things KeyBanc’s Watching: Across both the earnings prints, the analyst said he would be watching macro and vertical health, TikTok rivalry, regulatory landscape and capital allocation and expense discipline.
On the regulatory front, Europe’s forthcoming passage of the “Digital Markets Act” suggests increased operating costs for these companies in 2023 and beyond, Patterson said.
Alphabet Faces Slowdown Across Core Products: Citing decelerations across Alphabet’s core products, Patterson reduced the third-quarter revenue and earnings per share estimates by 1% and 3%, respectively, to $57.2 billion and $1.15. The analyst expects a six-point deceleration for Search and flat revenue for YouTube year-over-year due to macro and forex headwinds. Patterson also lowered his 2023 and 2024 estimates, citing softer ad and enterprise IT market.
Forex To Hurt Meta: KeyBanc lowered Meta’s revenue estimate by 2% to $27.8 billion, reflecting ongoing forex headwinds. The firm also reduced its 2023 and 2024 estimates for the social media giant.
Meta Positioned Better Long-Term: Patterson said he sees more potential upside for Meta in the long-term, given subdued sentiment toward metaverse investments.
“While we anticipate flattish-to-LSD EPS growth at both companies, we believe progress with cost containment initiatives could reassure investors that 10%+ revenue growth and high-teens to 20%+ EPS growth is attainable in a 2024 recovery,” Patterson said.
Price Action: Meta closed Monday’s session down 0.22% at $129.72 and Alphabet ended at $102.52, up 1.37%, according to Benzinga Pro data.
Read Next: How To Invest In The Metaverse
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